item 14 exhibits financial statement schedules reports form 8k documents filed part report financial statements financial statement schedules financial statements see item 8 schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto exhibit exhibits 20 agreement plan merger dated may 25 2001 among foster wheeler corporation foster wheeler llc foster wheeler ltd filed exhibit 20 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 31 memorandum association foster wheeler ltd filed annex ii foster wheeler ltds form s4a registration 33352468 filed march 9 2001 incorporated herein reference 32 byelaws foster wheeler ltd corrected filed exhibit 32 foster wheeler ltds quarterly report form 10q quarter ended september 28 2001 incorporated herein reference 40 foster wheeler ltd hereby agrees furnish copies instruments defining rights holders longterm debt foster wheeler ltd consolidated subsidiaries commission upon requests 41 rights agreement dated may 21 2001 foster wheeler ltd mellon investor services llc filed annex foster wheeler ltds current report form 8k file 33352468 dated may 25 2001 incorporated herein reference 42 amended restated first supplemental indenture dated august 10 2001 indenture dated november 5 1995 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc formerly known foster wheeler energy international inc foster wheeler energy corporation foster wheeler inc foster wheeler international holdings inc bny midwest trust company filed exhibit 42 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 43 indenture dated may 31 2001 among foster wheeler ltd foster wheeler llc bny midwest trust company filed exhibit 44 foster wheeler ltds form s3 registration 33364090 filed june 28 2001 incorporated herein reference 44 registration rights agreement dated may 31 2001 among foster wheeler ltd foster wheeler llc lehman brothers inc banc america securities llc first union securities inc filed exhibit 46 foster wheeler ltds form s3 registration 33364090 filed june 28 2001 incorporated herein reference 45 form specimen share certificate foster wheeler ltds common shares filed annex ii foster wheeler ltds current report form 8k file 33352468 filed may 25 2001 incorporated herein reference 46 first supplemental indenture dated february 20 2002 foster wheeler ltd bny midwest trust company regarding 650 convertible subordinated notes due 2007 101 second amended restated revolving credit agreement dated may 25 2001 among foster wheeler llc borrowing subsidiaries signatory thereto guarantors signatory thereto lenders signatories thereto bank america na administrative agent first union national bank syndication agent abn amro bank nv documentation agent banc america securities llc lead arranger book manager first union capital markets abn amro bank nv greenwich natwest structured finance inc toronto dominion bank arrangers filed exhibit 101 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 102 subordination agreement dated may 25 2001 among foster wheeler llc foster wheeler ltd bank america na filed exhibit 102 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 103 pledge agreement dated may 25 2001 undersigned pledgors favor bank america national trust savings association filed exhibit 103 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 104 retirement consulting agreement richard j swift dated april 2 2001 filed exhibit 101 foster wheeler corporations current report form 8k file 00100286 dated april 5 2001 incorporated herein reference 105 form change control agreement dated may 25 2001 entered company following executive officers h e bartoli l f gardner r iseman r obrien g renaud j e schessler filed exhibit 105 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 106 foster wheeler inc directors stock option plan filed exhibit 991 foster wheeler ltds post effective amendment form s8 registration 33325945 dated june 27 2001 incorporated herein reference 107 1995 stock option plan foster wheeler inc filed exhibit 991 foster wheeler ltds post effective amendment form s8 registration 00359739 dated june 27 2001 incorporated herein reference 108 1984 stock option plan foster wheeler inc filed exhibit 991 foster wheeler ltds post effective amendment form s8 registration 00291384 dated june 27 2001 incorporated herein reference 109 master guarantee agreement dated may 25 2001 among foster wheeler llc foster wheeler international holdings inc foster wheeler ltd filed exhibit 109 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 1010 form transitional executive severance agreement dated may 29 2001 entered following officers bartoli lf gardner rd iseman r obrien ga renaud je schessler filed exhibit 1010 foster wheeler ltds quarterly report form 10q quarter ended june 29 2001 incorporated herein reference 1011 employment agreement raymond j milchovich dated october 22 2001 filed exhibit 101 foster wheeler ltds quarterly report form 10q quarter ended september 28 2001 incorporated herein reference 1012 first amendment receivables purchase agreement dated september 25 2001 among foster wheeler funding corporation foster wheeler capital finance corporation market street funding corporation pnc bank national association filed exhibit 102 foster wheeler ltds quarterly report form 10q quarter ended september 28 2001 incorporated herein reference 1013 stock option agreement raymond j milchovich dated october 22 2001 1014 amendment 1 waiver dated january 28 2002 relating second amended restated revolving credit agreement dated may 25 2001 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc foster wheeler energy corporation guarantors lenders signatory thereto bank america na administrative agent first union national bank syndication agent abn amro bank nv documentation agent arranged banc america securities llc lead arranger book manager abn amro bank nv first union capital markets greenwich natwest structured finance inc toronto dominion bank arrangers lenders 1015 waiver amendment master lease dated january 28 2002 among perryville iii trust created laws state new york pursuant trust agreement dated december 16 1994 ii bny midwest trust company iii foster wheeler realty services inc iv foster wheeler llc v natwest leasing corporation vi national westminster bank plc vii banks listed schedule certain construction loan agreement dated december 16 1994 among landlord borrower lenders party thereto permitted successors assigns agent 1016 forbearance agreement dated february 28 2002 among perryville iii trust created laws state new york pursuant trust agreement dated december 16 1994 ii bny midwest trust company iii foster wheeler realty services inc iv foster wheeler llc v lombard us equipment finance corporation vi national westminster bank plc vii banks listed schedule certain construction loan agreement dated december 16 1994 among landlord borrower lenders party thereto permitted successors assigns agent 1017 amendment dated april 12 2002 amendment 1 waiver dated january 28 2002 relating second amended restated revolving credit agreement dated may 25 2001 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc formerly known foster wheeler energy international inc foster wheeler energy corporation guarantors signatory thereto lenders 1018 waiver letter dated april 12 2002 receivables purchase agreement dated september 25 1998 among foster wheeler funding corporation seller foster wheeler capital finance corporation service market street funding corporation issuer pnc bank national association administrator 1019 forbearance extension agreement dated april 12 2002 among perryville iii trust created laws state new york pursuant trust agreement dated december 16 1994 ii bny midwest trust company iii foster wheeler realty services inc iv foster wheeer llc v lombard us equipment finance corporation vi national westminster bank plc vii banks listed schedule certain construction loan agreement dated december 16 1994 among landlord borrower lenders party thereto permitted successors assigns agent 120 statement computation consolidated ratio earnings fixed charges preferred shares dividend requirements 210 subsidiaries registrant 230 consent independent accountants b reports form 8k report date description december 6 2001 foster wheeler ltd announced sold powergeneration plant mt carmel pennsylvania taking charge approximately 22 million fourth quarter result transaction january 10 2002 foster wheeler ltd announced sold powergeneration plant mt carmel pennsylvania taking charge approximately 22 million fourth quarter result transaction addition company considering possibility taking certain restructuring contract charges quantified january 14 2002 foster wheeler ltd announced exercise right defer january 15 2002 payment fw preferred capital trust 9 preferred securities january 29 2002 foster wheeler ltd announced 2001 yearend results comprehensive performance improvement plan march 8 2002 foster wheeler ltd announced obtained extension 50 million receivables sale arrangement april 12 2002 taking steps find replacement facility addition company also received forbearance exercise remedies february 28 2002 april 15 2002 required lenders 33 million lease financing facility matured february 28 2002 april 2 2002 foster wheeler ltd announced san francisco california jury returned verdict finding foster wheeler liable case todak vs foster wheeler corporation et al april 3 2002 foster wheeler ltd announced exercise right defer april 15 2002 interest payment fw preferred capital trust 9 preferred securities april 3 2002 foster wheeler ltd announced united states district court northern district texas entered amended final judgment matter koch engineering company inc et al vs glitsch inc et al april 11 2002 foster wheeler ltd filed description common shares purposes complying amendments rules governing form s8 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrants statements form s8 registration 00359739 filed june 28 2001 registration 00291384 filed june 28 2001 registration 00291384 filed june 28 2001 insofar indemnification liabilities arising securities act 1933 may permitted directors officers controlling persons registrant pursuant foregoing provisions otherwise registrant advised opinion securities exchange commission indemnification public policy expressed securities act 1933 therefore unenforceable event claim indemnification liabilities payment registrant expenses incurred paid director officer controlling person registrant successful defense action suit proceeding asserted director officer controlling person connection securities registered registrant unless opinion counsel matter settled controlling precedent submit court appropriate jurisdiction question whether indemnification public policy expressed act governed final adjudication issue signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ltd registrant dated april 12 2002 lisa fries gardner lisa fries gardner vice president secretary pursuant requirements securities exchange act 1934 report signed april 12 2002 following persons behalf registrant capacities indicated raymond j milchovich e james ferland raymond j milchovich e james ferland director chairman president director chief executive officer principal executive officer gilles renaud martha clark goss gilles renaud martha clark goss senior vice president director chief financial officer principal financial officer thomas j mazza victor hebert thomas j mazza victor hebert vice president controller director principal accounting officer eugene atkinson constance j horner eugene atkinson constance j horner director louis e azzato joseph j melone louis e azzato joseph j melone director john p clancey james e schessler john p clancey james e schessler director david j farris john e stuart david j farris john e stuart director directoritem 14 principal accounting fees services incorporated reference 2006 proxy statement annual general meeting shareholders held may 9 2006 part iv item 15item 14 principal accounting fees services item 14 incorporates information reference 2007 proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close fiscal year 2006 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close fiscal year ended december 26 2008 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close fiscal year ended december 31 2009 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close year ended december 31 2012 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close year ended december 31 2013 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close fiscal year ended december 31 2010 part iv item 15item 14 controls procedures immediately following signature page report certification required section 302 sarbanesoxley act 2002 section report contains information concerning controls evaluation referred section 302 certifications information contained herein read conjunction certification internal controls designed objective ensuring assets safeguarded transactions authorized financial reports prepared timely basis accordance generally accepted accounting principles united states disclosure controls procedures designed comply regulations established securities exchange commission new york stock exchange internal controls matter designed limitations company’s intent internal controls conceived provide adequate absolute assurance objectives controls met consistent basis management plans continue review internal controls disclosure procedures ongoing basis company’s principal executive officer principal financial officer supervising participating evaluation effectiveness company’s internal disclosure controls procedures date within 90 days filing report “evaluation date” concluded evaluation date company’s internal disclosure controls procedures effective significant changes company’s internal controls factors could significantly affect internal controls subsequent date evaluation including corrective actions regard significant deficiencies material weaknesses part iv item 15item 14 principal accountant fees services following table presents fees professional audit services rendered pricewaterhousecoopers llp audit company’s annual financial statements years ended december 26 2003 december 27 2002 fees billed services rendered pricewaterhousecoopers llp periods certain amounts 2002 reclassified conform 2003 presentation audit fees1 3700000 6100000 auditrelated fees2 175000 300000 tax fees3 1300000 1600000 fees total 5175000 8000000 1 audit fees consisted audit company’s consolidated financial statements well work generally independent auditor reasonably expected provide statutory audits regulatory filings 2 audit related fees consisted principally audits employee benefit plans 3 tax fees consisted principally assistance tax compliance reporting policy audit committee preapproval audit permissible nonaudit services performed independent auditors consistent sec policies regarding auditor independence audit committee responsibility appointing setting compensation overseeing work independent auditor recognition responsibility audit committee established policy preapprove audit permissible nonaudit services provided independent auditor policy provides annual budget audit nonaudit services approved audit committee advance audit committee provided quarterly reporting actual spending policy also provides auditor engagements nonaudit services may entered without express approval company’s chief financial officer audit committee chairmanwith subsequent ratification audit committee next scheduled meeting part iv item 15item 14 principal accounting fees services incorporated reference foster wheeler ltd’s 2005 proxy statement annual meeting shareholders held may 10 2005 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close fiscal year ended december 28 2007 part iv item 15item 14 principal accountant fees services item 14 incorporates information reference definitive proxy statement annual general meeting shareholders expected filed securities exchange commission within 120 days close year ended december 31 2011 part iv item 15 item 7 managements discussion analysis financial condition results operations thousands dollars except per share amounts managements discussion analysis financial condition results operations sections annual report contain forwardlooking statements based managements assumptions expectations projections various industries within company operates forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited following could cause business conditions results differ materially contained forwardlooking statements changes rate economic growth united states major international economies changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries changes regulatory environment changes project schedules changes trade monetary fiscal policies worldwide currency fluctuations terrorist attacks facilities either owned equipment services may provided outcomes pending future litigation including litigation regarding companys liability damages insurance coverage asbestos exposure protection validity patents intellectual property rights increasing competition foreign domestic companies monetization certain facilities recoverability claims customers additional information see item 1 business risk factors business following discussion read conjunction consolidated financial statements notes thereto three years ended december 28 2001 results operations consolidated data 2001 2000 1999 unfilled orders 6004400 6142300 6050500 new orders 4109300 4480000 3623200 revenues 3392500 3969400 3944100 net lossearnings 309100 39500 143600 lossearnings per share basic diluted 756 97 353 fourth quarter 2001 company took aftertax contract restructuring charges 131400 established valuation allowance deferred tax assets 171900 total aftertax charge 303300 shown table details pretax aftertax impact various components charge pretax tax contract related hrsgs 84400 54800 warranty rework b 11100 7200 accounts receivabletrade c 28100 18300 claims reassessment 37000 24100 160600 104400 restructuring companyowned life insurance plan termination e 20000 13000 restructuring e 21600 14000 increase valuation allowance deferred tax assets f 171900 total 202200 303300 approximately 54800 aftertax relates heat recovery steam generators hrsgs 2000 early 2001 company extremely successful marketing products however determined company underestimated cost seven contracts cost underestimates primarily related construction subcontracted fabrication corrective action taken projects resulting 54800 aftertax charge product line part energy equipment group b warranty rework issues one project resulted aftertax cost 7200 ec group cost related technical production issue refinery unit c fourth quarter company made aggressive commitment either collect cash due establish reserves past due receivables company successful collecting trade receivables contributed improved cash position fourth quarter based variety factors including clients ability pay decision made establish aftertax reserves 18300 approximately 20 receivable balances largest indonesian customer amount 4000 approximately 24100 aftertax contractrelated charges resulted claims reassessment conducted companys legal staff conjunction outside counsel claims brought company customers many process submitted litigation arbitration e company also recorded aftertax restructuring charge 27000 included 14000 workforce reductions united states subsidiary closures finalized early 2002 company also canceled companyowned life insurance plan coli certain managers resulting 13000 aftertax charge earnings f company established valuation allowance 171900 primarily domestic deferred tax assets provisions statement financial accounting standards 109 accounting income taxes sfas 109 action required evidence losses domestic operations three recent fiscal years result fourth quarter charge company average experienced losses past three years statutory purposes majority tax benefits valuation allowance provided current year begin expire 2020 beyond based current tax laws aggregate future cash impact charges tax reserve slightly positive primarily due proceeds received 2002 cancellation companyowned life insurance plan subsequent yearend prior issuance financial statements company performed review north american energy equipment group projects primarily hrsg contracts time determined incremental losses required taken fiscal 2001 result changes estimated final costs projects company recorded incremental charge 46000 primarily related construction activities charge included amounts discussed companys continuing business strategy maintain focus core business segments engineering construction energy equipment order remain competitive segments improving margins 1999 2000 company reduced costs staff reduction closure smaller operating facilities changes included reduction approximately 1600 permanent positions including 500 overhead support positions worldwide workforce addition approximately 800 agency personnel within ec group eliminated course fiscal 1999 positions eliminated included engineering clerical support staff manufacturing personnel connection cost realignment plan company recorded charges third quarter 1999 approximately 37600 27600 aftertax pretax charge group follows 19600 engineering construction group 2500 energy equipment group 15500 corporate financial services approximately 22600 represented employee severance costs related benefits balance represented asset writedowns provisions closing offices plan completed prior end first quarter 2000 additional charges recorded october 21 1999 company announced reached agreement robbins agreement holders approximately 80 principal amount bonds issued connection financing robbins facility robbins agreement 320000 aggregate principal amount existing bonds exchanged 273000 aggregate principal amount new bonds february 3 2000 113000 companysupported robbins bonds funded payments company balance nonrecourse robbins bonds nonrecourse company addition pursuant robbins agreement company exited operating role respect robbins facility specific elements robbins agreement follows new companysupported robbins bonds consist 95000 aggregate principal amount 725 amortizing term bonds 17800 mature october 15 2009 77200 mature october 15 2024 see note 11 financial statements sinking fund requirements 1999c bonds b 18000 aggregate principal amount 7 accretion bonds maturing october 15 2009 interest paid maturity 1999d bonds company agreed operate robbins facility benefit bondholders earlier sale robbins facility october 15 2001 fullcost reimbursable basis operational performance guarantees remaining obligations company 55000 additional credit support facility respect existing bonds terminated company would continue prosecute certain pending litigation retail rate litigation various officials state illinois see note 18 financial statements litigation uncertainties company would cooperate bondholders seeking new owneroperator robbins facility december 1 1999 three special purpose subsidiaries company commenced reorganization proceedings chapter 11 bankruptcy code order effectuate terms robbins agreement january 21 2000 subsidiaries plan reorganization confirmed plan consummated february 3 2000 august 8 2000 company initiated final phase exit robbins facility part robbins agreement company agreed operate robbins facility subject reimbursed costs operation reimbursement occur therefore pursuant terms robbins agreement company october 10 2000 completed final phase exit project company administering project companies delaware business trust owns project behalf bondholders result exit project company longer administering project companies 2002 subsidiary company reached agreement debtor project companies requisite holders bonds agreement expected favorably resolve issues related exit project fourth quarter 1999 company recorded pretax charge approximately 214000 charge fully recognized existing obligations company related robbins facility including pretax lease expense 45600 b 20400 outstanding bonds issued conjunction equity financing robbins facility c transaction expenses 4500 liability companysupported bonds recorded net present value 133400 113000 subordinated obligations 20400 senior company obligations company considered primary obligor bonds ongoing legal expenses relating retail rate litigation see note 18 financial statements litigation uncertainties expensed incurred companys consolidated unfilled orders end fiscal 2001 6004400 decrease 137900 amount reported end fiscal 2000 6142300 turn represented increase 91800 unfilled orders end fiscal 1999 6050500 dollar amount unfilled orders necessarily indicative future earnings company related performance work although unfilled orders represent business considered firm assurance cancellations scope adjustments occur due additional factors outside companys control changes project schedules company cannot predict certainty portion unfilled orders may performed unfilled orders adjusted reflect project cancellations deferrals revised project scopes costs net reduction unfilled orders project adjustments cancellations fiscal 2001 781900 compared 279900 fiscal 2000 880100 fiscal 1999 large size uncertain timing projects create variability companys contract awards therefore future award trends difficult predict new orders awarded fiscal 2001 4109300 8 lower new orders awarded fiscal 2000 4480000 turn 24 higher new orders awarded fiscal 1999 3623200 total 55 new orders fiscal 2001 projects awarded companys subsidiaries located outside united states compared 63 fiscal 2000 55 fiscal 1999 key geographic regions outside united states contributing new orders awarded fiscal 2001 europe asia middle east operating revenues 3315300 fiscal 2001 represent decrease 576100 148 compared 2000 revenues 3891400 approximately 1999 decrease 2001 related primarily decrease flowthrough costs shift united kingdom towards reimbursable serviceonly contracts gross earnings operations equal operating revenues minus cost operating revenues gross earnings decreased 174900 536 fiscal 2001 compared fiscal 2000 151300 326200 increase approximately 95 fiscal 1999 gross earnings 2001 reduced 160600 due fourth quarter charge earnings previously discussed gross earnings 1999 reduced robbins operating loss 23500 cost realignment 17500 selling general administrative expenses increased 3100 14 fiscal 2001 compared fiscal 2000 222500 219400 turn represented decrease 16200 expenses reported fiscal 1999 235600 3100 increase 2001 includes severance costs approximately 2000 included fourth quarter charge decrease 2000 primarily due cost reduction plan implemented 1999 well lower proposal costs engineering construction group energy equipment group income fiscal 2001 77200 approximately fiscal 2000 78000 1999 77000 deductions fiscal 2001 increased 80700 fiscal 2000 primary reasons 2001 increase fourth quarter loss sale mt carmel cogeneration facility 35300 second quarter loss sale two hydrogen production plants 5000 fourth quarter restructuring cost 39300 increased pension postretirement cost 8000 partially offset nonrecurrence 2000 provision french lawsuit regarding indemnity given purchaser former foster wheeler subsidiary amount 6000 deductions fiscal 2000 decreased 900 fiscal 1999 tax provision fiscal 2001 103100 losses tax 206000 change benefit 68800 provision 103100 primarily due establishment valuation allowance domestic deferred tax assets 171900 fourth quarter 2001 establishment valuation allowance required provisions sfas 109 due cumulative losses incurred domestically three years ended december 28 2001 statutory purposes majority domestic federal tax benefits reserves taken expire 2020 beyond based current tax laws 2000 low effective tax rate 295 primarily due nonrecurring foreign tax benefits tax benefit fiscal 1999 46900 losses income taxes 190500 low effective tax rate benefit 246 1999 primarily due increase 15000 valuation allowance caused losses related robbins facility 10000 related federal income taxes 5000 state income taxes net loss fiscal 2001 309100 756 diluted per share previously described fourth quarter charge impacted 2001 results 303300 included increase tax valuation 171900 net earnings fiscal 2000 39500 97 diluted per share net loss fiscal 1999 143600 353 diluted per share included net losses robbins facility 173900 writedown 154000 operating losses 19900 cost realignment 27600 engineering construction group 2001 2000 1999 unfilled orders 4539300 4534600 4741500 new orders 2808700 3094600 2752200 operating revenues 2162100 2933100 2975500 gross earnings operations 85300 184700 189600 ec groups unfilled orders end fiscal 2001 approximately 2000 turn represented 4 decrease unfilled orders end fiscal 1999 new orders awarded ec group fiscal 2001 decreased 92 compared fiscal 2000 decrease continental europe 480000 partially offset increased awards operating units 2001 decrease continental europe due award significant middle eastern contract 2000 repeated 2001 operating revenues fiscal 2001 decreased 771000 26 fiscal 2000 operating revenues 2001 decreased primarily due lower level flowthrough costs shift united kingdom towards reimbursable service contracts company includes passthrough costs costplus contracts customerreimbursable materials equipment subcontractor costs company determines responsible engineering specification procurement management cost components behalf customer percentage relationship passthrough costs contracts revenues fluctuate year depending variety factors including mix business years compared ec group reported slight decrease operating revenues fiscal 2000 compared fiscal 1999 decrease 2000 operating revenues due decreased activities united states united kingdom italy ec groups gross earnings decreased 99400 fiscal 2001 compared fiscal 2000 538 turn represented decrease 26 gross earnings fiscal 1999 gross earnings 2001 ec group impacted negatively 67200 due fourth quarter charge included 29000 claims reassessments receivable contract writedowns 38200 decrease 2000 primarily due activities united kingdom continental europe energy equipment group excluding robbins facility company continues review various methods monetizing selected power systems facilities based current economic conditions management concluded continue operate facilities normal course business management reviewed facilities impairment undiscounted cash flow basis determined adjustment carrying amounts required company able monetize assets possible amounts realized could differ materially balances reflected financial statements first quarter 2002 company entered preliminary agreement sale buyer one waste energy facilities sale consummated terms preliminary agreement company recognize pretax loss sale approximately 19500 addition company anticipates taking charge 2002 approximately 25000 impairment goodwill related wastetoenergy facility required provisions sfas 142 additional charges currently anticipated company still process evaluating impact adoption sfas 142 2001 2000 1999 unfilled orders 1493100 1727400 1445800 new orders 1314500 1468700 1045900 operating revenues 1228900 1057400 982500 gross earnings operations 64900 139700 129700 energy equipment groups unfilled orders decreased 234300 end fiscal 2001 representing 136 decrease fiscal 2000 turn represented 195 increase unfilled orders end fiscal 1999 decrease 2001 due lower level new orders described new orders fiscal 2001 decreased 154200 105 fiscal 2000 turn represented 404 increase fiscal 1999 new orders 2001 1999 lower 2000 primarily due high level orders experienced 2000 heat recovery steam generators hrsg selective catalytic reduction scr units operating revenues fiscal 2001 increased 171500 162 fiscal 2000 turn represented 76 increase fiscal 1999 work performed 2001 significant awards achieved 2000 gross earnings operations decreased 74800 535 fiscal 2000 gross earnings 2001 negatively impacted fourth quarter charge amount 88400 included 71600 hrsgs 16800 accounts receivable disputed claims 2000 increase 10000 77 fiscal 1999 line increase operating revenues fiscal year research development company continually engaged research development efforts performance analytical services current projects development new products processes fiscal years 2001 2000 1999 approximately 12300 12000 12500 respectively spent companysponsored research activities periods approximately 39200 27600 27100 respectively spent research activities paid customers company financial condition shareholders equity end fiscal 2001 7500 compared 364100 end fiscal 2000 375900 end fiscal 1999 decrease 2001 relates loss year 309100 net minimum pension liability adjustment 36800 included comprehensive loss change accumulated translation adjustment 10200 dividend payments 4900 partially offset net gains derivative instruments approximately 3800 included comprehensive loss decrease 2000 relates change accumulated translation adjustment 20000 net minimum pension liability adjustment 21500 included comprehensive loss dividend payments 9800 offset earnings year 39500 fiscal 2001 2000 1999 investments land buildings equipment 34000 45800 128100 respectively decreases 2001 2000 primarily due lower investments foreign build operate plants line previously announced repositioning plan types plants capital expenditures continue directed primarily toward strengthening supporting companys core businesses net debt increased 38700 fiscal 2001 compared decrease 109000 fiscal 2000 net debt includes corporate debt special purpose project debt bank loans subordinated robbins facility exit funding obligations convertible subordinated notes preferred trust securities net cash short term investments 2001 increase primarily due significant use cash operating activities year 2001 company issued 210000 principal amount convertible subordinated notes net proceeds used repay 76300 364day revolving credit facility expired may 30 2001 reduce advances outstanding revolving credit agreement 2000 decrease accomplished primarily sale 50 percent interest wastetoenergy facility italy also company entered saleleaseback office building spain resulted gross proceeds approximately 21000 1999 company issued 175000 preferred trust securities proceeds used reduce companys indebtedness senior credit facilities 1999 company entered saleleaseback office building united kingdom resulted gross proceeds 126800 liquidity capital resources december 28 2001 company cash equivalents hand shortterm investments 224300 management company believe amount adequate meet companys working capital liquidity needs absence new amended credit facility replaces revolving credit agreement waivers remain effect company cannot make additional borrowings revolving credit agreement issue letters credit cash collateralized although company negotiations lenders new amended credit facility assurances company successful entering new amended credit facility company fails enter new amended credit facility pendency waiver expires april 30 2002 lenders revolving credit agreement could accelerate repayment amounts borrowed agreement 140000 march 29 2002 require company cash collateralize standby letters credit outstanding thereunder 93000 march 29 2002 acceleration revolving credit agreement would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt would allow debt accelerated unlikely company would able repay amounts borrowed payment dates accelerated failure company repay amounts would material adverse effect companys financial condition operations company also place receivables sale arrangement pursuant company sold receivables totaling 50000 bank party financing elected terminate agreement accordance terms notwithstanding election terminate agreement bank provided extensions company negotiates providers replace financing company also lessee operating lease financing agreement relating corporate office building amount 33000 consortium banks lease financing facility matured february 28 2002 banks party agreement provided forbearance april 30 2002 company negotiating another financial institution replace lease financing assurance company able negotiate extensions receivables sale arrangement lease financing forbearance company able enter replacement facilities either receivables sale arrangement lease financing failure company make payments required upon expiration receivable sale arrangement lease financing forbearance would material adverse effect companys financial condition operations company initiated comprehensive plan enhance cash generation improve profitability operating performance portion plan concentrates quality quantity backlog execution projects order achieve exceed profit cash targets optimization nonproject related cash sources uses connection plan group outside consultants hired purpose carrying performance improvement intervention companys recently appointed chief executive officer utilized approach several previous occasions significant success tactical portion performance improvement intervention concentrates booking current projects executing twentytwo high leverage projects generating incremental cash high leverage opportunities overhead reductions procurement accounts receivable systemic portion performance improvement intervention concentrates sales effectiveness estimating bidding project execution procedures assurance funding available execute plan enhance cash generation improve profitability company continuing seek financing support plan ongoing operations date company able obtain sufficient financing support ongoing operations company also initiated liquidity action plan focuses accelerating collection receivables claims recoveries asset sales cash equivalents amounted 224000 december 28 2001 increase 32100 prior fiscal yearend shortterm investments decreased 1500 300 end 2001 fiscal 2001 company paid 4900 shareholder dividends repaid short longterm debt amount 296800 received proceeds short longterm borrowings 185000 fiscal 2001 cash flows used operating activities totaled 88700 compared cash flows used operating activities 16700 2000 increase 72000 increase due 110500 less cash provided ee group offset lower use ec group 29800 corporate financial services group 8700 110500 decrease cash provided ee group primarily due lower cash generated ee groups north american operations fiscal 2000 cash flows used operating activities totaled 16700 compared cash flows used operating activities 5600 1999 increase 11100 primarily due 60000 increase use cash ec group 90900 increase use cash corporate financial services group offset 139800 change ee group companys contracts process inventories increased 39800 2001 464300 december 29 2000 504100 december 28 2001 increase attributed contract activity ec group 35800 primarily due higher level contracts process addition accounts receivable increased 57100 fiscal 2001 946300 889200 fiscal 2000 companys working capital varies period depending mix stage completion commercial terms conditions companys contracts working capital needs increased past several years result companys satisfying requests customers favorable payment terms contracts requests generally include reduced advance payments less favorable payment schedules company third quarter 1998 subsidiary company entered threeyear agreement financial institution whereby subsidiary would sell undivided interest designated pool qualified accounts receivable terms agreement new receivables added pool collections reduce previously sold accounts receivable credit risk uncollectible accounts receivable transferred purchaser company services administers collects receivables behalf purchaser fees payable purchaser agreement equivalent rates afforded high quality commercial paper issuers plus certain administrative expenses included deductions consolidated statement earnings comprehensive income agreement contains certain covenants provides various events termination company received waiver receivables sale agreement management discussions lenders regarding replacement receivables sale arrangement previously discussed assurance company able negotiate waivers replacement agreement december 28 2001 december 29 2000 50000 receivables sold agreement therefore reflected accounts receivable trade balance consolidated balance sheet january 13 1999 fw preferred capital trust delaware business trust issued 175000 preferred trust securities preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year beginning april 15 1999 distributions may deferred periods five years time additional interest accrues 90 january 15 2002 company exercised option preferred trust securities defer distribution payable date april 2 2002 company stated also exercise option defer distribution payable april 15 2002 maturity date trust preferred securities january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 proceeds used reduce borrowing companys revolving credit agreement see note 9 financial statements information regarding companys revolving credit agreement may june 2001 company issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 65 per annum payable semiannually june 1 december 1 year notes may converted common shares initial conversion rate 623131 common shares per 1000 principal amount 1605 per common share subject adjustment certain circumstances net proceeds approximately 202900 used repay advances outstanding revolving credit agreement debt issuance costs component interest expense term notes board directors company discontinued common stock dividend july 2001 company contractual obligations comprised bank loans corporate debt special purpose project debt subordinated robbins facility exit funding obligations convertible subordinated notes preferred trust securities company also obligated noncancelable operating lease obligations aggregate maturities december 28 2001 contractual obligations follows certain instances normal course business company provided security contract performance consisting standby letters credit bank guarantees surety bonds december 28 2001 commitments period expiration follows company may experience difficulty obtaining surety bonds unsecured basis future due changing view sureties respect risk loss given current market conditions companys creditrelated matter discussed may impact companys ability secure new business companys liquidity negatively impacted number claims customers relating projects affected substantial scope work changes adverse factors net exposure associated claims accumulated period time approximated 135000 december 28 2001 future collections claims increase cash inflows timing collection claims recoverability subject considerable uncertainty described note 1 financial statements april 2001 company completed sale interest two hydrogen production plants south america net proceeds transactions approximately 40000 tax loss 5000 recorded second quarter relating sales fourth quarter 2001 company sold cogeneration facility located pennsylvania consideration transaction approximately 40000 included 30000 assumption debt sale resulted aftertax charge 22900 addition company sold certain equity interests located italy gross proceeds sale approximately 14100 fourth quarter 2000 subsidiary company sold 50 percent interest lomellina energia srl wastetoenergy facility located northern italy consequently transaction reduced companys net debt approximately 130000 third quarter 2000 transaction completed relating petropower project chile essentially monetization projected future cash flows project transaction resulted increase approximately 42500 limited recourse debt similar decrease corporate debt matters ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation processes ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment design plant construction based knowledge facts circumstances relating companys liabilities insurance coverage management company believes disposition suits result charges materially excess amounts provided accounts inflation effect inflation companys revenues earnings minimal although majority companys revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete future periods addition contracts provide price adjustments escalation clauses critical accounting policies companys financial statements presented accordance generally accepted accounting principles highlighted accounting policies management considers significant understanding operations companys business revenue recognition engineering construction group records profits longterm contracts percentageofcompletion basis cost method contracts process valued cost plus accrued profits less earned revenues progress payments uncompleted contracts ec group generally considered substantially complete engineering completed andor field construction completed company includes passthrough revenue costs costplus contracts customerreimbursable materials equipment subcontractor costs company determines responsible engineering specification procurement management cost components behalf customer energy equipment group primarily records profits longterm contracts percentageofcompletion basis determined variation effortsexpended costtocost methods include multiyear contracts require significant engineering efforts multiple delivery units methods periodically subject physical verification actual progress towards completion contracts ee group generally considered substantially complete manufacturing andor field erection completed company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition company history making reasonably dependable estimates extent progress towards completion contract revenues contract costs however current estimates may revised additional information becomes available estimates costs complete long term contracts indicate loss provision made contract writedown total loss anticipated elapsed time award contract completion performance may four years certain specialpurpose subsidiaries ee group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value claims recognition claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 accounting performance constructiontype certain productiontype contracts statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied managements determination existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractors performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred amounts recorded material disclosed notes financial statements costs attributable claims treated costs contract performance incurred fourth quarter 2001 company recorded 24100 aftertax contractrelated charges result claims reassessment conducted companys legal staff conjunction outside counsel claims brought company customers many process submitted litigation arbitration longlived asset accounting company accounts longlived assets including considering monetizing assets held used therefore uses undiscounted cash flow analysis assess impairment formal decision made management sell asset discounted cash flow methodology utilized assessment first quarter 2002 company entered preliminary agreement sale buyer one waste energy facilities sale consummated terms preliminary agreement company recognize pretax loss sale approximately 19500 income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized companys tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts fourth quarter 2001 company established valuation allowance 171900 primarily domestic deferred tax assets provisions sfas 109 action required due losses domestic operations experienced three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expire 2020 beyond based current tax laws based establishment valuation allowance company anticipate recognizing provision income taxes domestic operations near future asbestos company recorded liability related probable losses asbestosrelated insurance claims approximately 500000 asset probable recoveries similar amount net 18000 reserve liability estimate future asbestosrelated defense costs indemnity payments based upon assumed average claim resolution costs applied currently pending estimated future claims asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending litigation certain insurers well recoveries funding arrangement insurers covers claims brought 1993 june 12 2001 company currently negotiations insurers regarding arrangement handling asbestos claims filed june 12 2001 defense costs indemnity payments expected incurred next ten years management company considered asbestos litigation financial viability legal obligations insurance carriers believes except insurers become may become insolvent reserve provided insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimates assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainty ultimate number claims filed amounts claim costs impact bankruptcies companies currently involved litigation companys ability recover insurers uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future exceeds companys estimate likely costs defense indemnity similarly exceed companys estimates san francisco california jury returned verdict march 26 2002 finding foster wheeler liable 10600 case todak vs foster wheeler corporation case brought foster wheeler us navy several companies 59yearold man suffering mesothelioma allegedly resulted exposure asbestos company believes credible evidence presented plaintiff exposed asbestos contained foster wheeler product addition verdict clearly excessive set aside reduced appeal company intends move set aside verdict management company believes financial obligation may ultimately result entry judgment case paid insurance accounting developments june 2001 financial accounting standards board fasb issued statement financial accounting standards 142 goodwill intangible assets sfas 142 supersedes apb opinion 17 intangible assets sfas 142 addresses intangible assets acquired individually group assets acquired business combination accounted financial statements upon acquisition sfas 142 also addresses goodwill intangible assets accounted initially recognized financial statements sfas 142 stipulates goodwill longer amortized instead subject impairment assessment provisions sfas 142 required applied effective december 29 2001 company anticipates impairment 25000 tax relating wastetoenergy facility recorded 2002 additional charges currently anticipated company still process evaluating impact adoption sfas 142 company also discontinue recording goodwill amortization required approximates 8000 annually july 2001 fasb issued sfas 143 accounting asset retirement obligations statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 company currently assessing impact adoption new statement october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 accounting impairment longlived assets longlived assets disposed provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years impairment longlived assets reassessed first quarter 2002 upon implementation sfas 144 incorporates probability weighting undiscounted cash flow assumptions company currently assessing impact adoption new statement safe harbor statement managements discussion analysis financial condition results operations sections report form 10k reports oral statements made representatives company time may contain forwardlooking statements based managements assumptions expectations projections company various industries within company operates include statements regarding companys expectation regarding revenues including expressed backlog liquidity outcome negotiations financing sources outcome litigation legal proceedings recoveries customers claims forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited factors described item 1 business risk factors business following could cause business conditions results differ materially contained forward looking statements changes rate economic growth united states major international economies changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries changes regulatory environment changes project schedules errors estimates made company costs complete projects changes trade monetary fiscal policies worldwide currency fluctuations terrorist attacks facilities either owned equipment services may provided outcomes pending future litigation including litigation regarding companys liability damages insurance coverage asbestos exposure protection validity patents intellectual property rights increasing competition foreign domestic companies negotiation longterm extension existing credit facilities monetization certain power system facilities recoverability claims customers factors assumptions identified also involved derivition forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control company reader consider areas risk described connection forwardlooking statements may made company undertakes obligation publicly update forwardlooking statements whether result new information future events otherwise reader advised however consult additional disclosures company makes proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated management’s discussion analysis financial condition results operations sections report form 10k contain forwardlooking statements based assumptions expectations projections various industries within operate forwardlooking statements nature involve degree risk uncertainty caution variety factors could cause business conditions results differ materially contained forwardlooking statements see item 1a “risk factors” additional risk information following discussion read conjunction consolidated financial statements notes thereto overview operate two business groupsthe global engineering construction group refer ec group global power group addition corporate center expenses corporate debt expenses restructuring expenses certain legacy liabilities asbestos reported independently corporate finance group refer cf group 2005 results reported net loss 109800 2005 includes 113700 charge associated revaluation estimated asbestos liability asbestos insurance receivable 58300 primarily noncash accounting charges related equityfordebt exchange offers completed 2005 1400 charges related common share purchase warrants offers commenced december 2005 compares net loss 285300 2004 includes 60600 net charge revaluation asbestos assets 175100 charge related 2004 equityfordebt exchange offer net loss 157100 2003 includes 68100 provision asbestos claims 2005 number mesothelioma claims filed us significantly higher forecast addition average indemnity amounts paid mesothelioma nonmesothelioma claims significantly higher forecast factors increase indemnity costs partially offset significantly higher forecasted rates dismissals claims zero indemnity payments accordingly updated assumptions used estimate asbestos liability asbestos insurance receivable next 15 years process resulted charge 113700 refer note 20 consolidated financial statements form 10k information regarding estimated asbestos liability asset 2005 completed two equityfordebt exchanges portion 2011 senior notes trust preferred securities aggregate reduced outstanding longterm debt 220500 deferred accrued interest 26100 net impact exchanges also resulted improvement 238600 consolidated shareholders’ deficit additionally recorded 58300 pretax charges substantially noncash conjunction exchanges charges reflect difference carrying values debt market prices common shares closing dates exchanges september 2004 consummated equityfordebt exchange certain debt trust preferred securities reduced longterm debt 437000 deferred accrued interest 31100 net impact 2004 exchange improvement 448100 consolidated shareholders’ deficit recorded 175100 pretax charge substantially noncash conjunction exchange third quarter 2004 charge resulted primarily conversion expense exchange convertible notes refer note 6 consolidated financial statements form 10k information regarding exchange transactions experienced solid growth new orders backlog 2005 consolidated new orders 2005 4163000 increase 71 compared 2004 result consolidated backlog december 30 2005 expressed terms future revenues increased 80 3692300 2048100 december 31 2004 highest level backlog since fourth quarter 2002 backlog measured terms foster wheeler scope defined also increased 37 2159700 december 30 2005 1578200 december 31 2004 challenges drivers primary operating focus booking quality backlog executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas petrochemicals refined products turn stimulate increase investment new expanded plants markets strong 2005 continue highly competitive ec group’s new orders 3080900 2005 increase 77 compared 2004 expect capital investments markets served ec group including chemical petrochemical oil refining liquefied natural gas upstream oil gas industries remain strong 2006 global power’s new orders 1082100 2005 increase 57 compared 2004 capital investment clients domestic us power market strong 2005 client investments solid fuel fired electric power generation europe remained relatively weak believe significant growth opportunities markets serve 2006 solid fuel boilers boiler services boiler environmental products boilerrelated construction services believe well positioned address ec global power markets proposed asbestos trust fund legislation recently considered us senate proposed legislation become law present form would alter payment obligations would required fund approximately 19250 per year 30 years thus legislation could material adverse impact financial condition results operations longterm cash flow remain part consortium companies actively lobbying enactment proposed legislation currently drafted proposed pension legislation introduced united states united kingdom enacted could adverse impact amount timing future cash contributions liquidity march 2005 entered new 5year senior credit agreement replaced prior senior credit facility new facility available issue letters credit 250000 provides revolving line credit 75000 sum letters credit issued facility utilization revolving line credit cannot exceed 250000 131600 letters credit outstanding senior credit agreement december 30 2005 funded borrowings outstanding december 30 2005 additionally 2005 ec’s uk operation entered £55000 approximately 94800 bank guarantee facility £150000 approximately 258400 foreign exchange hedging facility july 2005 utilized £39000 approximately 67200 bank guarantee facility £57700 approximately 99400 foreign exchange hedging facility december 30 2005 forecast cash flow twelvemonth period project sufficient cash available fund working capital needs end period see “liquidity capital resources” additional details forecast assurance cash amounts realized andor timing cash flows match forecast results operations consolidated operating revenues 2005 change reflects lower revenues ec global power groups see note 17 consolidated financial statements form 10k lower revenues ec group relate primarily reduction flowthrough costs united kingdom continental europe asiapacific operations 2005 approximately 500000 flowthrough costs relate projects purchase install equipment behalf customers markup therefore flowthough costs impact net earnings decline revenues global power group resulted several large lumpsum turnkey lstk contracts europe substantially completed 2004 replaced 2005 previously disclosed intend global power group pursue lstk contracts full power plant without partnering ec group qualified thirdparty 2004 change reflects reduced revenues ec group global power group reflects general reduced volumes new orders received prior three years revenues 2003 included approximately 400000 ec reimbursable flowthrough costs repeated 2004 decline global power occurred north american european power operations several large power projects substantially completed 2003 early 2004 type projects replaced 2004 see individual group discussions additional details operating revenues consolidated cost operating revenues 2005 change reflects lower cost operating revenues ec group global power group lower cost operating revenues ec group relates primarily aforementioned reduction flowthrough costs reduction global power group relates aforementioned lstk contracts europe substantially completed 2004 replaced 2005 decline ec group occurred primarily within continental europe united kingdom operations decline global power group occurred primarily european operations 2004 change reflects lower cost operating revenues ec group global power group relates primarily reduction volume contract activity resulted reduced volumes new orders received prior three years 2003 cost operating revenues included approximately 400000 ec flowthrough costs repeated 2004 decline global power occurred north american european power operations several large power projects substantially completed 2003 replaced 2004 amount includes profit reversals losses totaling 74800 three large european power lstk contracts consolidated selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs 2005 increase results primarily increase general overhead 15600 partially offset reductions sales pursuit costs 7100 research development costs 5100 increase general overhead results primarily noncash amortization expense 8900 related equity issued employees longterm incentive program implemented conclusion 2004 equityfordebt exchange 2004 increase primarily reflects 8500 increased sales pursuit costs proposal sales expenses 8200 thirdparty costs associated implementing auditing sarbanesoxley initiatives 8200 employee retention program global power group’s north america unit cf’s corporate staff consolidated income 2005 income consists primarily 8900 interest income 30600 equity earnings generated investments primarily minority ownership interests build operate projects italy chile 1500 gain recognized united kingdom sale investment 9000 gain recognized camden new jersey wastetoenergy facility due state new jersey’s payment project’s debt 1300 investment income earned captive insurance company 2004 income consists primarily 8800 interest income 34200 equity earnings generated investments primarily minority ownership interests build operate projects italy chile 15900 net gains sales minority equity interests specialpurpose companies established develop power plant projects europe minority interest wastetoenergy project italy 8600 gain recognized camden new jersey wastetoenergy facility due state new jersey’s payment project’s debt 1400 investment income earned captive insurance company 4500 gains dispute settlements 2003 income consists primarily 10100 interest income 29400 equity earnings generated investments primarily minority ownership interests build operate projects italy chile 20900 gains sale majority assets domestic environmental business hudson falls new york wastetoenergy project 3900 gain recognized camden new jersey wastetoenergy facility due state new jersey’s payment project’s debt 2300 investment income earned captive insurance company consolidated deductions 2005 consists primarily 8800 bank fees 3500 associated previous senior credit facility 12800 legal fees 2700 exchange losses 4200 environmental costs 1400 charges related common share purchase warrants offers commenced december 2005 6700 bad debt recovery deductions 2004 consists primarily 17200 professional fees expenses restructuring activities domestic us credit agreements 3000 legal fees 2600 relating new governmentmandated postretirement benefits france deductions 2003 included 31900 professional services rendered relation equityfordebt exchange offer domestic credit agreement 11700 professional services rendered part performance intervention activities 15100 provision loss anticipated sale domestic corporate office building sold 2004 5300 exchange losses 4900 european legal expenses associated contract disputes 5900 allowance doubtful accounts 1000 fees expenses associated credit facility uk operating unit consolidated interest expense interest expense 2005 reflects benefits three equityfordebt exchanges completed august november 2005 september 2004 interest expense 2004 reflects increased interest costs amortization fees associated previous senior credit facility offset reduction outstanding debt resulting completion equityfordebt exchange end third quarter 2004 interest expense 2003 reflects increased borrowing costs associated previous senior credit facility amortization fees associated agreement subsequent amendments consolidated minority interest minority interest reflects thirdparty ownership interests results global power group’s martinez california gasfired cogeneration facility manufacturing facilities poland people’s republic china consolidated asbestos provision 2005 asbestos charge results revaluation estimated asbestos indemnity defense costs liability estimated asbestos insurance receivable 2004 asbestos charge results reduction asbestos insurance receivable 75800 recorded fourth quarter 2004 resulted primarily new york state court ruled new york law rather new jersey law apply litigation among foster wheeler several asbestos insurance carriers partially offset 15200 gains increased asbestos insurance receivables recorded throughout year settlements insurance companies 2003 asbestos charge results reduction asbestosrelated insurance receivable potentially uncollectible insolvent insurance companies refer note 20 consolidated financial statements form 10k information regarding asbestos consolidated loss equityfordebt exchanges nmnot meaningful 2005 loss results trust preferred securities exchange offer consummated august 2005 2011 senior notes exchange offer consummated november 2005 resulted charges income 41500 16800 respectively aggregate impact exchanges improvement 238600 consolidated shareholders’ deficit charges substantially noncash reflect differences carrying values debt market prices common shares closing dates exchanges 2004 loss results equityfordebt exchange offer consummated september 2004 net impact 2004 exchange improvement 448100 consolidated shareholders’ deficit recorded 175100 pretax charge substantially noncash resulted primarily conversion expense exchange convertible notes refer note 6 consolidated financial statements form 10k information regarding exchange transactions consolidated tax provision consolidated tax provision results fact certain operating units north america europe asia profitable liable national andor local income taxes tax provision also includes certain domestic state taxes additionally taxes may due countries operating units execute projectrelated works pretax earnings profitable operations cannot offset certain operations generating losses united states international jurisdictions regard domestic certain foreign operating units sfas 109 “accounting income taxes” requires us reduce deferred tax benefits valuation allowance based upon available evidence likely tax benefits realized operations future accordingly tax provision represents primarily taxes profits generated europe asia cannot used reduce losses incurred tax jurisdictions effect applying valuation allowances required effective tax rate dependent location amount taxable earnings effects valuation allowance continue experience positive earnings trend certain additional foreign jurisdictions valuation allowances deferred tax assets established previous years trend continues evaluate need reverse valuation allowances respect deferred tax assets additional foreign jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority domestic federal tax benefits valuation reserves taken expire 2024 beyond based current tax laws consolidated ebitda nmnot meaningful ebitda 2005 2004 includes charges related asbestos completed equityfordebt exchange offers 2005 ebitda reflects 113700 charge associated revaluation estimated asbestos liability estimated insurance receivable aggregate charge 58300 related trust preferred securities exchange offer consummated august 2005 2011 senior notes exchange offer consummated november 2005 1400 charges related common share purchase warrants offers commenced december 2005 similarly 2004 ebitda includes 60600 net charge revaluation asbestos assets 175100 charge related exchange offer completed september 2004 refer note 6 consolidated financial statements form 10k information exchange offers operational performance ec operations continental europe united kingdom improved performance global power operations europe contributed improvement 2005 ebitda supplemental nongenerally accepted accounting principle financial measure ebitda defined loss taxes goodwill charges interest expense depreciation amortization presented ebitda believe important supplemental measure operating performance ebitda adjustment unusual infrequent items specifically excluded terms senior credit agreement used certain covenants senior credit agreement believe line item consolidated statement operations comprehensive loss entitled “net loss” directly comparable generally accepted accounting principle “gaap” financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net loss indicator operating performance ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information compared net loss directly comparable gaap financial measure users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed substantial amounts money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation must utilize substantial property plant equipment order generate revenues operations depreciation necessary ongoing part costs therefore measure excludes depreciation material limitations reconciliation ebitda nongaap financial measure net loss gaap measure shown 1 includes general corporate income expense captive insurance operation eliminations 2 includes 2005 charge 113700 cf revaluation estimated asbestos liability asbestos insurance receivable regular reevaluation contract profit estimates 99600 66300 ec 33300 global power credit agreement costs cf associated previous senior credit facility 3500 aggregate charge 58300 cf recorded conjunction trust preferred securities 2011 senior notes exchange offers 3 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 equity interest wastetoenergy project italy regular reevaluation contract profit estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 4 includes 2003 15100 impairment loss cf anticipated sale domestic corporate office building 16700 gain ec sale certain assets foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf additional segment information detailed note 17 consolidated financial statements form 10k reportable segments use several financial metrics measure performance business segments ebitda discussed defined primary earnings measure used chief decision makers engineering construction group results change 2005 operating revenues primarily reflects aforementioned reduction flowthrough costs partially offset strong operating performance united kingdom flowthrough costs relate situations purchase install equipment behalf customers markup therefore although lower flowthrough costs result lower operating revenues impact net earnings increase 2005 ebitda results primarily strong operational performance european operations driven project cost runs award project incentives decrease 2004 operating revenues includes 400000 reduced volumes reimbursable flowthrough costs associated large power project uk refinery project united states sulfur reduction project spain repeated 2004 decline also reflects reduced levels manhour bookings 2003 early 2004 translate approximately 75000 reduced billings increase 2004 ebitda reflects primarily strong performance ec group’s european asian operations two major power projects environmental project completed europe costs budget additionally aggregate pretax gain 15900 recorded sales minority equity interests specialpurpose companies established develop power plant projects europe portion minority equity interest existing wastetoenergy project italy overview segment global economic growth remained strong throughout 2005 expect remain positive throughout 2006 global economic growth continues drive strong demand oil gas petrochemicals refined products turn stimulating increase investment new expanded plants oil gas prices remained high levels prolonged period leading increased levels investment oil gas production facilities expected continue 2006 anticipate oil gas spending increase regions particularly west africa middle east russia caspian states believe rising demand natural gas europe asia united states combined shortfall indigenous production continues act stimulant lng business expect investment continue 2006 lng liquefaction plants receiving terminals believe global refining system running high utilization rates combined increasing global demand transportation fuels current wide price differential heavier highersulfur crudes lighter sweeter crudes stimulating refinery investment particularly heavier highersulfur crudes aforementioned price differential also drives strong economic market case upgrading refinery residue higher value transportation fuels expect see substantial investment bottomofthebarrel upgrading projects europe united states potentially asia believe several client investment decisions made 2006 considerable experience expertise area including proprietary delayed coking technology seen increase number studies potential delayed coking units delayed coking technology knowhow experience designing constructing delayed cokers places us good competitive position address market capacity constraints leading interest adding refinery capacity greenfield expansions already companies announced several projects middle east major expansion plans implemented new facilities southeast asia china believe current cycle investment us european refineries meet demands clean fuels legislation wound however refineries middle east north africa asia embarking similar programs investment petrochemical plants rose sharply 2004 2005 response strong demand growth majority investment centered middle east believe continued strong demand growth support new investment middle east asia 2006 2007 although pharmaceutical industry continues grow rapidly investment new production facilities slowed 2004 2005 believe attributable industry cost pressure increased regulation investment focused plant upgrading improvement projects rather major new production facilities indications renewed interest significant plant investment key pharmaceutical investment hubs singapore ireland puerto rico global power group results change operating revenues 2005 primarily reflects european unit’s execution completion several major lstk projects full power plants 2004 replaced 2005 previously announced global power group longer undertake lstk contracts full power plants without involvement ec group qualified external partner improvement 2005 ebitda reflects significantly improved earnings european operations compared 2004 project losses incurred decrease 2004 operating revenues primarily reflects north american european units’ execution completion several major projects 2003 replaced 2004 decline 2004 ebitda driven 74800 profit reversals losses three lumpsum turnkey contracts complete power plants ireland estonia germany poor performance european power offset strong performance north america incentive bonuses cost underruns three large projects drove earnings overview segment believe several continuing global market forces continue positively influence global power group believe continued worldwide economic growth driving power demand growth world regions global natural gas oil supply concerns driven gas oil prices upwards unprecedented levels expect natural gas fuel price volatility remain high next 35 years due declining domestic supplies world’s largest industrialized countries addition expect tightening environmental regulations including development growing acceptance global greenhouse gas regulation drive investment toward existing coal power plants believe combined effect factors significant positive influence demand solid fuel steam generators new old turn result growth markets serve new utility industrial solid fuel boilers boiler services boiler environmental products boiler related construction services north america believe declining generating capacity reserves across region coupled persistent high oil natural gas pricing spurring market growth large coal utility boilers given uncertainty future greenhouse gas regulation seeing growing market preference supercritical utility boilers well investments suppliers may result entrance gasification technology near term us plants use technologies operate efficiently producing least amount greenhouse gas per unit electricity produced also capture pollutants higher level believe clients selecting technologies hedge future greenhouse gas mercury pollutant regulation could occur near term due market direction global power group actively marketing largescale supercritical boiler technology part utility boiler product portfolio capitalize business opportunity industrial sector seeing growth solid fuel industrial boiler market driven high oil gas pricing boilers allow industrial clients utilize low cost biomass solid opportunity fuels economic solution supplying energy needs many fuels also carry governmental tax credits financial incentives encourage use renewable fuels making attractive industrial utility power sectors believe circulating fluid bed cfb boiler technology well positioned serve market segment due outstanding environmental performance us environmental protection agency’s epa’s recent finalization clean air interstate rule implementation earlier new source review lawsuit settlements brought number utilities epa continue drive strong retrofit pollution control market including addon pollution control systems low nox combustion systems selective catalytic reduction systems flue gas desulphurization systems market benefit environmental products business finally believe due reducing capacity margins coal utility power plants running harder produce electricity owners investing keep functional also think owners making larger capital investments plants extend lives believe factors helping maintain strong boiler service market benefit boiler service business europe believe many market forces discussed resulting similar beneficial market trends global power group believe declining power capacity reserves across region coupled persistent high oil natural gas pricing spurring market growth large utility coal boilers due europe’s historical preference high efficiency coal power plants recently enacted emissions trading scheme regulation supercritical boiler technology continues preference utility boiler market sector market segment believe supercritical cfb technology significantly increases opportunities power generating industries take full advantage substantial domestic coal reserves held many industrialized nations fourth quarter 2005 awarded lstk contract design supply erection world’s largest cfb boiler world’s first supercritical cfb unit poland industrial sector driven increasing power prices high oil gas pricing seeing growth solid fuel industrial power market benefiting industrial boiler business european union eu established regulation incentive programs encourage use biomass waste fuels believe spurring growth industrial utility sectors cfb boilers believe eu’s new landfill waste recycling directives opened new market cfb boilers firing refuse derived fuels eu’s large combustion plant directive lcpd expected drive growth retrofit pollution control market benefit environmental products business due lcpd’s relatively mild first step reduction goals expect see significant growth 2008 sector finally like north america driven reducing capacity margins coal utility power plants running harder produce electricity spurring maintenance life extension investment owners positive effect boiler service business asia believe high economic growth continues drive strong power demand growth demand new power capacity region’s historically high coal use coupled high world oil gas pricing likely continue drive growth coalfueled utility industrial boilers region contains world’s largest utility industrial boiler markets china india offering significant opportunity power group businesses due region’s growing environmental awareness see significant opportunity cfbs well supercritical pulverized coal pc boiler technologies coal well biomass opportunity fuel applications also see substantial opportunity cfb boiler business potentially large indian power market due country’s abundant low quality coals environmental awareness within china driving growth potentially large retrofit pollution control market offering business opportunity environmental product business finally like regions world driven reducing capacity margins coal utility power plants running harder produce electricity spurring maintenance life extension investment owners offering opportunity boiler service business due market factors global power group actively marketing pc cfb boilers utilizing conventional well supercritical steam designs well boiler maintenance services region capitalize business opportunity liquidity capital resources 2005 activities march 2005 replaced previous senior credit facility new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus 5 standby letters credit issued new senior credit agreement carry fixed price throughout life facility assets andor stock certain domestic subsidiaries certain foreign subsidiaries collateralize senior credit agreement 2011 senior notes 131600 letters credit outstanding senior credit agreement december 30 2005 funded borrowings outstanding december 30 2005 uk subsidiary entered £55000 approximately 94800 bank guarantee facility £150000 approximately 258400 foreign exchange hedging facility lenders facilities security interest stock assets uk subsidiary subsidiaries utilized £39000 approximately 67200 bank guarantee facility £57700 approximately 99400 foreign exchange hedging facility december 30 2005 completed offers exchange common shares portion 2011 senior notes trust preferred securities exchanges reduced aggregate carrying value longterm debt 220500 reduced deferred accrued interest 26100 concurrent one exchange offers also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein september 2004 consummated equityfordebt exchange reduced existing debt 437000 reduced deferred accrued interest 31100 see note 6 consolidated financial statements form 10k information december 30 2005 cash equivalents hand shortterm investments restricted cash totaling 372700 compared 390200 december 31 2004 decline includes payment deferred financing fees expenses 13700 scheduled debt repayments 31500 372700 total december 30 2005 319800 held foreign subsidiaries see note 1 consolidated financial statements form 10k additional details cash restricted cash balances generated cash operations 50800 2005 compared using 30900 62100 cash operations 2004 2003 respectively significant improvement 2005 driven primarily cash used operations 2004 result significant costs incurred three problem lstk projects global power group’s european operations 2004 equityfordebt exchange recur 2005 addition strong operating performance 2005 ec group global power group contributed improvement cash operations improvement 2004 compared 2003 attributable cash generated domestic environmental project italian operations ec group partially offset costs associated aforementioned three problem lstk projects costs associated equityfordebt exchange capital expenditures 2005 10800 compared 9600 2004 12900 2003 investments primarily related information technology equipment office equipment anticipate increase capital expenditures related expansion one foreign manufacturing facilities next 12 months approximately 3500 anticipate financing local debt facility capital expenditures currently anticipated funded internal cash flows cash used financing activities 2005 41500 compared 30500 2004 51800 2003 cash used financing activities results primarily change debt capital lease obligations addition deferred financing costs 13700 paid conjunction new senior credit agreement 2005 outlook closely monitor domestic global liquidity update liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period working capital varies period depending mix stage completion commercial terms conditions contracts working capital ec group tends rise workload increases working capital tends decrease global power workload increases customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts required certain circumstances provide security banks surety obtain new standby letters credit bank guarantees performance bonds certain european subsidiaries required cash collateralized 15600 57200 bonding requirements december 30 2005 december 31 2004 respectively providing cash collateral increases working capital needs limits ability repatriate funds operating subsidiaries foster wheeler ltd foster wheeler llc guarantee several european power project performance bonds totaling approximately 90300 domestic operating entities generate sufficient cash flow cover costs related indebtedness obligations fund us pension plans asbestosrelated liabilities corporate overhead expenses consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2006 forecast assumes total cash repatriation nonus subsidiaries approximately 101600 royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 134900 77000 nonus subsidiaries 2005 2004 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire also access domestic revolving credit facility funded 12400 asbestos liabilities cash flow 2005 expect active settlement negotiations unsettled insurers continue 2006 may determine appropriate course action fund portion asbestos liabilities 2006 coverage litigation settlement negotiations continue elect continue course action may spend cash flow 51000 2006 estimate assumes additional settlements insurance companies considered liquidity forecast also assumes proposed asbestos trust fund legislation recently considered us senate become law proposed legislation become law present form would alter payment obligations would required fund approximately 19250 per year 30 years thus legislation could material adverse impact financial condition results operations longterm cash flow information see risk factor entitled “proposed national asbestos trust fund legislation could require us pay amounts excess current estimates net asbestos liability could adversely affect financial condition results operations longterm cash flow” subsidiaries time entered settlement release agreements resolved coverage litigation certain asbestos insurance companies agreements generally restrict proceeds settlements use behalf subsidiaries asbestos indemnity defense costs proceeds remaining available collected settlement agreements entered 2003 2004 used solely purposes 27900 pending submitted requests equitable adjustment reas 7000 recorded contracts process december 30 2005 consolidated balance sheet reas relate project currently executed us government agency include work performed 2008 time expect recover total amount reas continuing negotiate us government agency regarding reas well potentially restructuring related contract one subsidiaries party contract construct spent nuclear storage facility us government agency require us fund obtain thirdparty project financing full construction price 114000 subject escalation performance bond full construction price contract restructured terminated completed first phase contract currently completing second phase requested clarification certain technical specifications detailed guidance government agency regarding government agencydirected changes project scope government agency failed provide clarification guidance nevertheless directed us proceed third phase contract late july 2005 third phase includes procurement longlead time items construction expected last approximately three years contract could require us fund construction cost project third phase cost estimated exceed 114000 subject escalation contract also requires us provide performance bond full amount construction cost february 2006 entered final modification contract government agency final modification contract terminated nofault basis transfer government agency certain licenses permits contracts drawings documents related project specifically final modification provides transfer government agency licenses permits contracts drawings documents related project released obligations perform contract government agency exchange broad releases claims related project neither party required pay money pursuant final modification government agency process arranging necessary transfers yet complete however expect able complete required transfers final modification target date completion transfers related exchange releases march 6 2006 fail complete transfers released contract would remain legally obligated perform contract case would seek thirdparty financing fund majority construction costs assurance secure financing acceptable terms also assurance able obtain required performance bond necessary financing bonding cannot obtained unlikely would able perform construction obligations contract could material adverse effect financial condition results operations cash flow 505 interest martinez cogen lp refer mclp owns operates natural gas fired cogeneration facility located supplying electrical steam output oil refinery martinez california last year cost natural gas risen sharply increase cost natural gas yet accompanied corresponding increase one electric tariffs upon mclp’s electricity revenues based creating situation circumstances current natural gas costs exceed corresponding revenues electricity steam generated result foregoing assuming market conditions natural gas costs electricity revenues change yearend 2005 mclp unable mitigate effect conditions could incur cash outflow approximately 9300 2006 included impact abovedescribed cash outflow twelvemonth liquidity forecasts continue indicate sufficient liquidity would available meet working capital needs period cash outflow could increase equipment issue related plant resolved timely manner information see risk factor entitled “an equipment issue one power plants currently preventing plant operating full capacity issue resolved timely manner could adverse impact results operations cash flow” however mclp’s management exploring ways mitigate effects foregoing include preliminary discussions refinery customer potential restructuring agreements mclp refinery maintain several defined benefit pension plans north american united kingdom south african canadian operations funding requirements plans dependent part performance global equity markets discount rates used calculate present value liability poor performance global equity markets past low interest rates significantly increased funding requirements plans nonus plans funded local operating cash flows funding us plans included within us working capital requirements us pension plans frozen uk plan closed new entrants south african canadian plans immaterial size funding requirement us plans approximate 24800 2006 projected decline essentially zero 2010 funding requirements foreign plans approximate 29800 2006 required beyond 2010 however contribution requirements subsequent 2010 yet available see note 8 consolidated financial statements form 10k additional information pensions please refer note 7 consolidated financial statements form 10k information regarding longterm debt terms debt trust preferred securities ability redeem otherwise repurchase certain securities periodically evaluate whether repurchase outstanding debt trust preferred securities regard completed transactions january 2006 temporarily increased number common shares delivered upon exercise class b common share purchase warrants raised 75300 net proceeds exercise price per warrant increased offers holders approximately 95 57 class warrants class b warrants participated offers respectively resulting aggregate issuance approximately 8403500 common shares expect obligated use net proceeds resulting exercise warrants reduce outstanding indebtedness transactions believe accretive shareholders however currently specific transactions identified debt expect repay net proceeds offers proceeds applied holders 2011 senior notes security interest stock debt assets certain foster wheeler subsidiaries january 31 2006 entered binding preliminary agreement purchase remaining 51 interest special purpose joint venture company italy dedicated development construction operation wind farm projects italy currently 49 equity interest joint venture company upon completion purchase 100 equity interest joint venture accordance terms preliminary agreement expect pay purchase price 18800 approximately 22500 15400 approximately 18400 payable closing 3400 approximately 4100 due upon start construction one three wind farms developed joint venture company purchase price subject various adjustments based net financial position joint venture company closing date including timing drawdown project debt distributions excess cash joint venture company shareholders assuming joint venture company’s excess cash distributed prior closing adjusted purchase price paid us closing currently estimated approximately 8000 9000 approximately 9600 10800 expect joint venture company borrowed expected closing date approximately 26000 approximately 31200 nonrecourse debt following completion acquisition fully consolidate financial results joint venture company including nonrecourse debt consolidated financial statements completion purchase expected first quarter 2006 since january 15 2002 exercised right defer payments trust preferred securities previous senior credit facility required us defer payment dividends trust preferred securities new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements accordingly dividends paid 2005 2004 intend continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement time required pay 3600 deferred accrued interest trust preferred securities deferred dividend obligation satisfied right defer subsequent dividend payments additional 20 consecutive quarters board directors discontinued payment common share dividends july 2001 prohibited paying dividends prior senior credit facility prohibited new senior credit agreement therefore paid dividends 2005 2004 expect pay dividends common shares foreseeable future capital structure following common shares common share equivalents february 20 2006 offbalance sheet arrangements offbalance sheet financing arrangements form operating leases purchase commitments standby letters credit bank guarantees surety bonds represent financial commitments required reported balance sheet gaap projected cash obligations due arrangements shown caption “contractual obligations” contractual obligations contractual obligations comprised longterm debt deferred accrued interest subordinated deferrable interest debenture noncancelable operating lease commitments purchase commitments capital lease commitments pension funding requirements expected cash flows related contractual obligations outstanding december 30 2005 follows 1 based upon current projections funding requirements us plans expected essentially conclude 2009 funding requirements foreign plans expected extend beyond 2010 however data contribution requirements subsequent 2010 yet available certain instances normal course business provided security contract performance consisting standby letters credit bank guarantees surety bonds december 30 2005 commitments period expiration follows see note 9 consolidated financial statements form 10k discussion guarantees backlog new orders backlog unfilled orders includes amounts based signed contracts well agreed letters intent determined legally binding although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sale subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal ie flowthrough costs foster wheeler scope measures component backlog markup corresponds services plus fees reimbursable contracts total selling price lumpsum contracts overall increase consolidated backlog december 30 2005 compared december 31 2004 attributable primarily ec group awarded number significant contracts 2005 ec group awarded worldscale engineering procurement construction management contract lng expansion project australia engineering procurement construction “epc” contract significant upgrade project refinery united arab emirates epc contract reinstrumentation project refinery belgium epc contract expansion project saudi arabia frontend engineering project management services contract khurais oilfield fullfield development saudi arabia project management consultancy “pmc” production condensate natural gas liquids united arab emirates addition ec group awarded lstk contracts expansion wastetoenergy project italy refinery gas desulphurization project bahrain delayed coker complex chile 2005 global power group awarded lstk contract design supply erection world’s largest cfb boiler world’s first supercritical cfb unit poland major construction contract flue gas desulphurization system commonly referred “scrubber” west virginia lumpsum cfb contract state electric utility greece design engineering construction contract boiler island flue gas treatment system biomassfueled power station england lumpsum design supply contract pulverized coal boiler illinois lumpsum boiler island contract power plant west virginia previously announced global power operating unit longer undertake future engineering procurement construction full power plant lumpsum turnkey basis without partnering one ec business units qualified thirdparty increase ec manhours backlog due primarily award aforementioned ec projects increase workload identified “australasia other” reflects aforementioned lng expansion project australia activities south african subsidiary increase consolidated foster wheeler scope december 30 2005 compared december 31 2004 reflects noted lstk awards less planned run several large lumpsum turnkey contracts european operations global power ec increase consolidated new orders 2005 attributable ec global power groups reflects awards noted inflation effect inflation revenues earnings minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete future periods addition contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method excess one thousand projects within reporting segments various stages completion contracts require estimates determine appropriate final estimated cost refer fec profits revenue recognition percentage complete determining fec use significant estimates forecast quantities expended manhours materials equipment costs quantities including exchange rate fluctuations schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentage complete likelihood client paying work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date financial statements date financial statements filed securities exchange commission fec complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentage complete project life cycle including warranty commitments six years duration project actual results significantly different estimated results adjustments identified near end project full impact change estimate would recognized change margin contract period result material impact results single reporting period accordance accounting disclosure recommendations american institute certified public accountants “aicpa” statement position 811 “accounting performance constructiontype certain productiontype contracts” refer sop 811 accounting principles board opinion 20 “accounting changes” review major contracts monthly result process 2005 approximately 45 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 99600 37600 respectively asbestos us uk subsidiaries codefendants numerous asbestosrelated lawsuits administrative claims pending united states united kingdom calculation asbestosrelated liabilities assets involves use estimates discussed united states december 30 2005 recorded total liabilities 516000 comprised estimated liability 223700 relating open outstanding claims valued estimated liability 292300 relating future unasserted claims yearend 2020 total 75000 recorded accrued expenses 441000 recorded asbestosrelated liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated indemnity defense costs estimated incurred yearend 2020 period new claims forecasted decline year believe likely new claims filed 2020 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2020 historically defense costs represented approximately 21 total defense indemnity costs december 30 2005 total indemnity costs paid prior insurance recoveries approximately 510800 total defense costs paid approximately 136500 2004 retained counsel analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities work us estimate amounts asbestosrelated indemnity defense costs following 15 year period consult arpc end quarter regarding estimate arpc reviewed asbestos indemnity payments defense costs claims activity 2005 compared 15year forecast prepared 2004 2005 number mesothelioma claims filed us significantly higher forecast addition average indemnity amounts paid mesothelioma nonmesothelioma claims significantly higher forecast factors increase indemnity costs partially offset significantly higher forecasted rates dismissals claims zero indemnity payments based review 2005 activity arpc recommended assumptions used estimate future asbestos liability next 15 years updated yearend 2005 accordingly worked arpc develop revised estimate indemnity defense costs 2020 yearend increased liability asbestos indemnity defense costs 2020 516000 brings liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability asset recorded loss 113700 fourth quarter 2005 december 30 2005 recorded assets 320000 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims yearend 2020 24200 asset recorded within accounts notes receivableother 295800 recorded asbestosrelated insurance recovery receivable consolidated balance sheet amount recorded current assets within accounts notes receivableother reflects amounts due 2006 executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers based upon assumptions relating cost allocation application new york law factors well estimate amount recoveries existing settlements insurers since 2003 used outside consultant assist us estimation asbestos insurance asset 2005 retained counsel peterson risk consulting nationally recognized experts estimation insurance recoveries review prior estimate value unsettled insurance asset assist current estimation primary unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset utilized analysis determine estimate value unsettled insurance asset december 30 2005 estimate value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 115000 litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial estimated asbestos insurance asset assuming application new york law new jersey law applied prevail issues litigated asbestos insurance asset could increase significantly prevail whole part litigation revalue asset based asbestos liability estimated time considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believe except insurers become insolvent reserve provided insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation overall average combined indemnity defense cost per resolved claim since 1993 22 average cost per resolved claim increasing believe continue increase future yearend 2005 plan update forecasts periodically take consideration future experience considerations update estimate future costs expected insurance recoveries however noted estimates assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies currently involved litigation subsidiaries’ ability recover insurers uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future costs resolve claims exceeds estimate 2005 likely costs defense indemnity would similarly exceed estimates factors beyond control could material adverse effect financial condition results operations cash flows following chart reflects sensitivities 2005 consolidated financial statements associated change certain estimates used relation domestic asbestosrelated liabilities assumption changes occur impact expense would dependent upon available insurance recoveries assuming change assumptions used estimate insurance asset change liability estimated would cause nearly equal change statement operations longterm cash flow subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining present location cause alleged asbestos claim timing extent presence 2 maintain good records insurance policies identified policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement claims amounts considered reasonable united kingdom december 30 2005 recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivableother 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling change asbestos liability asset recorded uk would approximate 66200 pension postretirement benefits several defined benefit pension plans united states united kingdom canada also defined postretirement benefit plans health care life insurance benefits united states canada us plan frozen uk plan closed new entrants details pension postretirement benefit plans included note 8 consolidated financial statements form 10k calculations pension postretirement benefit liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used present value future obligations • expected longterm rate return plan assets • expected percentage annual salary increases • selection actuarial mortality tables • annual inflation percentage utilize business judgment establishing estimates used calculations pension postretirement benefit liabilities annual service cost cash contributions estimates updated annual basis beginning year frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used pension benefits 2005 2004 2003 determined discount rate plan using marketbased approach matching projected benefit payments spot yield curve highquality corporate bonds projected benefit payments discounted using applicable interest rates yield curve deriving single equivalent discount rate changes discount rate generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolios expected returns asset class developed considering past performance future considerations changes expected longterm rate return generally due lower expected future returns based studies performed external investment advisers following charts reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk pension plans sensitivities reflects evaluation change based solely change particular estimate mortality assumptions us pension plan updated december 30 2005 using 1994 group annuity mortality table resulted increase pension obligation approximately 12000 increase estimated 2006 pension cost approximately 1100 mortality assumptions uk pension plan updated december 31 2005 using pa92 mortality tables short cohort projected life expectancy improvements resulted increase pension obligation approximately 60300 increase estimated 2006 pension cost approximately 9700 december 30 2005 pension plans cumulative net actuarial losses 417700 due differences expected actual plan experience due changes actuarial assumptions occurred time unrecognized net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized unrecognized net actuarial losses outside corridor amortized expected remaining service periods active participants foreign plans approximately 12 years uk plan approximately 8 years canadian plan average life expectancy participants us plan approximately 26 years since benefits frozen onepercentage point decrease current liability interest rate used calculating future funding requirements 2009 would increase cumulative contributions us plan 30000 increase onepercentage point would decrease cumulative contributions 18500 us plan onepercentage point decrease funding interest rate used calculating future funding requirements 2010 would increase contributions uk plan 86600 increase onepercentage point would decrease contributions 67200 uk plan estimated accumulated benefit obligation pension plans exceeded fair value plan assets december 30 2005 december 31 2004 december 26 2003 changes minimum pension liability decreased shareholders’ deficit 4900 2005 58700 2003 increased shareholders’ deficit 19900 2004 following table summarizes estimates used postretirement benefits 2005 2004 2003 determined discount rate plan using marketbased approach matching projected postretirement benefit payments spot yield curve highquality corporate bonds projected postretirement benefit payments discounted using applicable interest rates yield curve deriving single equivalent discount rate changes discount rate generally due changes longterm interest rates december 30 2005 postretirement benefit pension plans cumulative net actuarial losses 35300 due differences expected actual plan experience due changes actuarial assumptions unrecognized net actuarial losses outside corridor amortized expected remaining life expectancy fully eligible participants approximately 13 years addition postretirement benefit plans cumulative unrecognized prior service cost benefits 53100 december 30 2005 unrecognized prior service costs amortized schedules established date plan change weightedaverage approximately 12 years goodwill intangible assets year evaluate goodwill potential impairment prescribed sfas 142 “goodwill intangible assets” test impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” 2005 2004 evaluation indicated adjustment carrying value goodwill required income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment statutory purposes majority deferred tax assets valuation allowance provided december 30 2005 begin expire 2024 beyond based current tax laws valuation allowance 260100 recorded december 30 2005 liquidity forecasting closely monitor domestic global liquidity update liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period domestic operating entities generate sufficient cash flow cover costs related indebtedness obligations fund us pension plans asbestosrelated liabilities corporate overhead expenses consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2006 forecast assumes total cash repatriation nonus subsidiaries approximately 101600 royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 134900 77000 nonus subsidiaries 2005 2004 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory financing requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors may limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire also access domestic revolving credit facility described note 7 consolidated financial statements form 10k accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 30 2005 awards fully vested december 30 2005 2006 operating results expected include approximately 6500 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements management’s discussion analysis financial condition results operations fw preferred capital trust amounts thousands dollars fw preferred capital trust capital trust 100 indirectlyowned finance subsidiary foster wheeler ltd 1999 capital trust issued 175000 trust preferred securities capital trust invested proceeds trust preferred securities equal principal amount 9 junior subordinated deferrable interest debentures foster wheeler llc prior december 27 2003 capital trust consolidated financial statements 2004 adopted fin 46 “consolidation variable interest entities” refer fin 46 variable interest entities formed prior february 1 2003 accordance provisions fin 46 determined although capital trust variable interest entity foster wheeler ltd primary beneficiary accordingly deconsolidated capital trust december 27 2003 consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures reported interest expense consolidated statement operations comprehensive loss following management’s discussion analysis certain significant factors affected financial condition results operations capital trust periods indicated management’s discussion analysis sections annual report form 10k contain forwardlooking statements based management’s assumptions expectations projections capital trust forwardlooking statements nature involve degree risk uncertainty overview capital trust financial condition results operations capital trust dependent financial condition results operations foster wheeler ltd foster wheeler llc since capital trust’s assets debentures capital trust’s source income cash interest income debentures essentially terms trust preferred securities therefore capital trust make payments trust preferred securities foster wheeler llc first makes payments debentures since january 15 2002 foster wheeler llc exercised right defer payments debentures previous senior credit facility required foster wheeler llc defer payment dividends trust preferred securities new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements accordingly dividends paid 2005 2004 september 2004 foster wheeler ltd completed equityfordebt exchange offer issued common shares preferred shares common share purchase warrants foster wheeler ltd exchange trust preferred securities conjunction exchange capital trust recorded 103800 reduction trust preferred securities 31100 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding reduction debentures accrued interest receivable august 2005 foster wheeler ltd completed another equityfordebt exchange issued common shares foster wheeler ltd exchange remaining portion trust preferred securities conjunction exchange capital trust recorded 65200 reduction aggregate liquidation amount existing trust preferred securities 26100 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding decrease debentures accrued interest receivable results operations capital trust nm meaningful interest income represents accrual interest debentures interest accrues annual rate 9 outstanding amount debentures compounded quarterly additionally interest accrues accrued unpaid interest annual rate 9 compounded quarterly well interest income accrued 2004 2003 result financial condition foster wheeler llc foster wheeler ltd valuation allowance investment debentures related interest income receivable established based financial condition foster wheeler llc foster wheeler ltd foster wheeler llc’s decision exercise right defer payments debentures since january 15 2002 change valuation allowance resulted increase market price trust preferred securities deemed proxy fair value debentures market price per security trust preferred securities 3720 december 30 2005 2705 december 31 2004 300 december 26 2003 capital trust recorded gain exchange trust preferred securities 39400 2004 difference gain recognized capital trust 39400 gain recorded foster wheeler llc 66400 due 1 34700 loss recognized capital trust settlement 593 subordinated deferrable interest debentures corresponding accrued interest 2 transaction fees 4200 writeoff unamortized issuance costs 3500 borne solely foster wheeler llc preferred security distributions expense represents accrual cash distributions due trust preferred securities distributions accrue annual rate 9 outstanding liquidation amount trust preferred securities compounded quarterly additionally deferred distributions accrue interest annual rate 9 compounded quarterly well decrease preferred security distributions expense 2005 2004 results primarily reduction amount trust preferred securities outstanding result equityfordebt exchanges noted previously capital trust deferred distributions trust preferred securities conjunction foster wheeler llc’s decision defer interest payments debentures since january 15 2002 financial condition capital trust investment subordinated deferrable interest debentures decreased 71200 december 31 2004 6000 december 30 2005 result impact equityfordebt exchange consummated 2005 similarly accrued interest receivable subordinated deferrable interest debentures net valuation allowance decreased 5800 december 31 2004 2700 december 30 2005 result impact equityfordebt exchange consummated 2005 decrease deferred accrued mandatorily redeemable preferred security distributions payable 2700 december 30 2005 23500 december 31 2004 results primarily impact equityfordebt exchanges partially offset continued deferral distributions trust preferred securities preferred securities holders’ deficit decreased 17600 0 december 30 2005 result decrease valuation allowance resulted increase market price trust preferred securities liquidity capital resources capital trust capital trust’s ability continue dependent foster wheeler ltd’s foster wheeler llc’s financial condition capital trust’s asset debentures foster wheeler llc indirect wholly owned subsidiary foster wheeler ltd essentially holding company owns stock various subsidiary companies included consolidated financial statements safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made foster wheeler representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler various industries within operate include statements regarding expectation revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries • changes financial condition customers • changes regulatory environment • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • recoverability claims customers others • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated management’s discussion analysis financial condition results operations sections annual report form 10k contain forwardlooking statements based assumptions expectations projections company various industries within operate forwardlooking statements nature involve degree risk uncertainty caution variety factors could cause business conditions results differ materially contained forwardlooking statements additional risk information see item 1a “risk factors” discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k overview operate two business groups global engineering construction group refer global ec group global power group addition corporate center expenses corporate debt expenses corporate expenses related certain legacy liabilities asbestos reported independently corporate finance group refer cf group fiscal year 2006 results earned record net income fiscal year 2006 driven primarily performance global ec group net income fiscal year 2006 262000 included 100100 net asbestosrelated gains 15000 charge related voluntary replacement prior domestic senior credit agreement 12500 charge debt reduction initiatives additional highlights fiscal year 2006 included following • consolidated operating revenues increased 589 3495000 compared fiscal year 2005 reflecting greater business activity global ec group global power group • consolidated new orders measured terms future revenues increased 175 4892200 compared fiscal year 2005 • consolidated backlog unfilled orders measured future revenues december 29 2006 increased 471 5431400 compared december 30 2005 • consolidated backlog measured terms foster wheeler scope defined december 29 2006 increased 171 2528200 compared december 30 2005 • settled four insurers resolve disputed asbestosrelated coverage successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers result settlements together impact revaluation asbestos liability estimate recorded net gains asbestos 100100 please refer note 20 consolidated financial statements annual report form 10k information • generated net cash operations 263700 ended year record total cash restricted cash shortterm investments 630000 • executed new 350000 fiveyear domestic senior credit agreement increases bonding capacity provides 100000 revolving borrowings current usage rates saves approximately 8000 annual bonding costs please refer note 7 consolidated financial statements annual report form 10k information • substantially completed debt reduction program january 2006 completed two warrant offer transactions raised 75300 net proceeds april 2006 consummated exchange 1277900 common shares 50000 thenoutstanding aggregate principal amount 2011 senior notes used cash generated warrant offers 1 redeem remaining 61500 outstanding aggregate principal amount 2011 senior notes remaining 6000 outstanding trust preferred securities 2 execute open market purchase 1000 principal amount outstanding convertible notes 3 pay accrued unpaid interest 2011 senior notes trust preferred securities 4 pay related transaction fees expenses debt reduction initiatives reduced carrying amount outstanding debt 122100 please refer note 7 consolidated financial statements annual report form 10k information challenges drivers primary operating focus continues booking quality new business executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products markets continued strong 2006 turn continued stimulate investment new expanded plants clients expect markets remain strong throughout 2007 therefore attracting retaining qualified technical personnel continue management priority global ec group’s new orders increased 199 3695300 fiscal year 2006 compared fiscal year 2005 expect capital investments markets served global ec group including chemical petrochemical oil refining liquefied natural gas upstream oil gas industries remain strong throughout 2007 result also expect demand services equipment supplied engineering construction contractors us remain strong throughout 2007 global power group’s new orders increased 106 1196900 fiscal year 2006 compared fiscal year 2005 believe global power markets strengthened 2006 believe significant growth opportunities 2007 power markets serve solid fuelfired boilers boiler services boiler environmental products boilerrelated construction services believe well positioned address global ec group global power group markets 2007 liquidity forecast cash flow rolling twelvemonth period project sufficient cash available existing cash balances cash flow operations fund working capital needs throughout period please refer “ liquidity capital resources” annual report form 10k additional details results operations consolidated operating revenues increase consolidated operating revenues fiscal year 2006 reflected success addressing strong market activity global ec group global power group please refer section entitled “reportable segments” within item 7 note 17 consolidated financial statements annual report form 10k information revenue increase 2006 due largely significant increase bookings occurred fiscal year 2005 early part fiscal year 2006 global ec group global power group however 289400 increase 2006 resulted increase versus 2005 flowthrough revenues costs global ec group projects executed united kingdom continental europe asiapacific operations flowthrough revenues costs relate projects purchase install equipment behalf customers reimbursable basis markup flowthough revenues costs impact contract profit net earnings increased amounts flowthrough revenues costs effect reducing reported profit margins percent operating revenues fiscal year 2005 change reflected lower revenues global ec global power groups lower revenues global ec group related primarily reduction flowthrough costs united kingdom continental europe asiapacific operations fiscal year 2005 approximately 500000 decline revenues global power group resulted several large lumpsum turnkey lstk contracts europe substantially completed fiscal year 2004 replaced fiscal year 2005 intend global power group pursue additional lstk contracts full power plants without partnering global ec group qualified thirdparty consolidated contract profit consolidated contract profit computed consolidated operating revenues less consolidated cost operating revenues increase contract profit fiscal year 2006 compared fiscal year 2005 primarily reflected significant increase volume revenues described global ec group global power group increased margins earned global ec group partially offset project writedowns global power group please refer section entitled “reportable segments” within item 7 information increase contract profit fiscal year 2005 reflected increase volume projects executed compared fiscal year 2004 result significant new awards late fiscal year 2004 early part fiscal year 2005 contract profit fiscal year 2004 also included profit reversals losses totaling 74800 three large global power group lstk contracts europe consolidated selling general administrative sga expenses sga expenses included costs associated general management sales pursuit including proposal expenses research development costs increase sga expenses fiscal year 2006 resulted primarily increases general overhead costs 23800 research development costs 100 partially offset decrease sales pursuit costs 15300 increase general overhead resulted primarily 3200 severance costs fiscal year 2006 domestic european global power group businesses relating several senior management changes 7600 additional noncash equitybased compensation expense fiscal year 2006 resulting primarily adoption statement financial accounting standard “sfas” 123r “sharebased payment” 6200 increase personnel costs including increase related shortterm incentive expense 2800 costs associated wind canadian operations decline sales pursuit costs reflected part reduction number major lstk proposals 2006 increase fiscal year 2005 resulted primarily increase general overhead 15000 partially offset reductions sales pursuit costs 7100 research development costs 5100 increase general overhead resulted primarily noncash amortization expense 8900 relating restricted equity awards issued employees longterm incentive program implemented conclusion equityfordebt exchange 2004 consolidated income fiscal year 2006 consisted primarily 15100 interest income 29300 equity earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 1000 gain sale previously mothballed manufacturing facility dansville new york 9200 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 600 investment income fiscal year 2006 majority owners certain build operate projects italy sold interests another thirdparty prior sale share earnings minority interests projects reported pretax basis consolidated income associated taxes reported consolidated provision income taxes partners elected passthrough taxation treatment local law direct result ownership change resulting sale subject entities precluded electing passthrough taxation treatment result commencing fiscal year 2006 reported share related aftertax earnings consolidated income change reduced consolidated income consolidated provision taxes 8600 fiscal year 2006 income fiscal year 2005 consisted primarily 8900 interest income 30600 equity earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 1500 gain recognized united kingdom sale investment 9000 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1300 investment income fiscal year 2004 consisted primarily 8800 interest income 34200 equity earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 15900 net gains sales minority equity interests specialpurpose companies established develop power plant projects europe sale minority interest wastetoenergy project italy 8600 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1400 investment income 4500 gains dispute settlements consolidated deductions fiscal year 2006 consisted primarily 7200 bank fees 17300 legal fees 4800 consulting fees 1700 foreign exchange losses 6400 provision environmental dispute resolution remediation costs 4100 charge tax penalties partially offset 1300 bad debt recovery deductions fiscal year 2005 consisted primarily 8800 bank fees 3500 associated prior senior credit facility 12800 legal fees 2700 foreign exchange losses 4200 environmental costs 1400 charges related common share purchase warrants offers commenced december 2005 partially offset 6700 bad debt recovery deductions fiscal year 2004 consisted primarily 17200 professional fees expenses restructuring activities domestic us credit agreements 3000 legal fees 2600 relating governmentmandated postretirement benefits france consolidated interest expense change interest expense fiscal year 2006 compared fiscal year 2005 reflected benefits debt reduction initiatives completed fiscal year 2006 latter half fiscal year 2005 change interest expense fiscal year 2005 compared fiscal year 2004 reflected benefits three equityfordebt exchanges completed august 2005 november 2005 september 2004 please refer notes 6 7 consolidated financial statements annual report form 10k information consolidated minority interest minority interest reflected thirdparty ownership interests results global power group’s martinez california gasfired cogeneration facility manufacturing facilities poland people’s republic china change minority interest expense based upon changes underlying earnings subsidiaries consolidated net asbestosrelated gainsprovision nm meaningful net asbestosrelated gain fiscal year 2006 resulted primarily asbestos insurance settlement gains 96200 gain 19500 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers partially reduced charge 15600 reflecting revaluation asbestos liability resulting increased asbestos defense costs projected yearend 2021 addition another year 15year asbestos liability estimate net asbestosrelated provision fiscal year 2005 resulted revaluation estimated asbestos indemnity defense costs liability estimated asbestos insurance receivable net asbestosrelated provision fiscal year 2004 resulted reduction asbestos insurance receivable 75800 recorded fourth quarter 2004 resulted aforementioned initial new york state trial court decision partially offset 15200 gains asbestos insurance settlements please refer note 20 consolidated financial statements annual report form 10k information prior domestic senior credit agreement fees expenses nm meaningful prior domestic senior credit agreement fees expenses resulted voluntary replacement prior domestic senior credit agreement new domestic senior credit agreement october 2006 required pay prepayment fee 5000 result early termination prior agreement along 500 termination fees expenses early termination also resulted impairment 9500 unamortized fees expenses paid 2005 associated agreement total recorded charge 15000 fiscal year 2006 connection termination prior domestic senior credit agreement please refer note 7 consolidated financial statements annual report form 10k information consolidated loss debt reduction initiatives loss debt reduction initiatives fiscal year 2006 resulted debt reduction activities completed second quarter 2006 charge income reflected loss 8200 exchange transaction 2011 senior notes resulting primarily difference fair market value common shares issued carrying value 2011 senior notes exchanged loss 3900 redemption 2011 senior notes resulting primarily makewhole premium payment loss 200 redemptions trust preferred securities convertible notes resulting primarily writeoff deferred charges consolidated loss debt reduction initiatives offset improvement consolidated shareholders’ equitydeficit 58800 resulting issuance common shares loss debt reduction initiatives fiscal year 2005 resulted trust preferred securities exchange offer consummated august 2005 2011 senior notes exchange offer consummated november 2005 resulted charges income 41500 16800 respectively charges offset aggregate improvement consolidated shareholders’ equitydeficit 297000 charges substantially noncash reflect differences carrying values debt market prices common shares closing dates exchanges loss debt reduction initiatives fiscal year 2004 resulted equityfordebt exchange offer consummated september 2004 loss exchange offset improvement consolidated shareholders’ equitydeficit 623200 charge substantially noncash resulted primarily exchange convertible notes please refer notes 6 7 consolidated financial statements annual report form 10k information consolidated tax provision consolidated tax provision resulted fact certain operating units europe asia profitable required provision national andor local income taxes consolidated tax provision also included certain domestic state taxes us permanent booktax differences additionally taxes may payable countries operating units executed projectrelated work pretax earnings profitable operations could offset certain operations generating losses regard operations generating losses sfas 109 “accounting income taxes” requires us reduce deferred tax benefits valuation allowance based upon available evidence likely tax benefits realized operations future entities subject valuation allowances subsequently generate pretax earnings valuation allowance would reduced favorably impact effective tax rate occurred fiscal year 2006 us result net asbestosrelated gains certain nonus jurisdictions effective tax rate dependent location amount taxable earnings effects changes valuation allowances difference statutory effective tax rates fiscal year 2006 resulted predominantly earnings jurisdictions previously recorded full valuation allowance primarily us 2006 generated net asbestosrelated gains certain nonus jurisdictions nonus earnings taxed rates lower us statutory rate offset losses subject valuation allowance certain nonus jurisdictions certain us permanent booktax differences difference statutory effective tax rates fiscal year 2005 resulted predominantly taxable income certain jurisdictions primarily nonus combined change valuation allowance offsetting loss benefits jurisdictions primarily us monitor jurisdictions valuation allowances deferred tax assets established previous years currently experiencing positive earnings trend certain jurisdictions continue evaluate need reverse valuation allowances respect deferred tax assets jurisdictions quarterly basis evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority domestic federal tax benefits valuation reserves taken expire 2024 beyond based current tax laws consolidated ebitda nm meaningful ebitda fiscal year 2006 included impact increased margins volume work executed global ec group aforementioned net asbestos gains partially offset impact debt reduction initiatives costs associated voluntary replacement prior domestic senior credit agreement ebitda fiscal years 2005 2004 included charges related asbestos completed equityfordebt exchange offers strong operating performance global ec group partially offset 50200 writedowns global power group projects europe north america please refer section entitled “reportable segments” within item 7 information ebitda supplemental nongenerally accepted accounting principle financial measure ebitda defined income taxes interest expense depreciation amortization presented ebitda believe important supplemental measure operating performance ebitda adjustment certain unusual infrequent items specifically excluded terms current prior senior credit agreements used certain covenants current prior senior credit agreements believe line item consolidated statement operations comprehensive incomeloss entitled “net incomeloss” directly comparable generally accepted accounting principle “gaap” financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net incomeloss indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information compared net incomeloss directly comparable gaap financial measure users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation must utilize substantial property plant equipment order generate revenues operations depreciation necessary ongoing part costs therefore measure excludes depreciation material limitations reconciliation ebitda nongaap financial measure net incomeloss believe directly comparable gaap financial measure shown 1 includes general corporate income expense captive insurance operation eliminations 2 includes fiscal year 2006 decreasedincreased contract profit 5700 regular reevaluation contract profit estimates 14700 global ec group 20400 global power group net asbestosrelated gains 100100 recorded cf group aggregate charge 15000 recorded cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12500 recorded cf group conjunction debt reduction initiatives completed april may 2006 3 includes fiscal year 2005 increased contract profit 99600 regular reevaluation contract profit estimates 66300 global ec group 33300 global power group charge 113700 cf group revaluation estimated asbestos liability asbestos insurance receivable credit agreement costs cf group associated prior senior credit facility 3500 aggregate charge 58300 cf group recorded conjunction exchange offers trust preferred securities 2011 senior notes 4 includes fiscal year 2004 increaseddecreased contract profit 37600 regular reevaluation contract profit estimates 83200 global ec group 45600 global power group gain 19200 global ec group sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 global ec group sale 10 equity interest wastetoenergy project italy charge 75800 cf group revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf group settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf group net charge 175100 cf group recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 global ec group 1900 global power group 900 cf group reportable segments use several financial metrics measure performance business segments ebitda discussed defined primary earnings measure used chief decision makers global ec group results increase operating revenues fiscal year 2006 compared fiscal year 2005 reflected increased volumes work global ec group operating units major projects middle east australia chile italy oil gas refining chemical petrochemical industries led increase activities increase ebitda fiscal year 2006 resulted primarily increased volumes work improved margins global ec operations markets served global ec group remain strong published reports capacity constraints engineering construction industry increased direct manpower 47 fiscal year 2006 primarily united kingdom indian north american asian offices help capture market growth plan continue expand operational capacity throughout 2007 combination organic growth selective acquisitions change operating revenues fiscal year 2005 primarily reflected 500000 reduction flowthrough costs partially offset strong operating performance united kingdom increase ebitda fiscal year 2005 resulted primarily strong operational performance european operations driven project cost underruns award project incentives overview segment expect strong global economic growth demand oil gas petrochemicals refined products stimulated investment new expanded plants past year continue throughout 2007 although oil gas prices fallen record highs continue historically high levels additionally price differential heavier highersulfur crude oil lighter sweeter crudes remained wide throughout 2006 factors leading increased investment upstream midstream downstream oil gas facilities expect trend continue throughout 2007 anticipate spending upstream midstream oil gas facilities continue increase regions particularly west africa middle east russia caspian states believe rising demand natural gas europe asia united states combined shortfall indigenous production continues act stimulant liquefied natural gas “lng” business expect investment continue throughout 2007 lng liquefaction plants receiving terminals believe global refining system currently running high utilization rates combined increasing global demand transportation fuels crude pricing differential discussed continue stimulate refinery investment particularly process heavier highersulfur crudes crude price differential also creates financial incentives upgrading refinery residue higher value transportation fuels expect see continued substantial investment bottomofthebarrel upgrading projects europe united states potentially asia believe clients decide make additional investments refineries 2007 considerable experience expertise area including proprietary delayed coking technology yearend 2006 working 33 delayed coking projects allow refineries upgrade lower quality crude oil refinery residue high value refined products jet fuel projects executed include feasibility studies frontend engineering design contracts coker technology license agreements engineering procurement construction supervision contracts full lstk contracts global ec group’s proprietary coking technology knowhow extensive experience designing constructing delayed cokers place us good competitive position address market delayed coking projects currently executed located south america us europe india refinery capacity constraints generating interest additional refinery capacity greenfield expansions major new investments already commenced additional investments planned projects middle east major expansion plans implemented new facilities india southeast asia china believe current cycle investment us european refineries meet demands clean fuels legislation wound however refineries middle east north africa asia embarking similar programs addition believe increased investment 2007 2008 aromatics production expect lead investment refineries petrochemical facilities currently working environmentally driven projects middle east europe investment petrochemical plants rose sharply 2004 2005 response strong growth demand majority investment centered middle east believe continued strong demand would support new investment middle east asia throughout 2007 continue execute several major petrochemical contracts outlook oil gas refining petrochemicals 2007 remains positive possible demand cost engineering construction services materials equipment commodities continues rise delivery schedule engineering construction services lengthens clients may elect cancel delay investments market slows investment new pharmaceutical production facilities slowed period 2004 2006 believe attributable industry cost pressure increased regulation investment focused plant upgrading improvement projects rather major new production facilities indications renewed interest significant plant investment key pharmaceutical investment hubs singapore ireland puerto rico global power group results increase operating revenues fiscal year 2006 fiscal year 2005 resulted execution increased bookings occurred largely latter half 2005 early part 2006 operations europe north america global power group experienced lower levels ebitda fiscal year 2006 compared fiscal year 2005 global power group’s ebitda adversely impacted poor performance eight contracts resulting approximately 54200 charges profit losses europe north america fiscal year 2006 net gains approximately 2600 contract dispute settlements clients north america occurred fiscal year 2005 repeated fiscal year 2006 charge approximately 7100 fiscal year 2006 associated wind canadian operations reduced margins projects currently executed europe north america versus several high margin contracts executed asia fiscal year 2005 included 54200 charges profit losses contingency 25000 established fourth quarter 2006 one european power legacy engineering procurement construction project bid 2001 awarded 2002 prior implementation risk management controls project risk management group project source previous writedowns profit reversals 2004 two plants involved project completed operating experienced series technical issues extent detected fourth quarter 2006 currently believe resolve technical issues largely involve corrosion front end plant caused client’s use fuel within contract specifications well backend corrosion occurring subcontractorprovided emissions control equipment induction fans currently dispute client subcontractor financially responsible required plant modifications information please see note 20 consolidated financial statements annual report form 10k senior management implemented number improvements commercial operational processes global power group 2006 first reduced operating authorities several subsidiaries respect technology scope work done ensure subsidiaries bidding established clear track record past successes commercial best practices global ec group applied global power group commercial oversight provided individual transferred global ec group addition governance routine management project operations improved strengthened finally number personnel changes made strengthen commercial operations groups global power group change operating revenues fiscal year 2005 primarily reflects european unit’s execution completion several major lstk projects full power plants fiscal year 2004 replaced fiscal year 2005 global power group currently authorized undertake lstk contracts full power plants without involvement global ec group qualified external partner improvement ebitda fiscal year 2005 reflects significantly improved earnings european operations compared fiscal year 2004 period project losses incurred overview segment although solid fuelfired boiler market remains highly competitive believe several continuing global market forces positively influence global power group believe continued worldwide economic growth driving power demand growth world regions addition global natural gas oil supply concerns driven gas oil prices upwards historically high levels expect natural gas fuel price volatility remain high next 35 years due declining domestic supplies world’s largest industrialized countries addition expect growth sales environmental retrofit products due tightening environmental regulations including development growing acceptance global greenhouse gas regulation believe combined effect factors significant positive influence demand products services new utility industrial solid fuel boilers boiler services boiler environmental products boilerrelated construction services north america believe declining generating capacity reserves across region coupled persistent high oil natural gas pricing spurring market growth large coal utility boilers given uncertainty future greenhouse gas regulation seeing growing market preference supercritical utility boilers plants use technologies operate efficiently producing least amount air emissions including greenhouse gas per unit electricity produced believe clients selecting technologies hedge future greenhouse gas mercury pollutant regulation could occur near term due market direction global power group actively marketing largescale supercritical boiler technology part utility boiler product portfolio capitalize business opportunity industrial sector seeing growth solid fuel industrial boiler market driven high oil gas pricing boilers offer industrial clients attractive economic solution supply energy needs utilizing low cost biomass solid opportunity fuels many fuels also carry governmental tax credits financial incentives encourage use renewable fuels making attractive industrial utility power sectors believe cfb boiler technology well positioned serve market segment due outstanding fuel flexibility excellent environmental performance us environmental protection agency’s epa’s recent finalization clean air interstate rule implementation earlier new source review lawsuit settlements brought number utilities epa continue drive strong retrofit pollution control market including addon pollution control systems low nox combustion systems selective catalytic reduction systems flue gas desulphurization systems market trend benefit sales environmental products finally believe due reducing capacity margins represent amount unused available electric generating capacity percentage total electric capacity coal utility power plants operating greater capacity produce electricity turn spurring maintenance investment owners also think owners making larger capital investments plants extend lives believe factors helping maintain strong boiler service market benefit boiler service business europe believe many market forces discussed resulting similar beneficial market trends european power business believe declining power capacity reserves across region coupled persistent high oil natural gas pricing spurring market growth large utility coal boilers due europe’s historical preference high efficiency coal power plants active greenhouse gas regulation power plants emissions trading scheme believe supercritical boiler technology continue preference utility boiler market sector market segment believe supercritical cfb technology significantly increases opportunity take full advantage substantial domestic coal reserves held many industrialized nations fourth quarter 2005 awarded lstk contract design supply erection world’s largest first supercritical cfb boiler poland project currently construction industrial sector driven increasing power prices high oil gas pricing seeing growth solid fuel industrial power market benefiting sales industrial boilers european union eu established regulation incentive programs encourage use biomass waste fuels believe spurring growth industrial utility sectors cfb boilers market believe eu’s new landfill waste recycling directives opened new market cfb boilers firing refuse derived fuels eu’s large combustion plant directive lcpd expected drive growth retrofit pollution control market benefit environmental products business due lcpd’s relatively mild first step reduction goals expect see significant growth 2008 sector finally coal utility power plants europe operating greater capacity produce electricity spurring maintenance life extension investment owners similar us reduced capacity margins driving market positive effect volume boiler service sales asia believe high economic growth continues drive strong power demand growth demand new power capacity believe region’s historically high coal use coupled high world oil gas pricing likely continue drive growth coalfueled utility industrial boilers region contains world’s largest utility industrial boiler markets china india offering opportunities global power group businesses historically difficult foreign companies penetrate markets due national trade policies client preference local companies maximize opportunities continuing licensing strategy gives us double benefit gaining access closed markets expanding capacity resources licensees expand global market place due region’s growing environmental awareness see opportunities cfbs well supercritical pulverized coal pc boiler technologies well biomass opportunity fuel applications also see substantial opportunity cfb boilers potentially large indian power market resulting country’s abundant low quality coals finally reduced capacity margins also resulting coal utility power plants operating greater capacity produce electricity turn spurs maintenance life extension investment owners offering opportunity boiler services due market factors global power group actively marketing pc cfb boilers utilizing conventional supercritical steam designs well boiler maintenance services worldwide scale liquidity capital resources fiscal year 2006 activities december 29 2006 record amount cash equivalents hand shortterm investments restricted cash totaling 630000 compares 372700 december 30 2005 increase resulted primarily cash provided operations 263700 generated primarily increased margins volumes business foreign global ec group subsidiaries 630000 total december 29 2006 509100 held foreign subsidiaries please refer note 1 consolidated financial statements annual report form 10k additional details cash restricted cash balances increase cash flows operations fiscal year 2005 compared fiscal year 2004 resulted improved operating performance global ec group global power group addition cash flows operations fiscal year 2004 included significant expenditures incurred three problematic lstk projects global power group’s european operations professional fees expenses associated equityfordebt exchange 2004 cash outflows investing activities primarily related capital expenditures 30300 10800 9600 fiscal years 2006 2005 2004 respectively capital expenditures related primarily leasehold improvements information technology equipment office equipment global ec group offices united kingdom continental europe asiapacific expansion global power group’s manufacturing facility china expenditures reflect increased volumes business groups cash provided financing activities 500 fiscal year 2006 compared cash used financing activities 41500 30500 fiscal years 2005 2004 respectively significant improvement fiscal year 2006 resulted primarily proceeds generated exercise common share purchase warrants stock options partially offset reduction debt capital lease obligations addition financing fees expenses 5700 13700 paid fiscal year 2006 2005 respectively conjunction execution new senior credit agreements october 2006 closed new 350000 fiveyear domestic senior credit agreement replaced domestic senior credit agreement arranged 2005 new domestic senior credit agreement provides 100000 increased letter credit capacity financial flexibility significantly lower cost compared prior domestic senior credit agreement please refer note 7 consolidated financial statements annual report form 10k details regarding new domestic senior credit agreement assets andor stock certain domestic foreign subsidiaries collateralize obligations new domestic senior credit agreement new domestic senior credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ltd change foster wheeler ltd’s fiscal year respect foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business addition new domestic senior credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined new domestic senior credit agreement also limits aggregate amount capital expenditures single fiscal year 40000 subject certain exceptions must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions new domestic senior credit agreement 2006 substantially completed debt reduction program consummated equityfordebt exchange 50000 outstanding aggregate principal amount 2011 senior notes also completed transactions increased number common shares delivered upon exercise class b common share purchase warrants offer period raised 75300 net proceeds used warrant proceeds redeem remaining 61500 outstanding aggregate principal amount 2011 senior notes remaining 6000 outstanding aggregate principal amount trust preferred securities execute open market purchase 1000 principal amount outstanding convertible notes debt reduction initiatives reduced carrying amount debt 122100 april 2006 also completed purchase remaining 51 interest mf power srl special purpose joint venture 49 owned global ec group prior acquisition 100 equity interest mf power srl renamed fw power srl fw power srl 26200 approximately 31700 exchange rate effect closing nonrecourse project debt closing 16700 approximately 20300 exchange rate effect closing cash closing date please refer note 2 consolidated financial statements annual report form 10k details regarding amounts paid connection acquisition please refer note 7 consolidated financial statements annual report form 10k details regarding amount fw power srl project debt outstanding december 29 2006 outlook weekly liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries working capital needs unused credit line availability claims recoveries proceeds asset sales forecasts extend rolling twelvemonth period continue indicate existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout 2007 majority cash balances invested shortterm interest bearing accounts considering investing cash longerterm investment opportunities acquisition entities operations engineering construction industry andor reduction certain liabilities certain unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts required certain circumstances provide security banks surety obtain new standby letters credit bank guarantees performance bonds certain european subsidiaries required cash collateralized 5300 15600 bonding requirements december 29 2006 december 30 2005 respectively domestic operating entities generate sufficient cash flow cover costs related obligations fund us pension plans corporate overhead expenses asbestos liabilities certain discretionary corporate transactions consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2007 forecast assumes total cash repatriation nonus subsidiaries approximately 90000 royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 110900 134900 nonus subsidiaries fiscal years 2006 2005 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire continue access domestic revolving credit facility needed net positive cash inflow 6500 fiscal year 2006 asbestos management program net cash inflow represents excess cash receipts existing insurance settlements indemnity payments defense costs expect fund 32300 asbestos liability indemnity defense costs cash flow fiscal year 2007 net cash expected received existing insurance settlements estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestos insurance liability asbestos insurance receivable recorded balance sheet decrease anticipate spending 17800 approximately 23500 current exchange rate fw power srl 2007 continue construction electric power generating wind farm projects italy anticipate financing 15600 approximately 20600 current exchange rate construction costs special purpose limited recourse project debt although financing yet secured intend borrow domestic revolving credit facility 2007 please refer note 7 consolidated financial statements annual report form 10k information regarding debt obligations declared paid common share dividend since july 2001 prohibited paying dividends two prior senior credit agreements current credit agreement also contains limitations dividend payments plans pay dividend 2007 capital structure following common shares common share equivalents february 20 2007 convertible preferred share convertible holder’s option 65 common shares class warrant entitles owner purchase 16841 common shares exercise price 9378 per common share class warrants exercisable september 24 2009 class b warrant entitles owner purchase 00723 common shares exercise price 9378 per common share class b warrants exercisable september 24 2007 offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilean project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease commitments pension funding requirements expected cash flows related contractual obligations outstanding december 29 2006 follows 1 funding requirements expected extend beyond 2011 however data contribution requirements subsequent 2011 yet available projections assume make discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2007 expect fund 32300 asbestos liability indemnity defense costs cash flow fiscal year 2007 net cash expected received existing insurance settlements please refer note 20 consolidated financial statements annual report form 10k information certain instances normal course business provided security contract performance consisting standby letters credit bank guarantees surety bonds december 29 2006 commitments period expiration follows please refer note 9 consolidated financial statements annual report form 10k discussion guarantees backlog new orders backlog unfilled orders includes amounts based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal ie flowthrough costs foster wheeler scope measures component backlog markup corresponds services plus fees reimbursable contracts total selling price lumpsum contracts overall increase consolidated backlog december 29 2006 compared december 30 2005 attributable global ec group number significant contracts significant contracts entered global ec group fiscal year 2006 included engineering procurement construction management epcm contract shell eastern petroleum pte ltd ethylene oxidemonoethylene glycol plant associated refinery modifications singapore engineering procurement construction epc contract lucite international singapore pte ltd grassroots methyl methacrylate plant singapore epc contract gas facility saudi arabia epc contract voreas srl wind farm italy contracts reliance petroleum limited perform process detailed engineering supply delayed coking technology provide four coker heaters coker project india epcm contract sinclair oil corporation provide delayed coker facility united states epc contract cogeneration facility european refinery contract epc phase heavy crude expansion project refinery united states epc contract rabigh refining petrochemical company utilities offsite work worldscale integrated refining petrochemical complex rabigh saudi arabia epcm contract kuwait olefins company ethylene oxidemonoethylene glycol unit kuwait epc contract safety automating services unheading valve interlock systems delayed coking unit refinery united states significant contracts entered global power group fiscal year 2006 included design supply ds contract two heat recovery steam generators plants europe ds contract votorantim metais niquel sa petcoke fired cfb boiler plant south america ds contract china petrochemical corporation three cfb boilers petrochemical facility people’s republic china ds contract harbin power engineering company ltd design package two cfb boilers plant asia ds contract two cfb boilers new solidfuel power plant texas ds contract salt river project agricultural improvement power district pulverizedcoal boiler power plant united states contract deven jsco subsidiary solvay sodi supply cfb boiler island chemical plant bulgaria contract supply new lownox burners upgrade mill classifiers power plant spain ds contract subsidiary shaw group inc provide cleco power llc subsidiary cleco corp two cfb boilers used proposed solidfuel generating unit power station louisiana ds contract abalco sa two cfb boilers alumina refinery brazil design supply erection contract tornion voima oy subsidiary etelapohjanmaan voima oy peat biomassfired cfb boiler island unit combined heat power plant finland inflation effect inflation revenues earnings minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixed price contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value less 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred include flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs excess one thousand contracts within reporting segments various stages completion contracts require estimates determine appropriate final estimated cost refer fec profits revenue recognition percentage complete determining fec use significant estimates forecast quantities expended manhours materials equipment costs quantities including exchange rate fluctuations schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentage complete likelihood client paying work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date financial statements date financial statements filed securities exchange commission fec complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentage complete project life cycle including warranty commitments six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate would recognized change margin contract period result material impact results single reporting period accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” sfas 154 “accounting changes error correctionsa replacement apb opinion 20 fasb statement 3” review material contracts monthly revise estimates appropriate estimate revisions include increases decreases estimated profit result events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle result review process 29 45 54 separate projects final estimated profit revisions exceeding 1000 fiscal years 2006 2005 2004 respectively changes final estimated profits resulted net decreaseincrease accrued profits approximately 5700 99600 37600 fiscal years 2006 2005 2004 respectively asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers actual dollar values required resolve mesothelioma claims united states december 29 2006 recorded total liabilities 466000 comprised estimated liability 203500 relating open outstanding claims valued estimated liability 262500 relating future unasserted claims yearend 2021 total 75000 recorded accrued expenses 391000 recorded asbestosrelated liability consolidated balance sheet since yearend 2004 worked analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs following 15year period set forth arpc reviews asbestos indemnity payments defense costs claims activity previous year compares 15year forecast prepared previous yearend based review arpc may recommend assumptions used estimate future asbestos liability following 15year period updated appropriate liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense costs total estimated defense costs indemnity liability estimated incurred year 2021 period new claims forecasted decline year believe likely new claims filed 2021 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2021 historically defense costs represented approximately 27 total defense indemnity costs december 29 2006 total indemnity costs paid prior insurance recoveries approximately 574600 total defense costs paid approximately 212400 december 29 2006 recorded assets 363700 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims yearend 2021 47000 asset recorded within accounts notes receivableother 316700 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated asset amount recorded within accounts notes receivableother reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers insurance coverage litigation referred based upon assumptions relating cost allocation application new jersey law certain insurance coverage issues factors well estimate amount recoveries existing settlements insurers since yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset yearend 2006 utilized analysis determine estimate value unsettled insurance asset december 29 2006 estimated value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 32700 litigation relates amounts insurance coverage available asbestosrelated claims new york state court proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believe except insurers become insolvent reserve provided insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation overall average combined indemnity defense cost per resolved claim 24 average cost per resolved claim increasing believe continue increase future yearend 2006 plan update forecasts periodically take consideration future experience considerations update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities 2006 consolidated financial statements associated change certain estimates used relation domestic asbestosrelated liabilities increase 25 average indemnity settlement amount would increase liability 81200 described impact expense would dependent upon available insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 60 70 increase liability longterm cash flow would ultimately change amount increase estimated liability excess 25 percentage insurance recovery decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining present location cause alleged asbestos claim timing extent presence 2 maintain good records insurance policies identified policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement claims amounts considered reasonable united kingdom december 29 2006 recorded total liabilities 35800 comprised estimated liability relating open outstanding claims 6600 estimated liability relating future unasserted claims yearend 2021 29200 total 2200 recorded accrued expenses 33600 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 2200 recorded accounts notes receivableother 33600 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed asbestos liability asset recorded uk would approximate 57600 defined benefit pension postretirement benefit plans defined benefit pension plans united states united kingdom canada finland france postretirement benefit plans health care life insurance benefits united states canada us plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory additionally one subsidiaries united states also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 required us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet december 29 2006 sfas 158 also requires us recognize gains losses arise future periods recognized component annual service cost component comprehensive incomeloss net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset component accumulated comprehensive loss consolidated balance sheet provisions sfas 158 could applied retrospectively please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual inflation rate utilize business judgment establishing estimates used calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions estimates updated annual basis beginning year frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate defined benefit pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension plans fiscal years 2006 2005 2004 discount rate developed using marketbased approach matching projected benefit payments spot yield curve highquality corporate bonds changes discount rate generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolios expected returns asset class developed considering past performance future considerations changes expected longterm rate return generally due lower expected future returns changes mix assets following charts reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate december 29 2006 defined benefit pension plans net actuarial losses 393700 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses reflect differences expected actual plan experience due changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants foreign plans 11 years uk plans 9 years canadian plan 18 years finnish plan average life expectancy participants us plans approximately 26 years since benefits frozen addition defined benefit pension plans prior service costs 38600 recognized accumulated comprehensive loss consolidated balance sheet december 29 2006 prior service costs amortized schedules established date plan change 11 years uk plans estimated net actuarial loss prior service cost amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 20700 5100 respectively onetenth percentage point decrease current liability interest rate used calculating future funding requirements us plans 2011 would increase cumulative contributions approximately 2000 increase onetenth percentage point would decrease cumulative contributions approximately 2000 onetenth percentage point decrease funding interest rate used calculating future funding requirements uk plans 2011 would increase cumulative contributions approximately 7200 increase onetenth percentage point would decrease cumulative contributions approximately 5600 following table summarizes estimates used postretirement benefit plans fiscal years 2006 2005 2004 determined discount rate using marketbased approach matching projected postretirement benefit payments spot yield curve highquality corporate bonds changes discount rate generally due changes longterm interest rates december 29 2006 postretirement benefit plans net actuarial losses 25300 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses outside corridor amortized average life expectancy inactive participants 13 years benefits frozen addition postretirement benefit plans prior service credits 48300 recognized accumulated comprehensive loss consolidated balance sheet december 29 2006 prior service credits amortized schedules established date plan change 10 years estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 1600 4800 respectively sharebased compensation plans sharebased compensation plans include restricted stock awards stock option awards prior december 31 2005 accounted sharebased employee compensation plans measurement recognition provisions accounting principles board “apb” opinion 25 “accounting stock issued employees” permitted sfas 123 “accounting stockbased compensation” accordingly used intrinsic value method accounting stock option awards recognize compensation expense stock options granted exercise price equal greater market price common stock date grant result recognition sharebased compensation expense generally limited expense attributed restricted stock awards accordance sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” provided pro forma net income loss net earnings loss per common share disclosures period prior december 31 2005 applied fair valuebased method measuring compensation expense sharebased compensation plans including stock options effective december 31 2005 adopted fair value provisions sfas 123r using modified prospective transition method recognize sharebased compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 ii future sharebased payment awards based grant date fair value estimated accordance provisions sfas 123r elected use modified prospective transition method results prior periods restated compensation cost sharebased plans 16500 8900 1700 charged income fiscal years 2006 2005 2004 respectively related income tax benefit recognized consolidated statement operations comprehensive incomeloss 300 100 fiscal years 2006 2005 2004 respectively received 17600 1200 cash option exercises sharebased compensation plans fiscal years 2006 2005 respectively options exercised fiscal year 2004 december 29 2006 8300 9100 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized weightedaverage period approximately 33 months fair value option award estimated date grant using blackscholes option valuation model incorporates assumptions regarding number complex subjective variables recognize fair value option compensation cost ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common shares date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term options granted chief executive officer based combination vesting schedules life option past history estimates future exercise behavior patterns employees estimate expected term using “simplified” method outlined staff accounting bulletin 107 “topic 14 sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected life options effect time grant • dividends use expected dividend yield zero declared paid dividend since july 2001 • forfeitures estimate forfeitures time grant revise estimates subsequent periods actual forfeitures differ estimates use combination historical data demographic characteristics estimate prevesting option forfeitures record sharebased compensation expense awards expected vest purposes calculating pro forma information sfas 123 periods prior december 31 2005 accounted forfeitures occurred cumulative effect adjustment related forfeitures upon adoption sfas 123r immaterial factors change employ different assumptions application sfas 123r future periods compensation expense record sfas 123r future awards may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense sfas 123r option pricing models developed use estimating value traded options vesting hedging restrictions fully transferable cause dilution sharebased payments characteristics significantly different freely traded options changes subjective input assumptions materially affect estimates fair values existing valuation models may provide reliable measures fair values sharebased compensation consequently risk estimates fair values sharebased compensation awards grant dates may bear little resemblance actual values realized upon exercise expiration forfeiture sharebased payments future stock options may expire worthless otherwise result zero intrinsic value compared fair values originally estimated grant date reported consolidated financial statements alternatively value may realized instruments significantly excess fair values originally estimated grant date reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments goodwill intangible assets least annually evaluate goodwill potential impairment prescribed sfas 142 “goodwill intangible assets” test impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” 49200 goodwill 13700 intangible assets relates global power group’s european operations experienced number performance related issues performance unit deteriorate future possible amounts could become impaired requiring writedown carrying values 2006 2005 evaluation indicated adjustment carrying value goodwill intangible assets required income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment statutory purposes majority deferred tax assets valuation allowance provided december 29 2006 begin expire 2024 beyond based current tax laws valuation allowance 313000 recorded december 29 2006 accounting developments february 2006 financial accounting standards board “fasb” issued sfas 155 “accounting certain hybrid instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 allows financial instruments embedded derivatives accounted whole eliminating need bifurcate derivative host holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued fiscal years beginning september 15 2006 expect adoption new standard material impact financial position results operations cash flows july 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty tax positions requires recognize financial statements impact tax position likely sustained audit based technical merits position provisions fin 48 effective fiscal years beginning december 15 2006 cumulative effect change accounting principle recorded adjustment opening retained earnings substantially completed review impact financial statements adopting fin 48 commencing fiscal year 2007 expect record charge fiscal 2007 opening accumulated deficit approximately 3000 6000 result adoption september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective financial statements issued fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities choose measure many financial instruments certain items fair value currently required measured fair value unrealized gains losses items fair value option elected reported earnings sfas 159 affect existing accounting literature requires certain assets liabilities carried fair value sfas 159 effective fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler various industries within operate include statements regarding expectation revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment oil gas oil refining chemicalpetrochemical power industries • changes financial condition customers • changes regulatory environment • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • benefits effects results redomestication • changes rate economic growth united states major international economies • changes investment oil gas oil refining chemicalpetrochemical power industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war andor terrorist attacks facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition nonus us companies • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses related certain legacy liabilities asbestos corporate finance group refer cf group since fiscal year 2007 exploring acquisitions within engineering construction industry strategically complement expand technical capabilities access new market segments fiscal year 2008 acquired usbased biopharmaceutical engineering company part strategy enhance positioning pharmaceutical marketplace especially us acquired majority assets work force engineering design company engineering center kolkata india provides engineering services petrochemical refining upstream oil gas power industries also exploring acquisitions within power industry complement product offering however assurance consummate acquisitions future subsequent fiscal year ended december 26 2008 special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred “redomestication” effectively changed place incorporation bermuda canton zug switzerland please refer item 1 “business redomestication” note 21 consolidated financial statements annual report form 10k information related redomestication including summary pro forma financial information december 26 2008 fiscal year 2008 results earned record net income fiscal year 2008 driven primarily strong operating performance global ec group global power group fiscal year 2008 reported net income 526600 compared net income 393900 fiscal year 2007 increase net income fiscal year 2008 compared fiscal year 2007 resulted primarily following • increased contract profit 151300 mainly driven increased volume operating revenues excluding flowthrough revenues impact contract profit see “ results operationsoperating revenues” detailed discussion flowthrough revenues additionally contract profit increase included net impact following • 7500 commitment fee received fiscal year 2008 contract global power group awarded • net impact contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information legacy project • 9600 increase fiscal year 2007 contract profit portion favorable resolution project claims described • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate fourteenpercentage point reduction effective tax rate fiscal year 2008 • net valuation allowance decrease consisting primarily reversal valuation allowance deferred tax assets one nonus subsidiaries decrease valuation allowance recognized earnings jurisdictions continue maintain full valuation allowance partially offset establishment valuation allowance deferred tax assets another nonus subsidiaries total changes valuation allowance contributed approximate sixpercentage point reduction effective tax rate fiscal year 2008 increases partially offset following • net asbestosrelated provision 6600 cf group fiscal year 2008 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 42700 offset gains 36100 settlement coverage litigation certain insurance carriers • charge 9000 global power group primarily severancerelated postemployment benefits accordance statement financial accounting standards sfas 112 “employers’ accounting postemployment benefits amendment fasb statements 5 43” severance charge results efforts rightsize power business match anticipated market conditions fiscal year 2009 9000 charge decreased contract profit 6600 increased selling general administrative expenses 2100 increased deductions net 300 • increase selling general administrative expenses 37600 fiscal year 2008 compared fiscal year 2007 inclusive 2100 severancerelated charges described • net asbestosrelated gain 6100 cf group fiscal year 2007 related gains 13500 settlement coverage litigation certain asbestos insurance carriers charge 7400 revaluation asbestos liability related asset • 14400 gain global power group related favorable resolution project claims fiscal year 2007 14400 gain increased contract profit 9600 interest income 4000 reduced deductions net 800 additional highlights included following • consolidated operating revenues increased 34 6854300 fiscal year 2008 compared 5107200 fiscal year 2007 increase operating revenues fiscal year 2008 reflects increased flowthrough revenues 1376400 greater business activity global ec group global power group • generated net cash operating activities 428900 • consolidated new orders measured terms future revenues 4056000 fiscal year 2008 compared 8882800 fiscal year 2007 • consolidated backlog unfilled orders measured future revenues december 26 2008 5504400 compared 9420400 december 28 2007 • consolidated backlog measured terms foster wheeler scope defined section entitled “ backlog new orders” within item 7 december 26 2008 2539300 compared 3294600 december 28 2007 challenges drivers primary operating focus continues booking quality new business executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products global ec business longterm demand forecasted strong end products produced clients expected continue stimulate investment clients new expanded plants therefore attracting retaining qualified technical personnel execute existing backlog unfilled orders future bookings continue management priority equally important ensuring maintain appropriate management infrastructure integrate manage technical personnel believe primary drivers constraints global ec market global economic growth clients’ longterm view oil natural gas prices end product demand scope timing client investments see “ results operationsbusiness segmentsglobal ec groupoverview segment” additional discussion challenges drivers impact global ec group including view current global economic outlook global power group business believe primary drivers constraints global steam generator market economic growth power plant price inflation concern related greenhouse gas emissions entry new geographic markets impact environmental regulation capacity constraints electricity markets drivers differ across world regions countries provinces see “ results operationsbusiness segmentsglobal power groupoverview segment” additional discussion challenges drivers impact global power group including view current global economic outlook new orders global ec group’s new orders measured future revenues decreased 2707500 fiscal year 2008 compared 6874600 fiscal year 2007 new orders inclusive estimated flowthrough revenues defined 604600 4723800 fiscal years 2008 2007 respectively global power group’s new orders decreased 1348500 fiscal year 2008 compared 2008200 fiscal year 2007 new orders fiscal year 2008 impacted delays seen power markets serve challenges drivers global ec group global power group discussed detail section entitled “ business segments” within item 7 results operations operating revenues composition operating revenues varies period based portfolio contracts execution given period operating revenues therefore dependent portfolio contracts strength various geographic markets industries serve ability address markets industries geographic dispersion consolidated operating revenues fiscal years 2008 2007 2006 based upon project executed follows australasia primarily represents australia new zealand pacific islands fiscal year 2008 vs fiscal year 2007 increase operating revenues fiscal year 2008 compared fiscal year 2007 driven global ec group experienced operating revenue increase 1466000 representing 84 consolidated operating revenue increase operating revenue increase result global ec group’s success meeting strong market demand oil gas petrochemical refining industries stimulated investment customers fiscal year 2008 global ec group operating revenues three industries increased 1622500 operating revenues industries serve declined 156500 please refer section entitled “ business segments” within item 7 discussion view outlook oil gas petrochemical refining industries global ec group’s operating revenues fiscal year 2008 included 2914100 flowthrough revenues flowthrough revenues increased 1377000 fiscal year 2007 representing 94 increase global ec group’s operating revenues 79 increase consolidated operating revenues flowthrough revenues costs result purchase materials equipment thirdparty services behalf customer reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flow costs flowthrough revenues costs impact contract profit net earnings global power group predominantly serves power generation industry contributed 281100 16 increase consolidated operating revenues fiscal year 2008 increase operating revenues global power group primarily attributable execution projects located europe north america south america please refer section entitled “ business segments” within item 7 information fiscal year 2007 vs fiscal year 2006 increase operating revenues fiscal year 2007 compared fiscal year 2006 driven global ec group experienced operating revenues increase 1462200 representing 91 consolidated operating revenues increase fiscal year 2007 global ec group’s operating revenues increase driven oil gas petrochemical refining industries operating revenues increased 1554400 operating revenues industries experienced slight decline global ec group’s operating revenues fiscal year 2007 included 1537100 flowthrough revenues increase flowthrough revenues 848300 fiscal year 2006 representing 58 increase global ec group’s operating revenues 53 increase consolidated operating revenues global power group contributed 150000 9 increase consolidated operating revenues fiscal year 2007 increase operating revenues global power group primarily attributable execution projects located europe asia contract profit contract profit computed operating revenues less cost operating revenues “flowthrough” amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce contract profit margin calculation included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance fiscal year 2008 vs fiscal year 2007 increase contract profit fiscal year 2008 compared fiscal year 2007 resulted primarily net impact following • global ec group experienced increased contract profit mainly driven increased volume operating revenues additionally global ec group experienced increased contract profit margins excluding impact contract profit margins flowthrough revenues • global power group experienced increased volume operating revenues markedly increased contract profit margins fiscal year 2008 compared fiscal year 2007 excluding items noted impacted contract profit global power group • 7500 increase contract profit commitment fee received fiscal year 2008 contract global power group awarded • 6600 decrease contract profit severancerelated postemployment benefits accordance sfas 112 • net impact contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information • 9600 increase contract profit gain fiscal year 2007 related favorable resolution project claims global power group fiscal year 2007 vs fiscal year 2006 increase contract profit fiscal year 2007 compared fiscal year 2006 resulted primarily net impact following • global ec group experienced increased contract profit mainly driven increased volume operating revenues additionally global ec group experienced increased contract profit margins excluding impact contract profit margins flowthrough revenues • global power group experienced increased volume operating revenues increased contract profit margins fiscal year 2007 compared fiscal year 2006 excluding items noted impacted contract profit global power group • 9600 increase contract profit gain fiscal year 2007 related favorable resolution project claims global power group • net impact contract profit charges 30000 25000 fiscal years 2007 2006 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information please refer section entitled “ business segments” within item 7 information selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs fiscal year 2008 vs fiscal year 2007 increase sga expenses fiscal year 2008 compared fiscal year 2007 results increases sales pursuit costs 17200 general overhead costs 17700 research development costs 700 severancerelated postemployment benefits accordance sfas 112 global power group 2100 increase general overhead costs primarily attributable increased volume business fiscal year 2008 drove increase number nontechnical support staff related costs general overhead costs increase also includes charges related settlement pension obligations certain former employees 900 please refer note 8 consolidated financial statements included annual report form 10k information fiscal year 2007 vs fiscal year 2006 increase sga expenses fiscal year 2007 compared fiscal year 2006 results increases sales pursuit costs 10300 general overhead costs 7400 research development costs 3200 increase sga expenses fiscal year 2007 compared fiscal year 2006 primarily attributable increased volume business fiscal year 2007 drove increase number nontechnical support staff related costs income net fiscal year 2008 income net fiscal year 2008 consisted primarily 33400 equity earnings generated ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 9600 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1700 gain insurance settlement share equity earnings certain projects italy favorably impacted 5700 3400 related reporting periods prior fiscal year 2008 result regulatory ruling enacted fiscal year 2008 provides reimbursement costs associated emission rights share equity earnings certain projects italy unfavorably impacted 4900 result change tax rates relates projects addition share equity earnings project chile increased 1600 due increase electric tariff rates compared fiscal year 2007 average electric tariff rates decrease income net fiscal year 2008 compared fiscal year 2007 primarily results 6600 gain real estate investment fiscal year 2007 fiscal year 2007 income net fiscal year 2007 consisted primarily 37300 equity earnings generated ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 6600 gain real estate investment 9400 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt fiscal year 2006 income net fiscal year 2006 consisted primarily 29300 equity earnings generated ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 1000 gain sale previously closed manufacturing facility dansville new york 9200 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt third quarter 2006 majority owners certain italian projects sold interests another thirdparty prior sale equity net earnings projects reported pretax basis income net associated taxes reported provision income taxes partners elected passthrough taxation treatment projects local law direct result ownership change arising sale subject entities precluded electing passthrough taxation treatment result commencing fiscal year 2006 equity aftertax earnings projects reported income net change reduced income net provision taxes 8600 fiscal year 2006 deductions net fiscal year 2008 deductions net fiscal year 2008 consisted primarily 23100 legal fees 16500 net foreign exchange losses 4300 bank fees 4200 provision dispute resolution environmental remediation costs 1500 consulting fees 1400 fees related redomestication see “ overview” additional discussion redomestication partially offset net 2400 reduction tax penalties includes 5000 previously accrued tax penalties ultimately assessed net foreign exchange losses include net amount transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries fiscal year 2008 net foreign exchange losses primarily resulted sharp decline value british pound relative us dollar fiscal year 2007 deductions net fiscal year 2007 consisted primarily 3600 bank fees 20500 legal fees 800 consulting fees 2600 foreign exchange losses 1500 tax penalties accrued penalties unrecognized tax benefits 10100 provision dispute resolution environmental remediation costs fiscal year 2006 deductions net fiscal year 2006 consisted primarily 7200 bank fees 17300 legal fees 4800 consulting fees 1700 foreign exchange losses 6400 provision dispute resolution environmental remediation costs 4100 charge tax penalties partially offset 1300 bad debt recovery interest income fiscal year 2008 vs fiscal year 2007 increase interest income fiscal year 2008 compared fiscal year 2007 driven primarily higher average cash equivalents balances partially offset lower interest rates investment yields fiscal year 2007 vs fiscal year 2006 increase interest income fiscal year 2007 compared fiscal year 2006 driven primarily higher average cash equivalents balance additional benefits higher interest rates investment yields interest expense fiscal year 2008 vs fiscal year 2007 decrease interest expense fiscal year 2008 compared fiscal year 2007 resulted primarily reduction debt camden new jersey wastetoenergy facility discussed acquisition robbins 1999c bonds october 2008 please refer note 7 consolidated financial statements annual report form 10k information partially offset increase interest expense resulting increased borrowings fw power srl specialpurpose limited recourse project debt continue construction electric power generating wind farm projects italy fiscal year 2007 vs fiscal year 2006 decrease interest expense fiscal year 2007 compared fiscal year 2006 resulted benefits debt reduction initiatives completed second quarter 2006 please refer note 6 consolidated financial statements annual report form 10k information minority interest income consolidated affiliates fiscal year 2008 vs fiscal year 2007 minority interest income consolidated affiliates represents thirdparty ownership interests results global power group’s martinez california gasfired cogeneration facility manufacturing facilities poland people’s republic china change minority interest income consolidated affiliates based upon changes underlying earnings subsidiaries increase minority interest income consolidated affiliates fiscal year 2008 compared fiscal year 2007 primarily resulted reallocation income us minority partner martinez california facility partially offset decreased earnings mainly driven higher natural gas pricing incremental benefit increased electricity sales fiscal year 2007 vs fiscal year 2006 increase minority interest income consolidated affiliates 2007 primarily driven higher plant availability 2007 martinez facility shut two repair outages 2006 net asbestosrelated provisiongain fiscal year 2008 fiscal year 2008 net asbestosrelated provision resulted expense 42700 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 partially offset gain 36100 associated settlement agreements subsidiaries reached certain insurance carriers fiscal year 2007 fiscal year 2007 net asbestosrelated gain resulted gain 13500 associated settlement agreements subsidiaries reached four insurers partially offset net charge 7400 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 rolling 15 year asbestos liability estimate fiscal year 2006 fiscal year 2006 net asbestosrelated gain resulted gain 96200 associated settlement agreements subsidiaries reached four insurers gain 19500 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers partially offset expense 15600 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2021 rolling 15 year asbestos liability estimate please refer note 19 consolidated financial statements annual report form 10k information prior domestic senior credit agreement fees expenses fiscal year 2006 prior domestic senior credit agreement fees expenses resulted voluntary replacement prior domestic senior credit agreement new domestic senior credit agreement october 2006 required pay prepayment fee 5000 result early termination prior agreement along 500 termination fees expenses early termination also resulted impairment 9500 unamortized fees expenses paid 2005 associated agreement total recorded charge 15000 fiscal year 2006 connection termination prior domestic senior credit agreement loss debt reduction initiatives fiscal year 2006 loss debt reduction initiatives fiscal year 2006 resulted debt reduction activities completed second quarter 2006 charge income reflects loss 8200 exchange transaction 2011 senior notes resulting primarily difference fair market value common shares issued carrying value 2011 senior notes exchanged loss 3900 redemption 2011 senior notes resulting primarily makewhole premium payment loss 200 redemptions trust preferred securities convertible notes resulting primarily writeoff deferred charges loss debt reduction initiatives fiscal 2006 offset improvement shareholders’ equitydeficit 58800 resulting issuance common shares provision income taxes effective tax rate fluctuate significantly period may differ significantly us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate also result inability recognize tax benefit losses generated certain unprofitable operations addition sfas 109 “accounting income taxes” requires us reduce deferred tax benefits valuation allowance based upon available evidence likely tax benefit losses deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate effective tax rate therefore dependent location amount taxable earnings effects changes valuation allowances fiscal year 2008 effective tax rate fiscal year 2008 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate fourteenpercentage point reduction effective tax rate fiscal year 2008 • valuation allowance decrease consisting reversal valuation allowance deferred tax assets one nonus subsidiaries decrease valuation allowance recognized earnings jurisdictions continue maintain full valuation allowance factors reduce effective tax rate partially offset establishment valuation allowance deferred tax assets another nonus subsidiaries inability recognize tax benefit losses subject valuation allowance certain jurisdictions permanent differences total changes valuation allowance contributed approximate sixpercentage point reduction effective tax rate fiscal year 2008 fiscal year 2007 effective tax rate fiscal year 2007 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate tenpercentage point reduction effective tax rate fiscal year 2007 • valuation allowance decrease contributed approximate twopercentage point reduction effective tax rate fiscal year 2007 decrease valuation allowance occurred fiscal year ended december 28 2007 recognized earnings jurisdictions continue maintain full valuation allowance variances partially offset losses certain jurisdictions benefit recognized valuation allowance established permanent differences fiscal year 2006 effective tax rate fiscal year 2006 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate ninepercentage point reduction effective tax rate fiscal year 2006 • valuation allowance decrease contributed approximate fourpercentage point reduction effective tax rate fiscal year 2006 decrease valuation allowance occurred fiscal year ended december 29 2006 recognized earnings jurisdictions continue maintain full valuation allowance variances partially offset losses certain jurisdictions benefit recognized valuation allowance established permanent differences monitor jurisdictions valuation allowances deferred tax assets established previous years quarterly basis evaluate need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary trend positive earnings continues jurisdictions recorded valuation allowance primarily united states may conclude valuation allowance longer needed statutory purposes majority us federal tax benefits valuation allowances established expire fiscal year 2024 beyond based current tax laws ebitda fiscal year 2008 vs fiscal year 2007 improvement ebitda fiscal year 2008 compared fiscal year 2007 resulted primarily following • increased contract profit global ec group global power group mainly driven increased volume operating revenues incremental benefit increased contract profit margins global ec group global power group excluding impact contract profit margins flowthrough revenues please refer section entitled “ contract profit” discussion contract profit contract profit margins impact flowthrough revenues contract profit margin calculation • increase share equity earnings certain global ec group’s projects italy 5700 fiscal year 2008 3400 related reporting periods prior fiscal year 2008 result recently enacted regulatory ruling provides reimbursement costs associated emission rights • 7500 increase contract profit result commitment fee received fiscal year 2008 contract global power group awarded • increase 1600 share equity earnings one global power group’s equity interest investments fiscal year 2008 due impact increase electric tariff rates chile compared fiscal year 2007 average electric tariff rates • net impact contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information increases partially offset following • 16500 net foreign exchange loss primarily resulted sharp decline value british pound relative us dollar • net asbestosrelated provision 6600 cf group fiscal year 2008 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 42700 offset gains 36100 settlement coverage litigation certain insurance carriers please refer section entitled “ net asbestosrelated provisiongain” within item 7 information • net asbestosrelated gain 6100 cf group fiscal year 2007 related gains 13500 settlement coverage litigation certain asbestos insurance carriers charge 7400 revaluation asbestos liability related asset please refer section entitled “ net asbestosrelated provisiongain” within item 7 information • decrease share equity earnings certain global ec group’s projects italy 4900 fiscal year 2008 result change tax rates relates projects • charge 9000 global power group primarily severancerelated postemployment benefits accordance sfas 112 9000 charge decreased contract profit 6600 increased sga expenses 2100 increased deductions net 300 • increase sga expenses 37600 fiscal year 2008 compared fiscal year 2007 inclusive 2100 severancerelated charges described • 2200 impairment charge global ec group fiscal year 2008 related 15 owned investment power project development italy carried cost • 14400 gain global power group related favorable resolution project claims fiscal year 2007 14400 gain increased contract profit 9600 interest income 4000 reduced deductions net 800 see individual segment explanations additional details fiscal year 2007 vs fiscal year 2006 improvement ebitda fiscal year 2007 compared fiscal year 2006 resulted primarily following • increased volumes business strong operating performance sustained margins global ec group global power group please refer section entitled “ contract profit” discussion contract profit margins • 14400 gain global power group related favorable resolution project claims fiscal year 2007 14400 gain increased contract profit 9600 interest income 4000 reduced deductions net 800 • aggregate charge 15000 fiscal year 2006 conjunction voluntary termination prior domestic senior credit agreement net charge 12500 conjunction debt reduction initiatives completed april may 2006 increases partially offset following • net asbestosrelated gain 6100 cf group fiscal year 2007 compared net asbestosrelated gain 100100 fiscal year 2006 please refer section entitled “ net asbestosrelated provisiongain” within item 7 information • net impact 5000 contract profit related charges 30000 25000 fiscal years 2007 2006 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information please refer section entitled “ business segments” within item 7 information ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance ebitda adjustment certain unusual infrequent items specifically excluded terms current prior senior credit agreements used certain covenants current prior senior credit agreements believe line item consolidated statements operations comprehensive income entitled “net income” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net income shown 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 includes fiscal year 2008 increaseddecreased contract profit 26700 regular reevaluation final estimated contract profits 46300 global ec group 19600 global power group charge 9000 global power group primarily severancerelated postemployment benefits accordance sfas 112 net charge 6600 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 42700 partially offset gains 36100 settlement coverage litigation certain insurance carriers 3 includes fiscal year 2007 increaseddecreased contract profit 35100 regular reevaluation final estimated contract profits 54500 global ec group 19400 global power group gains 13500 cf group settlement coverage litigation certain asbestos insurance carriers charge 7400 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 rolling 15 year asbestos liability estimate 4 includes fiscal year 2006 decreasedincreased contract profit 5700 regular reevaluation final estimated contract profits 14700 global ec group 20400 global power group net asbestosrelated gains 115700 cf group primarily settlement coverage litigation certain asbestos insurance carriers charge 15600 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2021 rolling 15 year asbestos liability estimate aggregate charge 15000 cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12500 cf group conjunction debt reduction initiatives completed april may 2006 please refer “revenue recognition longterm contracts” note 1 consolidated financial statements annual report form 10k information regarding changes final estimated contract profits accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments ebitda discussed defined primary measure operating performance used chief operating decision maker global ec group results geographic dispersion global ec group’s operating revenues fiscal years 2008 2007 2006 based upon project executed follows australasia primarily represents australia new zealand pacific islands please refer section entitled “ overview segment” view market outlook global ec group fiscal year 2008 vs fiscal year 2007 increase operating revenues fiscal year 2008 compared fiscal year 2007 reflected increased volumes work flowthrough revenues result global ec group’s success meeting strong market demand oil gas petrochemical refining industries stimulated investment customers fiscal year 2008 global ec group’s operating revenues three industries increased 1622500 operating revenues industries serve declined 156500 please refer section entitled “ overview segment” view outlook oil gas petrochemical refining industries global ec group’s operating revenues fiscal year 2008 included 2914100 flowthrough revenues flowthrough revenues increased 1377000 fiscal year 2007 representing 94 increase global ec group’s operating revenues previously discussed flowthrough revenues costs impact contract profit net earnings increase global ec group’s ebitda fiscal year 2008 compared fiscal year 2007 resulted primarily following • increased contract profit global ec group mainly driven increased volume operating revenues incremental benefit increased contract profit margins excluding impact contract profit margins flowthrough revenues please refer section entitled “ contract profit” discussion contract profit contract profit margins • increased volumes business due strength industries served sustained demand products services geographic markets served demand discussed section “ overview segment” • increase share equity earnings certain global ec group’s projects italy 5700 fiscal year 2008 3400 related reporting periods prior fiscal year 2008 result regulatory ruling enacted fiscal year 2008 provides reimbursement costs associated emission rights increases offset part following • 14800 net foreign exchange loss primarily resulted sharp decline value british pound relative us dollar • decrease share equity earnings certain global ec group’s projects italy 4900 fiscal year 2008 result change tax rates relates projects • 2200 impairment charge global ec group fiscal year 2008 related 15 owned investment power project development italy carried cost increased direct technical manpower includes agency workforce 27 fiscal year 2008 primarily asian north american united kingdom offices continue address growing market opportunities continued increase operational capacity meaning available manhours applied projects enabled global ec group address increased level market demand fiscal year 2008 allowing us increase volume work associated operating revenues fiscal year 2007 vs fiscal year 2006 increase operating revenues fiscal year 2007 compared fiscal year 2006 reflected increased volumes work global ec group operating units fiscal year 2007 global ec group operating revenues oil gas petrochemical refinery industries increased 1554400 operating revenues industries served declined 92200 global ec group’s operating revenues fiscal year 2007 included 1537100 flowthrough revenues increase flowthrough revenues 848300 fiscal year 2006 representing 58 increase global ec group operating revenues period increase ebitda fiscal year 2007 compared fiscal year 2006 resulted primarily increased volumes work global ec group operating units global ec group experienced sustained margins excluding impact margins flowthrough revenues compared fiscal year 2006 caused increased volumes work result corresponding increase ebitda increased direct technical manpower includes agency workforce 21 fiscal year 2007 primarily asian north american united kingdom offices continue address growing market opportunities overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels global ec group generates revenues engineering procurement construction project management activities pursuant contracts spanning approximately four years duration returns equity investments various power production facilities global ec group owns one leading technologies delayed coking used refinery residue upgrading hydrogen production process used oil refineries petrochemical plants additionally global ec group experience able work wide range processes owned others current weakness global economy caused many ec clients reevaluate size timing scope capital spending plans relation kinds energy petrochemical projects specialize drop oil natural gas prices lesser extent credit concerns among certain clients contributed uncertain market tone result environment prospective projects become somewhat less favorable fiscal year 2007 earlier fiscal year 2008 specifically market late fiscal year 2008 early fiscal year 2009 characterized instances postponement cancellation prospects resizing prospective projects make economically viable intensified competition among ec contractors pricing pressure factors may pronounced fiscal year 2009 believe world demand energy continue grow long term clients continue invest new upgraded capacity meet demand regard successful continuing book contracts frontend engineering work frequently precursor additional significant contractual work engineering procurement construction moreover continued successful booking contracts varying types sizes key end markets success regard reflection technical expertise longterm relationships clients selective approach pursuit new prospects believe significant differentiators global power group results geographic dispersion global power group’s operating revenues fiscal years 2008 2007 2006 based upon project executed follows australasia primarily represents australia new zealand pacific islands please refer section entitled “ overview segment” view market outlook global power group fiscal year 2008 vs fiscal year 2007 increase global power group’s ebitda fiscal year 2008 compared fiscal year 2007 resulted primarily following • increased volumes business executed period refer section “ overview segment” discussion strength industries served demand products services • global power group experienced improved contract profit margins fiscal year 2008 compared fiscal year 2007 excluding items noted impacted contract profit global power group • 7500 increase contract profit result commitment fee received fiscal year 2008 contract global power group awarded • net impact contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information • increase share equity earnings one global power group’s equity interest investments approximately 1600 fiscal year 2008 due impact increase electric tariff rates chile compared fiscal year 2007 average electric tariff rates increases partially offset following • charge 9000 global power group primarily severancerelated postemployment benefits accordance sfas 112 severance charge results efforts rightsize power business match anticipated market conditions fiscal year 2009 9000 charge decreased contract profit 6600 increased sga expenses 2100 increased deductions net 300 • 2200 net foreign exchange loss fiscal year 2008 • ebitda fiscal year 2007 includes 14400 gain related favorable resolution project claims increased contract profit 9600 interest income 4000 reduced deductions net 800 fiscal year 2007 vs fiscal year 2006 global power group experienced higher levels ebitda fiscal year 2007 compared fiscal year 2006 primarily result following • increased volumes business sustained demand products services increased margins contracts executed north america europe china global power group • ebitda fiscal year 2007 included 14400 gain related favorable resolution project claims increased contract profit 9600 interest income 4000 reduced deductions net 800 • net charge 5000 contract profit related charges 30000 25000 fiscal years 2007 2006 respectively legacy project global power group please refer note 19 consolidated financial statements annual report form 10k information overview segment global power group designs manufactures erects steam generators electric power generating stations district heating plants industrial facilities worldwide competitive differentiation serving market ability products efficiently burn wide range fuels singularly combination particular cfb steam generators able burn coal grades varying quality well petroleum coke lignite municipal waste wood biomass numerous materials among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business additionally global power group designs manufactures erects auxiliary equipment electric power generating stations industrial facilities worldwide owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group’s new order activity terms dollars unfavorably affected several trends fiscal year 2008 early fiscal year 2009 weakness global economy reduced nearterm growth demand electricity addition political environmental sensitivity regarding coalfired boilers caused number global power group’s prospective projects postponed cancelled fiscal year 2008 clients experienced difficulty obtaining required environmental permits decided wait additional clarity state federal regulations environmental concern especially pronounced united states western europe linked view solidfuelfired steam generators contribute global warming discharge greenhouse gas emissions atmosphere credit concerns among certain clients also contributed slowed pace new contract awards fiscal year 2008 finally recent sharp decline natural gas prices increased attractiveness fuel relation coal generation electricity believe combination factors result continued weak demand new solidfuel steam generators fiscal year 2009 longerterm believe world demand electrical energy continue grow solidfuelfired steam generators continue fill significant portion incremental generating capacity fuelflexibility cfb steam generators enables burn variety fuels coal produce carbonneutral electricity fired biomass addition steam generators designed incorporate supercritical technology significantly improves efficiency reduces emissions also developing flexiburntm technology enable steam generators operate carbon capture environment liquidity capital resources fiscal year 2008 activities fiscal year 2008 generated 428900 cash flows operating activities used cash flows several strategic initiatives totaling 554700 experienced reduction cash equivalents 109600 due effect exchange rate changes cash equivalents primarily result sharp decline value british pound relative us dollar together primary drivers decrease cash equivalents 275400 fiscal year 2008 strategic initiatives focused future growth business reduction number outstanding common shares strategic initiatives included fw power srl wind farm construction capital expenditures acquisition businesses repurchase retirement common shares share repurchase program described section entitled “ outlook” following significant increases decreases cash equivalents occurred fiscal year ended december 26 2008 cash flows activities discussed sections 1 see section entitled “ cash flows financing activities” information 2 see section entitled “ cash flows investing activities” information cash equivalents shortterm investments restricted cash balances nm meaningful 798300 total cash equivalents shortterm investments restricted cash december 26 2008 646000 held nonus subsidiaries please refer note 1 consolidated financial statements annual report form 10k additional details cash equivalents short term investments restricted cash balances cash flows operating activities net cash provided operations fiscal year 2008 positively impacted strong operating performance resulted increase net income 132700 net increase cash flows 35800 insurance settlements excess liability indemnity payments defense costs net proceeds 16800 versus funding 19000 fiscal years 2008 2007 respectively partially offset net increase cash used mandatory discretionary contributions us nonus pension plans 25300 payments 105600 80300 fiscal years 2008 2007 respectively included discretionary contributions 62500 45000 fiscal years 2008 2007 respectively net reduction cash flows 113600 fund increase working capital net cash outflow working capital increase 55000 versus net cash inflow generated reduction working capital 58600 fiscal years 2008 2007 respectively increase cash provided operations 163300 fiscal year 2007 compared fiscal year 2006 results primarily increase net income 131900 cash provided reduction working capital 58600 fiscal year 2007 versus cash provided reduction working capital 19700 fiscal year 2006 net positive impact cash flow 38900 working capital varies period depending mix stage completion commercial terms conditions contracts working capital global ec group tends rise workload reimbursable contracts increases since services rendered prior billing clients working capital tends decrease global power group workload increases cash tends received prior ordering materials equipment change working capital fiscal year 2008 compared fiscal year 2007 reflects increase working capital generated increase workload experienced global ec group partially offset decrease working capital generated increase workload experienced global power group fully described “ outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability increase cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “ global ec groupoverview segment” “ global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities fiscal year 2008 attributable primarily capital expenditures 103900 included 54300 expenditures fw power srl continue construction electric power generating wind farm projects italy 14900 acquisitions 7600 increase investments advances unconsolidated affiliates increase restricted cash 2800 primarily driven increase debt service reserve funds fw power srl please refer note 2 consolidated financial statements annual report form 10k additional details cash balances net cash used investing activities fiscal year 2007 attributable primarily capital expenditures 51300 included 13800 expenditures fw power srl related construction electric power generating wind farm projects italy increase restricted cash 900 primarily driven increase funds received customers restricted use specific projects increase debt service reserve funds fw power srl 1500 payment purchase finnish company owns patented coal flow measuring technology 4800 payment made september 2007 related fw power acquisition 2006 partially offset 6300 return investment unconsolidated affiliates proceeds sale assets 7600 cash used investing activities fiscal year 2006 attributable primarily capital expenditures 30300 6600 increase investments advances unconsolidated affiliates partially offset decrease restricted cash 8900 proceeds sale assets 1900 capital expenditures fiscal years related primarily project construction including fw power srl electric power generating wind farm projects italy noted leasehold improvements information technology equipment office equipment increase capital expenditures three year period driven primarily global ec group particular increases driven operations italy united states global power group capital expenditure increase three year period driven primarily china european operations information capital expenditures segment please see note 17 consolidated financial statements annual report form 10k cash flows financing activities nm meaningful net cash used financing activities fiscal year 2008 attributable primarily 485600 includes commissions 400 used repurchase retire foster wheeler ltd common shares associated share repurchase program described distributions us minority thirdparty ownership interests 9600 repayment longterm debt capital lease obligations 28700 includes 19000 cash acquire 1999c robbins bonds defined note 7 consolidated financial statements annual report form 10k partially offset proceeds issuance shortterm debt project debt 54600 cash provided exercises stock options 2800 net cash provided financing activities fiscal year 2007 attributable primarily cash provided exercises stock options warrants proceeds issuance specialpurpose limited recourse project debt fw power srl partially offset repayment debt capital lease obligations net cash provided financing activities fiscal year 2006 attributable primarily cash provided exercises stock options warrants partially offset reduction debt including 2011 senior notes capital lease obligations payment deferred financing costs conjunction senior credit agreement outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries working capital needs unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling 12month period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months based forecasts primary cash needs fund working capital expenditures asbestos liability indemnity defense costs acquisitions 264800 remaining portion 750000 share repurchase program described majority cash balances invested shortterm interest bearing accounts maturities less three months continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities performed evaluation credit exposure response current global credit market crisis evaluation included analysis counterparty credit exposure general specifically related cash equivalents bonding bank guarantees forward currency contracts pension assets insurance assets clients believe well diversified thirdparty credit exposure expose us material downside risks continue closely monitor global liquidity credit market crisis continue take appropriate actions necessary limit exposure customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next 12 months us operating entities generate sufficient cash flows fund obligations related corporate overhead expenses asbestosrelated liabilities fund acquisition shares share repurchase program described consequently require cash repatriations nonus subsidiaries normal course operations meet us cash needs successfully repatriated cash many years believe repatriate required amount cash nonus subsidiaries continue access revolving credit portion domestic senior credit facility needed fourth fiscal quarter 2008 repatriated cash totaling approximately 384000 nonus subsidiaries primarily fund share repurchase program described net cash inflows 16800 result insurance settlement proceeds excess asbestos liability indemnity payments defense costs fiscal year 2008 expect fund total 26500 asbestos liability indemnity defense costs cash flows fiscal year 2009 net cash expected received existing insurance settlements estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease fiscal year 2008 spent 36900 approximately 54300 average exchange rate fiscal year 2008 fw power srl anticipate spending 16300 approximately 22900 exchange rate december 26 2008 fiscal year 2009 continue construction electric power generating wind farm projects italy secured total borrowing capacity fw power srl credit facilities 75400 approximately 105700 exchange rate december 26 2008 senior credit agreement provides facility 450000 includes provision permits future incremental increases 100000 total availability facility 273500 245800 letters credit outstanding domestic senior credit agreement december 26 2008 december 28 2007 respectively letter credit fees range 150 160 excluding fronting fee 0125 per annum intend borrow domestic senior revolving credit facility fiscal year 2009 portion letters credit issued domestic senior credit agreement performance pricing decreased increased result improvements reductions credit rating assigned domestic senior credit agreement moody’s investors service andor standard poor’s however performance pricing expected materially impact liquidity capital resources fiscal year 2009 required make mandatory contributions us pension plans fiscal year 2009 expect make mandatory contributions totaling approximately 24700 nonus pension plans fiscal year 2009 september 12 2008 announced share repurchase program pursuant authorized repurchase 750000 foster wheeler ltd’s outstanding common shares connection redomestication described item 1 “business redomestication” foster wheeler ag adopted share repurchase program pursuant authorized repurchase 264800 outstanding registered shares designate repurchased shares cancellation amount authorized repurchase registered shares foster wheeler ag program equal amount remained available repurchases foster wheeler ltd program february 9 2009 date completion redomestication foster wheeler ag program replaces foster wheeler ltd program repurchases made foster wheeler ltd program repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand please refer part item 5 description common shares purchased pursuant foster wheeler ltd program fiscal quarter ended december 26 2008 cumulatively february 24 2009 repurchased 18098519 shares aggregate cost approximately 485600 includes commissions 400 executed repurchases accordance 10b51 repurchase plans well open market purchases 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans effective september 29 2008 requisite lenders domestic senior credit agreement amended domestic senior credit agreement 1 allow us use cash 750000 repurchase outstanding common shares share repurchase program subject certain conditions 2 increase aggregate amount permissible capital expenditures 40000 80000 fiscal year 2008 70000 fiscal years thereafter subject certain adjustments reflected domestic senior credit agreement since original execution september 2006 including among items exclusion related capital expenditures financed specialpurpose project debt please refer note 7 consolidated financial statements annual report form 10k detailed listing specialpurpose project debt december 18 2008 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered additional amendment domestic senior credit agreement amendment includes consent lenders credit agreement redomestication addition amendment reflects addition foster wheeler ag guarantor obligations credit agreement reflects changes relating foster wheeler ag becoming ultimate parent foster wheeler ltd subsidiaries upon completion redomestication amendment became effective upon consummation redomestication february 9 2009 declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments well restricted payments offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilean project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease commitments pension funding requirements expected cash flows related contractual obligations outstanding december 26 2008 follows 1 funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available projections assume make discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2009 expect fund 26500 asbestos liability indemnity defense costs cash flows fiscal year 2009 net cash expected received existing insurance settlements please refer note 19 consolidated financial statements annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated liability beyond 2009 expect pay 5700 relating uncertain tax provisions including interest penalties cash flows fiscal year 2009 total liability including accrued interest penalties 70300 december 26 2008 please refer note 15 consolidated financial statements annual report form 10k information certain instances normal course business provided security contract performance consisting standby letters credit bank guarantees surety bonds december 26 2008 commitments period expiration follows please refer note 9 consolidated financial statements annual report form 10k discussion guarantees backlog new orders backlog unfilled orders includes amounts based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts foreign currency translation impact backlog resulted yearoveryear decreasesincreases 1050000 275100 486600 december 26 2008 december 28 2007 december 29 2006 respectively inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixed price contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts numerous contracts various stages completion contracts require estimates determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed securities exchange commission final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 33 38 29 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 fiscal years 2008 2007 2006 respectively changes final estimated contract profits resulted net increasedecrease 26700 35100 5700 reported contract profit fiscal years 2008 2007 2006 respectively relating revaluation work performed contracts prior periods impact contract profit measured beginning fiscal year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 26 2008 recorded total liabilities 385300 comprised estimated liability 158000 relating open outstanding claims valued estimated liability 227300 relating future unasserted claims yearend 2023 total 64500 recorded accrued expenses 320800 recorded asbestosrelated liability consolidated balance sheet since yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2008 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal yearend 2008 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2023 considering advice arpc fiscal year 2008 revalued liability asbestos indemnity defense costs fiscal year 2023 385300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 42700 fiscal year 2008 resulting primarily increased asbestos defense costs projected yearend 2023 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2023 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2023 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred fiscal year 2023 historically defense costs represented approximately 30 total defense indemnity costs december 26 2008 cumulative indemnity costs paid prior insurance recoveries approximately 658000 total defense costs paid approximately 286300 december 26 2008 recorded assets 284800 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims fiscal year 2023 38200 asset recorded within accounts notes receivableother 246600 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated asset recorded within accounts notes receivableother december 26 2008 reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements recorded asbestosrelated insurance recovery receivable includes estimate recoveries insurers unsettled insurance coverage litigation referred based upon application new jersey law certain insurance coverage issues assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since fiscal yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset december 26 2008 utilized analysis determine estimate value unsettled insurance asset december 26 2008 december 26 2008 estimated value unsettled asbestos insurance asset related ongoing litigation new york state court subsidiaries’ insurers 24800 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believe except insurers become insolvent reserve provided insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation overall historic average combined indemnity defense cost per resolved claim december 26 2008 approximately 27 average cost per resolved claim increasing believe continue increase future plan update forecasts periodically take consideration experience considerations update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities fiscal year 2008 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based fiscal yearend 2008 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 59800 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 26 2008 recorded total liabilities 37800 comprised estimated liability relating open outstanding claims 8400 estimated liability relating future unasserted claims fiscal year 2023 29400 total 2800 recorded accrued expenses 35000 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 2800 recorded accounts notes receivableother 35000 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation asbestos liability related asset recorded uk would approximately 51500 defined benefit pension postretirement benefit plans defined benefit pension plans united states united kingdom canada france finland postretirement benefit plans health care life insurance benefits united states canada us plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory additionally one subsidiaries united states also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 requires us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet sfas 158 also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset net charge accumulated comprehensive loss consolidated balance sheet please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate postretirement benefit plans • annual inflation rate utilize business judgment establishing estimates used calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate defined benefit pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension plans fiscal years 2008 2007 2006 na applicable plan frozen future salary levels affect benefits payable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolios expected returns asset class developed considering past performance future considerations following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation united states united kingdom defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate december 26 2008 defined benefit pension plans net actuarial losses 467700 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses reflect differences expected actual plan experience changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants nonus plans 9 years uk plans 11 years canadian plan 19 years finnish plan average life expectancy participants us plans approximately 26 years since benefits frozen addition defined benefit pension plans prior service costs 68500 recognized accumulated comprehensive loss consolidated balance sheet december 26 2008 prior service costs amortized schedules established date plan change 9 years uk plans estimated net actuarial loss prior service cost amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 20300 7300 respectively onetenth percentage point decrease funding rates used calculating future funding requirements us plans 2013 would increase aggregate contributions next five years approximately 1400 increase onetenth percentage point would decrease aggregate contributions approximately 14300 onetenth percentage point decrease funding rates used calculating future funding requirements uk plans 2013 would increase aggregate contributions next five years approximately 5800 increase onetenth percentage point would decrease aggregate contributions approximately 4500 following table summarizes estimates used postretirement benefit plans fiscal years 2008 2007 2006 discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates december 26 2008 postretirement benefit plans net actuarial losses 14200 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses outside corridor amortized average life expectancy inactive participants 17 years benefits frozen addition postretirement benefit plans prior service credits 37300 recognized accumulated comprehensive loss consolidated balance sheet december 26 2008 prior service credits amortized schedules established date plan change 9 years estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 1000 4600 respectively sharebased compensation plans sharebased compensation plans include restricted awards stock option awards effective december 31 2005 first day fiscal 2006 adopted fair value provisions sfas 123r “sharebased payment” using modified prospective transition method recognize sharebased compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 ii future sharebased payment awards based grant date fair value estimated accordance provisions sfas 123r compensation cost sharebased plans 15800 7100 16500 charged income fiscal years 2008 2007 2006 respectively related income tax benefit recognized consolidated statements operations comprehensive income 300 200 300 fiscal years 2008 2007 2006 respectively received 2800 18100 17600 cash option exercises sharebased compensation plans fiscal years 2008 2007 2006 respectively december 26 2008 20800 21800 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized weightedaverage period approximately 30 months estimate fair value option award date grant using blackscholes option valuation model incorporates assumptions regarding number complex subjective variables recognize fair value option compensation cost ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term options using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application sfas 123r future periods compensation expense record sfas 123r future awards may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense sfas 123r option pricing models developed use estimating value traded options vesting hedging restrictions fully transferable cause dilution sharebased payments characteristics significantly different freely traded options changes subjective input assumptions materially affect estimates fair value existing valuation models may provide reliable measures fair value sharebased compensation consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercise expiration forfeiture sharebased payments future stock options may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments goodwill intangible assets least annually evaluate goodwill potential impairment prescribed sfas 142 “goodwill intangible assets” test impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value estimated based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” goodwill 50900 intangible assets 12300 relate global power group’s european operations experienced number performance related issues performance unit deteriorate future possible amounts could become impaired requiring writedown carrying values fiscal year 2008 evaluation indicated adjustment carrying value goodwill intangible assets global power group’s european operations required fiscal year 2007 recorded goodwill impairment charge 2400 based discounted cash flows connection decision wind operations one us reporting units income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment statutory purposes majority deferred tax assets valuation allowance provided december 26 2008 begin expire 2024 later based current tax laws valuation allowance 318700 recorded december 26 2008 june 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109 fin 48” addresses determination whether tax benefits claimed expected claimed tax return recorded financial statements adopted provisions fin 48 december 30 2006 first day fiscal year 2007 fin 48 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement fin 48 also provides guidance derecognition benefit uncertain tax position classification unrecognized tax benefits balance sheet accounting classification interest penalties income tax uncertainties accounting interim periods disclosures subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies various jurisdictions operate number jurisdictions file tax returns given year statute limitations certain jurisdictions may expire without examination within 12month period balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2003 fiscal year 2008 settled tax audit asia pacific region resulted 3200 reduction unrecognized tax benefits corresponding reduction provision income taxes number tax years also audit relevant state nonus tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2009 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate impact change time result adoption fin 48 recognized 4400 reduction opening balance shareholders’ equity december 30 2006 resulted changes amount tax benefits recognized related uncertain tax positions accrual interest penalties december 26 2008 48700 unrecognized tax benefits 48400 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations recorded net interest expense net penalties totaling 1200 2700 fiscal years 2008 2007 respectively net penalties fiscal year 2008 net 5000 previously accrued tax penalties ultimately assessed december 26 2008 21500 accrued payment interest penalties accounting developments september 2006 financial accounting standards board fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard effective financial assets liabilities well assets liabilities required measured fair value recurring basis financial statements fiscal years beginning november 15 2007 february 2008 fasb issued partial oneyear deferral sfas 157 nonfinancial assets liabilities subject fair value measurement nonrecurring basis elected defer application sfas 157 nonfinancial assets liabilities measured fair value nonrecurring basis fiscal year beginning december 27 2008 process assessing impact financial position results operations related assets liabilities financial assets liabilities recorded fair value consist primarily assets liabilities arising derivative financial instruments adoption sfas 157 material effect financial position results operations december 2007 fasb issued sfas 141 revised 2007 “business combinations” sfas 141r replaces sfas 141 “business combinations” changes accounting treatment business acquisitions sfas 141r requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed business combination certain provisions standard among things impact determination acquisitiondate fair value consideration paid business combination including contingent consideration exclude transaction costs acquisition accounting change accounting practices acquired contingencies acquisitionrelated restructuring costs inprocess research development indemnification assets tax benefits provisions sfas 141r apply prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 early adoption permitted based acquisitions completed past adoption sfas 141r material impact financial position results operations future make material acquisitions sfas 141r may material impact financial position results operations december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 amends accounting reporting standards noncontrolling interest subsidiary often referred “minority interest” deconsolidation subsidiary sfas 160 noncontrolling interest subsidiary reported equity parent company’s consolidated financial statements sfas 160 also requires parent company’s consolidated statement operations include parent noncontrolling interest share subsidiary’s statement operations formerly noncontrolling interest share shown reduction income parent’s consolidated statement operations sfas 160 effective fiscal years interim periods within fiscal years beginning december 15 2008 sfas 160 applied prospectively beginning fiscal year statement initially applied however presentation disclosure requirements shall applied retrospectively periods presented upon adoption sfas 160 beginning fiscal year 2009 reclassify minority interest liability separate section entitled “noncontrolling interests” within total equity consolidated balance sheet increase total equity 28700 31800 29900 december 26 2008 december 28 2007 december 29 2006 respectively ii remove minority interest expense determination total net income consolidated statement operations increase total net income 7200 5600 4800 fiscal years ended december 26 2008 december 28 2007 december 29 2006 respectively iii include minority interest expense determination net income attributable foster wheeler ag successor parent foster wheeler ltd please see note 21 consolidated financial statements annual report form 10k information related redomestication earnings per registered share formerly earnings per common share consolidated financial statements foster wheeler ltd consolidated statement operations correspond net income earnings per common share figures previously reported march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities” sfas 161 requires enhanced disclosures enable investors better understand effects derivative instruments hedging activities entity’s financial position financial performance cash flows sfas 161 changes disclosure requirements location amounts derivative instruments entity’s financial statements derivative instruments related hedged items accounted sfas 133 derivative instruments related hedged items affect company’s financial position financial performance cash flows additionally sfas 161 requires disclosure fair values derivative instruments gains losses tabular format sfas 161 also requires information entity’s liquidity requiring disclosure derivative features credit riskrelated finally sfas 161 requires crossreferencing within footnotes enable financial statement users locate important information derivative instruments sfas 161 effective financial statements issued fiscal years interim periods beginning november 15 2008 early application encouraged currently assessing impact sfas 161 may financial statement disclosures december 2008 fasb issued fasb staff position fsp fas 132r1 “employers’ disclosures postretirement benefit plan assets” fsp fas 132r1 fsp fas 132r1 expand disclosures regarding investments held employersponsored defined benefit pension plans postretirement plans purpose providing additional information related valuation methodologies assets similar valuation methodologies defined sfas 157 additionally fsp fas 132r1 require disclosures investment allocation decisions made well significant concentrations risk within plan assets fsp fas 132r1 effective financial statements issued fiscal years ending december 15 2009 amend disclosures accordingly 2009 consolidated financial statements item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • benefits effects results redomestication relocation principal executive offices geneva switzerland • deterioration economic conditions united states major international economies • changes investment oil gas oil refining chemicalpetrochemical power generation industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war andor terrorist attacks facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition nonus us companies • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong challenges drivers business segments discussed detail section entitled “ results operationsbusiness segments” within item 7 undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission sec overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group refer cf group since fiscal year 2007 exploring intend continue explore acquisitions within engineering construction industry strategically complement expand technical capabilities access new market segments fiscal year 2008 acquired usbased biopharmaceutical engineering company part strategy enhance positioning pharmaceutical marketplace especially us acquired majority assets work force engineering design company engineering center kolkata india provides engineering services petrochemical refining upstream oil gas power industries acquisitions integrated within global ec group fiscal year 2009 acquired substantially assets offshore engineering division ope holdings ltd canadian company listed tsx venture exchange refer ope acquired substantially assets houston operations atlas engineering inc privately held company active upstream oil gas engineering services acquisitions expand global ec group’s upstream oil gas engineering services capabilities also exploring acquisitions within power generation industry complement global power group product offering however assurance consummate acquisitions future special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred “redomestication” effectively changed place incorporation bermuda canton zug switzerland please refer item 1 “business redomestication” note 19 consolidated financial statements annual report form 10k information related redomestication fiscal year 2009 results summary financial results fiscal years 2009 2008 2007 follows 1 please refer section entitled “ results operations” discussion 2 please refer section entitled “ liquidity capital resources” discussion net income attributable foster wheeler ag decreased fiscal year 2009 compared fiscal year 2008 primarily driven decreased contract profit decreased interest income increased net asbestosrelated provision increased selling general administrative expenses primarily driven increased costs related us pension plans frozen new entrants additional benefit accruals increase effective tax rate net income attributable foster wheeler ag increased fiscal year 2008 compared fiscal year 2007 primarily driven increased contract profit decrease effective tax rate partially offset increased selling general administrative expenses gain fiscal year 2007 settlement coverage litigation certain asbestos insurance carriers please refer section entitled “ results operations” discussion noted drivers impacted net income attributable foster wheeler ag challenges drivers primary operating focus continues booking quality new business executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products global ec business expect longterm demand strong end products produced clients continue stimulate investment clients new expanded plants notwithstanding foregoing current weakness global economy caused many ec clients reevaluate size timing scope capital spending plans relation kinds energy petrochemical projects serve factors may continue fiscal year 2010 challenges drivers global ec group discussed detail section entitled “ results operationsbusiness segmentsglobal ec groupoverview segment” within item 7 attracting retaining qualified technical personnel execute existing backlog unfilled orders future bookings continues management priority equally important ensuring maintain appropriate management infrastructure integrate manage technical personnel global power group business new order activity unfavorably affected several trends began fiscal year 2008 continued fiscal year 2009 may continue future trends include weakness global economy impact nearterm growth demand electricity political environmental sensitivity regarding coalfired steam generators depressed level natural gas pricing experienced fiscal years 2008 2009 increased attractiveness fuel relation coal generation electricity challenges drivers global power group discussed detail section entitled “ results operationsbusiness segmentsglobal power groupoverview segment” within item 7 new orders backlog unfilled orders defined section entitled “ backlog new orders” within item 7 global ec group’s new orders measured future revenues increased 2870700 fiscal year 2009 compared 2707500 fiscal year 2008 new orders inclusive flowthrough revenues defined 895500 604600 fiscal years 2009 2008 respectively global power group’s new orders decreased 611000 fiscal year 2009 compared 1348500 fiscal year 2008 new orders fiscal year 2009 impacted continuation delays cancellations prospective projects occurring power markets serve challenges drivers global ec group global power group discussed detail section entitled “ business segments” within item 7 results operations operating revenues composition operating revenues varies period based portfolio contracts execution given period operating revenues therefore dependent portfolio contracts strength various geographic markets industries serve ability address markets industries geographic dispersion consolidated operating revenues fiscal years 2009 2008 2007 based upon projects executed follows australasia primarily represents australia south africa new zealand pacific islands fiscal year 2009 vs fiscal year 2008 decrease operating revenues compared fiscal year 2008 driven decreased flowthrough revenues described decreased volume business net decrease due foreign currency fluctuations relative us dollar primarily driven british pound euro consolidated operating revenues decreased approximately 20 excluding impact change flowthrough revenues foreign currency fluctuations compared fiscal year 2008 global ec group designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities experienced decrease operating revenues 1107100 compared fiscal year 2008 represented 62 decrease consolidated operating revenue global ec group’s operating revenues fiscal year 2009 included 2129100 flowthrough revenues flowthrough revenues decreased 785000 compared fiscal year 2008 representing 71 decrease global ec group’s operating revenues 44 decrease consolidated operating revenues flowthrough revenues costs result purchase materials equipment thirdparty services behalf customer reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flowthrough costs flowthrough revenues costs impact contract profit net earnings global ec group’s operating revenues decreased approximately 6 excluding impact change flowthrough revenues foreign currency fluctuations compared fiscal year 2008 please refer section entitled “ business segments” within item 7 discussion view market outlook global ec group global power group predominantly serves power generation industry experienced decrease operating revenues 690800 compared fiscal year 2008 represented 38 decrease consolidated operating revenue global power group’s operating revenues decreased approximately 37 excluding impact change flowthrough revenues foreign currency fluctuations compared fiscal year 2008 please refer section entitled “ business segments” within item 7 information fiscal year 2008 vs fiscal year 2007 increase operating revenues compared fiscal year 2007 driven global ec group experienced operating revenue increase 1466000 representing 84 consolidated operating revenue increase result increases operating revenues oil gas petrochemical refining industries fiscal year 2008 global ec group operating revenues three industries increased 1622500 operating revenues industries serve declined 156500 global ec group’s operating revenues fiscal year 2008 included 2914100 flowthrough revenues flowthrough revenues increased 1377000 compared fiscal year 2007 representing 94 increase global ec group’s operating revenues 79 increase consolidated operating revenues global power group contributed 281100 16 increase consolidated operating revenues fiscal year 2008 increase operating revenues global power group primarily attributable execution projects located europe north america south america please refer section entitled “ business segments” within item 7 information contract profit contract profit computed operating revenues less cost operating revenues “flowthrough” amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce contract profit margin included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance fiscal year 2009 vs fiscal year 2008 global ec group global power group experienced decreased contract profit mainly attributable net impact items additionally contract profit decreased approximately 56700 due foreign currency fluctuations relative us dollar primarily driven british pound euro polish zloty global ec group • decreased volume operating revenues excluding impact change flowthrough revenues described contract profit margins remained unchanged excluding noted severancerelated postemployment benefits charge • 7800 decrease contract profit fiscal year 2009 severancerelated postemployment benefits charge global power group • decreased volume operating revenues significantly offset increased contract profit margins additionally contract profit margins increased excluding impact items noted occurred fiscal year 2008 • 7500 increase contract profit fiscal year 2008 commitment fee received contract global power group awarded • 6700 decrease contract profit fiscal year 2008 legacy project ireland please refer note 17 consolidated financial statements annual report form 10k information • 6600 decrease contract profit fiscal year 2008 severancerelated postemployment benefits charge please refer section entitled “ business segments” within item 7 information fiscal year 2008 vs fiscal year 2007 global ec group global power group experienced increased contract profit mainly attributable net impact items global ec group increased volume operating revenues increased contract profit margins excluding impact contract profit margins flowthrough revenues global power group increased volume operating revenues markedly increased contract profit margins excluding net impact items noted • 7500 increase contract profit fiscal year 2008 commitment fee received contract global power group awarded • decreases contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project ireland please refer note 17 consolidated financial statements annual report form 10k information • 6600 decrease contract profit fiscal year 2008 severancerelated postemployment benefits charge • 9600 increase contract profit fiscal year 2007 gain related favorable resolution project claims global power group please refer section entitled “ business segments” within item 7 information selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs fiscal year 2009 vs fiscal year 2008 increase sga expenses resulted increase pension costs 11900 related us pension plans frozen new entrants additional benefit accruals increase sales pursuit costs 3300 increase charge severancerelated postemployment benefits 2500 research development costs relatively unchanged general overhead costs decreased 6200 excluding noted pension severancerelated postemployment benefit changes fiscal year 2009 severancerelated postemployment benefits charge 4600 included charges global ec group cf group 900 3700 respectively fiscal year 2008 vs fiscal year 2007 increase sga expenses resulted increases sales pursuit costs 17200 general overhead costs 17700 research development costs 700 severancerelated postemployment benefits global power group 2100 increase general overhead costs primarily attributable increased volume business fiscal year 2008 drove increase number nontechnical support staff related costs general overhead costs increase also included charges related settlement pension obligations certain former employees 900 please refer note 7 consolidated financial statements included annual report form 10k information income net fiscal year 2009 income net fiscal year 2009 consisted primarily 34500 equity earnings generated investments primarily ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 9900 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt slight decrease income net fiscal year 2009 compared fiscal year 2008 resulted primarily net impact following • increase equity earnings 6300 global ec group’s projects italy included impact following • 1600 increase equity earnings fiscal year 2009 related new project commenced operations end fiscal year 2008 • 4900 decrease equity earnings fiscal year 2008 related change tax rates projects periods prior fiscal year 2008 • decrease equity earnings global power group’s project chile 5300 primarily due decrease average electric tariff rates compared average electric tariff rates effect fiscal year 2008 • 1700 gain insurance settlement fiscal year 2008 fiscal year 2008 income net fiscal year 2008 consisted primarily 33400 equity earnings generated investments primarily projects italy chile described note 5 consolidated financial statements annual report form 10k 9600 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1700 gain insurance settlement decrease income net fiscal year 2008 compared fiscal year 2007 resulted primarily net impact following • 6600 equity earnings decrease global ec group’s projects italy compared fiscal year 2007 fiscal year 2008 equity earnings impacted 4900 decrease related change tax rates projects periods prior fiscal year 2008 • increase equity earnings global power group’s project chile 4100 primarily due increase average electric tariff rates compared average electric tariff rates effect fiscal year 2007 • 6600 gain real estate investment fiscal year 2007 fiscal year 2007 income net fiscal year 2007 consisted primarily 37300 equity earnings generated investments primarily projects italy chile described note 5 consolidated financial statements annual report form 10k 6600 gain real estate investment 9400 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt deductions net fiscal year 2009 deductions net fiscal year 2009 consisted primarily 16400 legal fees 4000 consulting fees 3900 bank fees 2500 net penalties unrecognized tax benefits net previously accrued tax penalties ultimately assessed 800 provision dispute resolution environmental remediation cost 800 loss sale fixed assets partially offset 1000 net foreign exchange gains net foreign exchange gains include net amount transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries fiscal year 2008 deductions net fiscal year 2008 consisted primarily 23100 legal fees 16500 net foreign exchange losses 4300 bank fees 4200 provision dispute resolution environmental remediation costs 1500 consulting fees 1400 fees related redomestication see “ overview” additional discussion redomestication partially offset net 2400 decrease penalties unrecognized tax benefits included 5000 previously accrued tax penalties ultimately assessed fiscal year 2008 net foreign exchange losses primarily resulted sharp decline value british pound relative us dollar fiscal year 2007 deductions net fiscal year 2007 consisted primarily 20500 legal fees 10100 provision dispute resolution environmental remediation costs 3600 bank fees 2600 net foreign exchange losses 1500 accrued tax penalties unrecognized tax benefits 800 consulting fees interest income fiscal year 2009 vs fiscal year 2008 decrease interest income compared fiscal year 2008 driven primarily lower interest rates investment yields lesser extent impact lower average cash equivalents balances fiscal year 2009 compared fiscal year 2008 fiscal year 2008 vs fiscal year 2007 increase interest income fiscal year 2008 compared fiscal year 2007 driven primarily higher average cash equivalents balances partially offset lower interest rates investment yields interest expense fiscal year 2009 vs fiscal year 2008 decrease interest expense primarily resulted 5100 previously accrued interest expense unrecognized tax benefits ultimately assessed decrease average outstanding balance specialpurpose limited recourse project debt “project debt” net increased fw power srl project debt construction electric power generating wind farm projects italy fiscal year 2008 vs fiscal year 2007 decrease interest expense primarily resulted decreased average outstanding project debt decrease average outstanding project debt includes acquisition robbins 1999c bonds october 2008 please refer note 6 consolidated financial statements annual report form 10k information partially offset increased fw power srl project debt construction electric power generating wind farm projects italy please refer note 6 consolidated financial statements annual report form 10k detailed listing outstanding balances project debt net asbestosrelated provisiongain fiscal year 2009 fiscal year 2009 incurred net charge 26400 revaluation asbestos liability related asset primarily resulting increased asbestos defense costs projected fiscal year 2024 rolling 15year asbestos liability estimate fiscal year 2008 fiscal year 2008 incurred net charge 6600 revaluation asbestos liability related asset resulting charge 42700 primarily related increased asbestos defense costs projected fiscal year 2023 partially offset gain 36100 settlement coverage litigation certain asbestos insurance carriers fiscal year 2007 fiscal year 2007 incurred net gain 6100 revaluation asbestos liability related asset resulting gain 13500 settlement coverage litigation certain asbestos insurance carriers partially offset charge 7400 primarily rolling 15year asbestos liability estimate please refer note 17 consolidated financial statements annual report form 10k information provision income taxes effective tax rate fluctuate significantly period may differ significantly us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate result inability recognize tax benefit losses generated certain unprofitable operations result varying mix income earned jurisdictions operate addition deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate conversely periods operating units subject valuation allowance generate pretax losses corresponding increase valuation allowance unfavorable impact effective tax rate fiscal year 2009 effective tax rate fiscal year 2009 lower us statutory rate 35 due principally net impact income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 15percentage point reduction effective tax rate fiscal year 2009 fiscal year 2008 effective tax rate fiscal year 2008 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 14percentage point reduction effective tax rate fiscal year 2008 • valuation allowance decrease consisted reversal valuation allowance deferred tax assets one nonus subsidiaries decrease valuation allowance recognized earnings jurisdictions full valuation allowance factors reduced effective tax rate partially offset establishment valuation allowance deferred tax assets another nonus subsidiaries inability recognize tax benefit losses subject valuation allowance certain jurisdictions permanent differences total changes valuation allowance contributed approximate sixpercentage point reduction effective tax rate fiscal year 2008 fiscal year 2007 effective tax rate fiscal year 2007 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate tenpercentage point reduction effective tax rate fiscal year 2007 • valuation allowance decrease contributed approximate twopercentage point reduction effective tax rate fiscal year 2007 decrease valuation allowance occurred fiscal year 2007 recognized earnings jurisdictions full valuation allowance variances partially offset losses certain jurisdictions benefit recognized valuation allowance established permanent differences monitor jurisdictions valuation allowances deferred tax assets established previous years evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire fiscal year 2025 beyond based current tax laws net income attributable noncontrolling interests net income attributable noncontrolling interests represents thirdparty ownership interests results global power group’s martinez california gasfired cogeneration subsidiary manufacturing subsidiaries poland people’s republic china well global ec group’s subsidiary south africa change net income attributable noncontrolling interests based upon changes underlying earnings subsidiaries andor changes noncontrolling interests’ ownership interest subsidiaries fiscal year 2009 vs fiscal year 2008 increase net income attributable noncontrolling interests compared fiscal year 2008 primarily resulted increases 2300 operations south africa 800 due increased earnings operations martinez california fiscal year 2008 vs fiscal year 2007 increase net income attributable noncontrolling interests compared fiscal year 2007 primarily resulted reallocation income us noncontrolling interest partner operations martinez california partially offset decreased earnings operations martinez california mainly driven higher natural gas pricing incremental benefit increased electricity sales ebitda fiscal year 2009 vs fiscal year 2008 decrease ebitda primarily resulted decreased contract profit 80300 excluding foreign currency fluctuations net decrease ebitda approximately 51800 due foreign currency fluctuations relative us dollar primarily driven british pound euro polish zloty compared fiscal year 2008 decreased interest income 34200 increased net asbestosrelated provision 19800 increased sga expenses 11000 primarily driven increased costs related us pension plans frozen new entrants additional benefit accruals please refer preceding discussion items within “ results operations” section fiscal year 2008 vs fiscal year 2007 increase ebitda primarily resulted increased contract profit 151300 partially offset increased sga expenses 37600 16500 net loss settlement transactions denominated foreign currencies primarily driven sharp decline british pound 12700 net impact related net asbestosrelated provision fiscal year 2008 compared net asbestosrelated gain fiscal year 2007 please refer preceding discussion items within “ results operations” section see individual segment explanations additional details ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income attributable foster wheeler ag interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance certain covenants current prior senior credit agreements use adjusted form ebitda covenant calculations ebitda presented herein adjusted certain unusual infrequent items specifically excluded terms current prior senior credit agreements believe line item consolidated statement operations entitled “net income attributable foster wheeler ag” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income attributable foster wheeler ag indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income attributable foster wheeler ag users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net income attributable foster wheeler ag shown 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 includes fiscal year 2009 increased contract profit 69000 regular revaluation final estimated contract profit 66700 global ec group 2300 global power group charge 12400 severancerelated postemployment benefits 8700 global ec group 3700 cf group net charge 26400 cf group revaluation asbestos liability related asset primarily resulting increased asbestos defense costs projected fiscal year 2024 rolling 15year asbestos liability estimate 3 includes fiscal year 2008 increaseddecreased contract profit 26700 regular revaluation final estimated contract profit 46300 global ec group 19600 global power group charge 9000 global power group primarily severancerelated postemployment benefits net charge 6600 cf group revaluation asbestos liability related asset resulting charge 42700 primarily related increased asbestos defense costs projected fiscal year 2023 partially offset gain 36100 settlement coverage litigation certain asbestos insurance carriers 4 includes fiscal year 2007 increaseddecreased contract profit 35100 regular revaluation final estimated contract profit 54500 global ec group 19400 global power group net gain 6100 cf group revaluation asbestos liability related asset resulting gain 13500 settlement coverage litigation certain asbestos insurance carriers partially offset charge 7400 primarily rolling 15year asbestos liability estimate please refer “revenue recognition longterm contracts” note 1 consolidated financial statements annual report form 10k information regarding changes final estimated contract profit accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments ebitda discussed defined primary measure operating performance used chief operating decision maker global ec group results geographic dispersion global ec group’s operating revenues fiscal years 2009 2008 2007 based upon projects executed follows australasia primarily represents australia south africa new zealand pacific islands please refer section entitled “ overview segment” view market outlook global ec group fiscal year 2009 vs fiscal year 2008 global ec experienced decrease operating revenues 1107100 represented 62 decrease consolidated operating revenues global ec group’s operating revenues fiscal year 2009 included 2129100 flowthrough revenues flowthrough revenues decreased 785000 representing 71 decrease global ec group’s operating revenues global ec group’s operating revenues decreased approximately 6 excluding impact change flowthrough revenues foreign currency fluctuations compared fiscal year 2008 decrease global ec group’s ebitda resulted primarily net impact following • decreased contract profit mainly attributable impact following • decreased volume operating revenues excluding impact change flowthrough revenues described contract profit margins remained unchanged excluding noted severancerelated postemployment benefits charge • 7800 decrease contract profit fiscal year 2009 severancerelated postemployment benefits charge described • severancerelated postemployment benefits charge 8700 fiscal year 2009 severance charge results efforts rightsize global ec operations match anticipated market conditions fiscal year 2010 balance workforce match geographic mix work performed included workforce reduction uk operations partially offset workforce increases south africa india operations severancerelated postemployment benefits charge fiscal year 2009 decreased contract profit 7800 noted increased selling general administrative expenses 900 • net decrease ebitda approximately 44500 due foreign currency fluctuations relative us dollar primarily driven british pound euro compared fiscal year 2008 decreases partially offset following • 6300 equity earnings increase global ec group’s projects italy compared fiscal year 2008 fiscal year 2009 equity earnings increased 1600 related new project commenced operations end fiscal year 2008 fiscal year 2008 equity earnings decreased 4900 related change tax rates projects periods prior fiscal year 2008 • net loss settlement transactions denominated foreign currencies fiscal year 2008 approximately 14800 primarily driven sharp decline british pound • 2200 impairment charge global ec group fiscal year 2008 related investment power project development italy fiscal year 2008 vs fiscal year 2007 global ec group’s operating revenues fiscal year 2008 included 2914100 flowthrough revenues flowthrough revenues increased 1377000 compared fiscal year 2007 representing 94 increase global ec group’s operating revenues increase global ec group’s ebitda compared fiscal year 2007 resulted primarily net impact following • increased contract profit mainly attributable increased volume operating revenues increased contract profit margins excluding impact contract profit margins flowthrough revenues please refer section entitled “ contract profit” discussion contract profit contract profit margins • net loss settlement transactions denominated foreign currencies fiscal year 2008 approximately 14800 primarily driven sharp decline british pound • 6600 equity earnings decrease global ec group’s projects italy compared fiscal year 2007 fiscal year 2008 equity earnings decreased 4900 related change tax rates projects periods prior fiscal year 2008 • 2200 impairment charge global ec group fiscal year 2008 related investment power project development italy overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels global ec group generates revenues engineering procurement construction project management activities pursuant contracts spanning approximately four years duration returns equity investments various power production facilities global ec group owns one leading technologies delayed coking used refinery residue upgrading hydrogen production process used oil refineries petrochemical plants global ec group also designs supplies directfired furnaces including fired heaters waste heat recovery generators used range refinery chemical petrochemical oil gas processes including furnaces used proprietary delayed coking hydrogen production technologies additionally global ec group experience able work wide range processes owned others although global economy showing signs recovery several clients continuing reevaluate size timing scope capital spending plans relation kinds energy petrochemical projects serve seen instances postponement cancellation prospects resizing prospective projects make economically viable intensified competition among engineering construction contractors resulted pricing pressure factors may continue fiscal year 2010 addition constraints global credit market impacting may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation however continue see projects moving forward clients starting reexamine previously postponed projects review business cases proceeding projects addition believe world demand energy chemicals continue grow long term clients continue invest new upgraded capacity meet demand regard successful booking contracts studies frontend engineering work fiscal year 2009 example feed work lng project australia frequently precursor subsequent significant opportunities projects move engineering procurement construction phase moreover continued successful booking contracts varying types sizes key end markets including large award fiscal year 2009 engineering procurement construction new refinery india success regard reflection technical expertise longterm relationships clients selective approach pursuit new prospects believe significant differentiators global power group results geographic dispersion global power group’s operating revenues fiscal years 2009 2008 2007 based upon projects executed follows australasia primarily represents australia south africa new zealand pacific islands please refer section entitled “ overview segment” view market outlook global power group fiscal year 2009 vs fiscal year 2008 global power group predominantly serves power generation industry experienced decrease operating revenues 690800 compared fiscal year 2008 represented 38 decrease consolidated operating revenues global power group’s operating revenues decreased approximately 37 excluding impact change foreign currency translation rates compared fiscal year 2008 decrease global power group’s ebitda fiscal year 2009 compared fiscal year 2008 resulted primarily following • decreased contract profit mainly attributable impact following • decreased volume operating revenues significantly offset increased contract profit margins additionally contract profit margins increased excluding impact items noted occurred fiscal year 2008 • 7500 increase contract profit fiscal year 2008 commitment fee received contract global power group awarded • 6700 decrease contract profit fiscal year 2008 legacy project ireland please refer note 17 consolidated financial statements annual report form 10k information • 6600 decrease contract profit fiscal year 2008 severancerelated postemployment benefits charge • decrease equity earnings global power group’s project chile 5300 primarily due decrease average electric tariff rates compared average electric tariff rates effect fiscal year 2008 • net decrease ebitda approximately 7300 due foreign currency fluctuations relative us dollar primarily driven euro polish zloty compared fiscal year 2008 decreases partially offset following • fiscal year 2008 global power group recorded charge severancerelated postemployment benefits 9000 severancerelated postemployment benefits charge resulted efforts rightsize power generation business match anticipated market conditions charge fiscal year 2008 9000 decreased contract profit 6600 noted increased selling general administrative expenses 2100 increased deductions net 300 • net loss settlement transactions denominated foreign currencies fiscal year 2008 approximately 2200 fiscal year 2008 vs fiscal year 2007 increase global power group’s ebitda fiscal year 2008 compared fiscal year 2007 resulted primarily following • global power group experienced increased contract profit mainly attributable increased volume operating revenues markedly increased contract profit margins fiscal year 2008 compared fiscal year 2007 excluding net impact items noted • 7500 increase contract profit fiscal year 2008 commitment fee received contract global power group awarded • decreases contract profit charges 6700 30000 fiscal years 2008 2007 respectively legacy project ireland please refer note 17 consolidated financial statements annual report form 10k information • 6600 decrease contract profit fiscal year 2008 severancerelated postemployment benefits charge noted • 9600 increase contract profit fiscal year 2007 gain related favorable resolution project claims global power group • increase equity earnings global power group’s project chile 4100 primarily due increase average electric tariff rates compared average electric tariff rates effect fiscal year 2007 increases partially offset following • charge 9000 global power group primarily severancerelated postemployment benefits noted 9000 charge decreased contract profit 6600 increased sga expenses 2100 increased deductions net 300 • 2200 net foreign exchange loss fiscal year 2008 • ebitda fiscal year 2007 includes 14400 gain related favorable resolution project claims increased contract profit 9600 interest income 4000 reduced deductions net 800 overview segment global power group designs manufactures erects steam generators electric power generating stations district heating plants industrial facilities worldwide competitive differentiation serving markets ability products cleanly efficiently burn wide range fuels singularly combination particular cfb steam generators able burn coal grades varying quality well petroleum coke lignite municipal waste wood biomass numerous materials among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business additionally global power group designs manufactures erects auxiliary equipment electric power generating stations industrial facilities worldwide owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group business new order activity unfavorably affected several trends began fiscal year 2008 continued fiscal year 2009 may continue future weakness global economy reduced nearterm growth demand electricity addition political environmental sensitivity regarding coalfired steam generators caused number global power group’s prospective projects postponed cancelled clients experienced difficulty obtaining required environmental permits decided wait additional clarity regarding state federal regulations environmental concern especially pronounced united states lesser extent europe linked view solidfuelfired steam generators contribute global warming discharge greenhouse gas emissions atmosphere credit concerns among certain clients also contributed slowed pace new contract awards fiscal year 2009 addition depressed level natural gas pricing experienced fiscal years 2008 2009 increased attractiveness fuel relation coal generation electricity finally constraints global credit market impacting may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation believe impact factors global demand new solidfuel steam generators exception political environmental sensitivity regarding coalfired steam generators may decrease fiscal year 2010 global demand new solidfuel steam generators could begin improve however severity impact new contract awards fiscal year 2009 likely impact financial performance fiscal year 2010 first fiscal quarter 2009 global power group notified termination previously awarded contract design supply two cfb steam generators us power project global power group removed contract backlog unfilled orders first fiscal quarter 2009 amount removed backlog represented approximately 11 global power group’s backlog end fiscal year 2008 longerterm believe world demand electrical energy continue grow solidfuelfired steam generators continue fill significant portion incremental growth new generating capacity addition seeing growing need repower older coal plants new clean coal plants driven need improve environmental economical reliability performance mature coal plant fleets countries us poland russia fuelflexibility cfb steam generators enables burn variety fuels coal produce carbonneutral electricity fired biomass addition utility steam generators designed incorporate supercritical technology significantly improves power plant efficiency reduces power plant emissions recently received award carry detail engineering supply assembly commissioning cfb steam generator used research co2 capture oxyfuel combustion utilizing flexiburntm technology liquidity capital resources fiscal year 2009 activities fiscal year 2009 generated 290600 cash flows operating activities net contributions pension plans 71400 experienced increase cash equivalents 19200 due effect exchange rate changes cash equivalents partially offset capital expenditures 45600 payments totaling approximately 32600 primarily two business acquisitions specializing upstream oil gas engineering services together primary factors resulting net increase cash equivalents 224000 fiscal year 2009 cash equivalents shortterm investments restricted cash balances total cash equivalents shortterm investments restricted cash held nonus entities december 31 2009 december 26 2008 806800 646000 respectively please refer note 1 consolidated financial statements annual report form 10k additional details cash equivalents shortterm investments restricted cash balances cash flows operating activities net cash provided operations fiscal year 2009 attributable primarily net income 361400 noncash charges included net income 98400 partially offset cash used working capital 126700 net payments asbestos liability indemnity defense costs excess proceeds settlements asbestos insurance carriers 24400 mandatory discretionary contributions us nonus pension plans 71400 included discretionary contributions 30000 18300 us nonus pension plans respectively decrease net cash provided operations resulted primarily decrease net income 172500 includes gain related cash receipts 36100 settlement coverage litigation certain asbestos insurance carriers fiscal year 2008 increase cash used working capital 72400 partially offset increase noncash charges included net income 29600 decreased mandatory discretionary contributions us nonus pension plans 34200 payments 71400 105600 fiscal years 2009 2008 respectively included discretionary contributions 48300 62500 fiscal years 2009 2008 respectively net cash provided operations fiscal year 2008 relatively unchanged compared fiscal year 2007 net result increase net income 134400 includes gain related cash receipts 36100 settlement coverage litigation certain asbestos insurance carriers fiscal year 2008 partially offset net increase cash used mandatory discretionary contributions us nonus pension plans 25300 payments 105600 80300 fiscal years 2008 2007 respectively included discretionary contributions 62500 45000 fiscal years 2008 2007 respectively net reduction cash flows 113600 fund increase working capital net cash outflow working capital increase 55000 versus net cash inflow generated reduction working capital 58600 fiscal years 2008 2007 respectively working capital varies period depending mix stage completion commercial terms conditions contracts timing related cash receipts global ec group typically experiences use cash working capital workload reimbursable contracts increases since services rendered prior billing clients conversely global ec group typically experiences cash inflows working capital workload reimbursable contracts decreases cash receipts client billings exceed new services rendered global power group typically experiences cash receipts working capital workload increases cash typically received prior ordering materials equipment rendering services whereas global power group typically experiences use cash working capital workload decreases cash used materials equipment purchased services rendered exceeds cash receipts new client billings cash used working capital fiscal year 2009 compared fiscal year 2008 reflects increase cash used working capital global power group partially offset decrease cash used working capital global ec group global power group’s cash receipts fiscal year 2009 client billings decreased relative cash used materials equipment purchased services rendered billed collected clients prior fiscal year resulted increase cash used working capital fiscal year 2009 global ec group experienced decrease new services rendered relative cash receipts client billings resulted decrease cash used working capital fiscal year 2009 fully described “ outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability increase maintain cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “ global ec groupoverview segment” “ global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities fiscal year 2009 attributable primarily capital expenditures 45600 included 18100 expenditures fw power srl related construction electric power generating wind farm projects italy payments totaling approximately 32600 primarily two business acquisitions specializing upstream oil gas engineering services net cash used investing activities fiscal year 2008 attributable primarily capital expenditures 103900 included 54300 expenditures fw power srl related construction electric power generating wind farm projects italy 14900 acquisitions 7600 increase investments advances unconsolidated affiliates increase restricted cash 2800 primarily driven increase debt service reserve funds fw power srl please refer note 1 consolidated financial statements annual report form 10k additional details cash balances net cash used investing activities fiscal year 2007 attributable primarily capital expenditures 51300 included 13800 expenditures fw power srl related construction electric power generating wind farm projects italy increase restricted cash 900 primarily driven increase funds received customers restricted use specific projects increase debt service reserve funds fw power srl 1500 acquisition 4800 payment made related fw power acquisition 2006 partially offset 6300 return investment unconsolidated affiliates proceeds sale assets 7600 capital expenditures fiscal years related primarily project construction including fw power srl electric power generating wind farm projects italy noted leasehold improvements information technology equipment office equipment capital expenditures decreased 58300 fiscal year 2009 result decreased expenditures global ec group primarily driven operating units asia italy us global power group experienced decreases operating units information capital expenditures segment please see note 15 consolidated financial statements annual report form 10k cash flows financing activities net cash provided financing activities fiscal year 2009 attributable primarily proceeds issuance shortterm longterm project debt 13100 proceeds exercise share purchase warrants 2800 partially offset repayment shortterm longterm debt capital lease obligations 12700 distributions noncontrolling interests 2200 net cash used financing activities fiscal year 2008 attributable primarily 485600 used repurchase retire shares share repurchase program please see “ outlook” section details regarding share repurchase program distributions us noncontrolling interests 9600 repayment longterm debt capital lease obligations 28700 includes 19000 cash acquire 1999c robbins bonds defined note 6 consolidated financial statements annual report form 10k partially offset proceeds issuance shortterm debt project debt 54600 cash provided exercises stock options 2800 net cash provided financing activities fiscal year 2007 attributable primarily cash provided exercises stock options warrants proceeds issuance specialpurpose limited recourse project debt fw power srl partially offset repayment debt capital lease obligations outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus entities changes working capital activities unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling 12month period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months based forecasts primary cash needs working capital expenditures asbestos liability indemnity defense costs acquisitions may also use cash repurchase shares share repurchase program foster wheeler ag adopted part redomestication described authorized repurchase 264800 outstanding registered shares majority cash balances invested shortterm interest bearing accounts maturities less three months continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities may elect make additional discretionary contributions us andor uk pension plans fiscal year 2010 continue monitor credit exposure light global economic environment respect counterparty credit exposure general specifically related cash equivalents bonding bank guarantees forward currency contracts pension assets insurance assets clients believe well diversified thirdparty credit exposure expose us material downside risks customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next 12 months us operating entities generate sufficient cash flows fund obligations related corporate overhead expenses asbestosrelated liabilities incurred us additionally dependent cash repatriations cover essentially payments expenses switzerland based corporate overhead expenses fund acquisition shares share repurchase program described consequently require cash repatriations us switzerland entities located countries normal course operations meet swiss us cash needs successfully repatriated cash many years believe repatriate required amount cash us switzerland additionally continue access revolving credit portion us senior credit facility needed fiscal year 2009 net cash outflows payments related asbestos liability indemnity defense costs excess insurance settlement proceeds 24400 fiscal year 2010 expect net cash outflows approximately 23900 assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease senior credit agreement provides facility 450000 includes provision permits future incremental increases 100000 total availability facility approximately 308000 273500 letters credit outstanding us senior credit agreement december 31 2009 december 26 2008 respectively letter credit fees range 150 160 excluding fronting fee 0125 per annum intend borrow us senior revolving credit facility fiscal year 2010 portion letters credit issued us senior credit agreement performance pricing decreased increased result improvements reductions credit rating assigned us senior credit agreement moody’s investors service andor standard poor’s result improvement sp credit rating march 2007 achieved continue maintain lowest possible pricing performance pricing provisions us senior credit agreement performance pricing expected materially impact liquidity capital resources fiscal year 2010 us senior credit agreement expires september 13 2011 however may consider refinancing agreement fiscal year 2010 december 18 2008 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered additional amendment us senior credit agreement amendment includes consent lenders credit agreement redomestication addition amendment reflects addition foster wheeler ag guarantor obligations credit agreement reflects changes relating foster wheeler ag becoming ultimate parent foster wheeler ltd subsidiaries upon completion redomestication amendment became effective upon consummation redomestication february 9 2009 required make mandatory contributions us pension plans fiscal year 2010 based minimum statutory funding requirements based minimum statutory funding requirements fiscal year 2010 expect make mandatory contributions totaling approximately 33700 nonus pension plans fiscal year 2010 september 12 2008 announced share repurchase program pursuant authorized repurchase 750000 foster wheeler ltd’s outstanding common shares connection redomestication described item 1 “business redomestication” foster wheeler ag adopted share repurchase program pursuant authorized repurchase 264800 outstanding registered shares designate repurchased shares cancellation amount authorized repurchase registered shares foster wheeler ag program equal amount remained available repurchases foster wheeler ltd program february 9 2009 date completion redomestication foster wheeler ag program replaces foster wheeler ltd program repurchases made foster wheeler ltd program repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand cumulatively february 25 2010 repurchased foster wheeler ltd foster wheeler ag programs 18098519 shares aggregate cost approximately 485600 includes commissions 400 executed repurchases accordance 10b51 repurchase plans well open market purchases 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments well restricted payments offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilebased project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease commitments pension funding requirements expected cash flows related contractual obligations outstanding december 31 2009 follows 1 funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available projections assume make discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2010 expect fund 23900 asbestos liability indemnity defense costs cash flows fiscal year 2010 net cash expected received existing insurance settlements please refer note 17 consolidated financial statements annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated liability beyond 2010 expect pay 6100 relating uncertain tax provisions including interest penalties cash flows fiscal year 2010 total liability including accrued interest penalties 80000 december 31 2009 please refer note 14 consolidated financial statements annual report form 10k information certain instances normal course business provided security contract performance consisting standby letters credit bank guarantees surety bonds december 31 2009 commitments period expiration follows please refer note 8 consolidated financial statements annual report form 10k discussion guarantees backlog new orders new orders recorded added backlog unfilled orders based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts australasia primarily represents australia south africa new zealand pacific islands australasia primarily represents australia south africa new zealand pacific islands foreign currency translation impact backlog foster wheeler scope backlog resulted increases 262700 85600 respectively december 31 2009 compared december 26 2008 foreign currency translation impact backlog foster wheeler scope backlog resulted decreases 1002200 202400 respectively december 26 2008 compared december 28 2007 inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixed price contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total estimated contract costs estimates progress toward completion determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed sec final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 43 33 38 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 fiscal years 2009 2008 2007 respectively changes final estimated contract profit resulted net increase 69000 26700 35100 reported contract profit fiscal years 2009 2008 2007 respectively relating revaluation work performed contracts prior periods changes fiscal year 2009 included 24300 positive settlements two projects global ec group 14800 associated receipt payment long outstanding arbitration award impact contract profit measured beginning fiscal year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 31 2009 recorded total liabilities 376500 comprised estimated liability 141600 relating open outstanding claims valued estimated liability 234900 relating future unasserted claims fiscal year 2024 total 59800 recorded accrued expenses 316700 recorded asbestosrelated liability consolidated balance sheet since yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2009 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal yearend 2009 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2024 considering advice arpc fiscal year 2009 revalued liability asbestos indemnity defense costs fiscal year 2024 376500 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 26400 fiscal year 2009 resulting primarily increased asbestos defense costs projected fiscal year 2024 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2024 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2024 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred fiscal year 2024 historically defense costs represented approximately 31 total defense indemnity costs december 31 2009 cumulative indemnity costs paid prior insurance recoveries approximately 692300 total defense costs paid approximately 315600 december 31 2009 recorded assets 274000 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims fiscal year 2024 65600 asset recorded within accounts notes receivableother 208400 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated asset recorded within accounts notes receivableother december 31 2009 reflects amounts due next 12 months executed settlement agreements insurers includes estimate future settlement recorded asbestosrelated insurance recovery receivable includes estimate recoveries insurers unsettled insurance coverage litigation referred based upon application new jersey law certain insurance coverage issues assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since fiscal yearend 2005 worked peterson risk consulting llc nationally recognized experts united states respect estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting llc provided analysis unsettled insurance asset december 31 2009 utilized analysis determine estimate value unsettled insurance asset december 31 2009 december 31 2009 estimated value unsettled asbestos insurance asset related ongoing litigation new york state court subsidiaries’ insurers 43500 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation write receivables insurers become insolvent writeoffs fiscal years 2009 2008 2007 overall historic average combined indemnity defense cost per resolved claim december 31 2009 approximately 28 average cost per resolved claim increasing believe continue increase future plan update forecasts periodically take consideration experience considerations update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities fiscal year 2009 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based fiscal yearend 2009 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 57500 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries would decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 31 2009 recorded total liabilities 39300 comprised estimated liability relating open outstanding claims 10300 estimated liability relating future unasserted claims fiscal year 2024 29000 total 3500 recorded accrued expenses 35800 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 3500 recorded accounts notes receivableother 35800 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation asbestos liability related asset recorded uk would approximately 57900 defined benefit pension postretirement benefit plans defined benefit pension plans united states united kingdom canada france finland postretirement benefit plans health care life insurance benefits united states canada us plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory additionally one subsidiaries united states also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 defined benefit pension postretirement benefit plans accounted accordance fasb asc 715 formerly sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits sfas 132r employers’ disclosures pensions postretirement benefits sfas 158 employers’ accounting defined benefit pension post retirement benefits fasb asc 715 requires us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet fasb asc 715 also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax please refer note 7 consolidated financial statements annual report form 10k information calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate postretirement benefit plans • annual inflation rate utilize business judgment establishing estimates used calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate defined benefit pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension plans fiscal years 2009 2008 2007 na applicable plan frozen future salary levels affect benefits payable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 69 73 past three years following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation united states united kingdom defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 23100 300 respectively net actuarial losses reflect differences expected actual plan experience including returns plan assets changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants nonus plans approximately 11 years uk plans approximately 11 years canadian plan approximately 19 years finnish plan average life expectancy participants us plans approximately 25 years since benefits frozen prior service creditscosts amortized schedules established date plan change approximately 9 years uk plans approximately 4 years canadian plan onetenth percentage point decrease funding rates used calculating future funding requirements us plans 2014 would increase aggregate contributions next five years approximately 3000 increase onetenth percentage point would decrease aggregate contributions approximately 3000 onetenth percentage point decrease funding rates used calculating future funding requirements uk plans 2014 would increase aggregate contributions next five years approximately 5900 increase onetenth percentage point would decrease aggregate contributions approximately 4700 following table summarizes estimates used postretirement benefit plans fiscal years 2009 2008 2007 discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 200 4000 respectively net actuarial losses outside corridor amortized average life expectancy inactive participants approximately 21 years benefits frozen prior service credits amortized schedules established date plan change approximately 8 years please refer note 7 consolidated financial statements annual report form 10k discussion defined benefit pension postretirement benefit plans sharebased compensation plans sharebased compensation plans include restricted awards stock option awards measure awards fair value grant date recognize compensation cost consolidated statements operations vesting period compensation cost sharebased plans 22800 15800 7100 charged income fiscal years 2009 2008 2007 respectively related income tax benefit recognized consolidated statement operations 400 300 200 fiscal years 2009 2008 2007 respectively received 500 2800 18100 cash option exercises sharebased compensation plans fiscal years 2009 2008 2007 respectively december 31 2009 18300 17500 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized weightedaverage period approximately 26 months estimate fair value option award date grant using blackscholes option valuation model incorporates assumptions regarding number complex subjective variables recognize fair value option compensation cost ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application fasb asc 71810 future periods compensation expense record future awards may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense option pricing models developed use estimating value traded options vesting hedging restrictions fully transferable cause dilution sharebased payments characteristics significantly different freely traded options changes subjective input assumptions materially affect estimates fair value existing valuation models may provide reliable measures fair value sharebased compensation consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercise expiration forfeiture sharebased payments future stock options may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments please refer note 11 consolidated financial statements annual report form 10k discussion sharebased compensation plans goodwill intangible assets least annually evaluate goodwill potential impairment test impairment reporting unit level defined fasb asc 35020 reporting units defined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists two reporting units one within global power group business segment one within global ec group business segment goodwill impairment test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter fiscal year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable determined income market valuation approaches provide inputs estimate fair value reporting units would considered market participants income valuation approach employed discounted cash flow model estimate fair value reporting unit model requires use significant estimates assumptions regarding future revenues costs margins capital expenditures changes working capital terminal year growth rate cost capital cash flow models based forecasted results applicable reporting units models also assume 3 growth rate terminal year actual results could differ projections market valuation approach employed guideline publicly traded company method indicates fair value equity reporting unit comparing publicly traded companies similar lines business identifying selecting guideline companies analyzed business financial profiles relative similarity factors size growth risk profitability analyzed compared reporting units noted indicated fair value income approach market approach carrying value reporting unit april 2009 acquired substantially assets offshore engineering division ope holdings ltd conjunction acquisition recorded 6400 goodwill 2500 identifiable intangible assets october 2009 acquired substantially assets houston operations atlas engineering inc conjunction acquisition recorded 15900 goodwill 14400 identifiable intangible assets please see note 2 consolidated financial statements annual report form 10k information related acquisitions goodwill 52300 intangible assets 11600 relate global power group’s european reporting unit experienced number performance related issues prior years however performance reporting unit improved recent years calculation estimated fair value reporting unit sufficiently excess carrying value even conducting various sensitivity analyses key assumptions adjustment carrying value goodwill required however performance unit deteriorate future carrying value could exceed fair value future periods could lead impairment goodwill calculation estimated fair value global ec group’s reporting unit significantly excess carrying value even conducting various sensitivity analyses key assumptions income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions statutory purposes majority deferred tax assets valuation allowance provided december 31 2009 begin expire 2025 later based current tax laws valuation allowance 332840 recorded december 31 2009 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2005 fiscal year 2008 settled tax audit asia pacific region resulted 3200 reduction unrecognized tax benefits corresponding reduction provision income taxes number tax years audit relevant state nonus tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2010 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time december 31 2009 58800 unrecognized tax benefits 58300 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations fiscal year 2009 recorded net reduction interest expense 3000 included 5100 previously accrued interest expense ultimately assessed net penalties unrecognized tax benefits 2500 included 2700 previously accrued tax penalties ultimately assessed fiscal year 2008 recorded interest expense unrecognized tax benefits 1200 net reduction penalties unrecognized tax benefits 2400 net previously accrued tax penalties ultimately assessed 5000 please refer note 14 consolidated financial statements annual report form 10k discussion income taxes accounting developments june 2009 authoritative guidance issued requires enterprise qualitatively assess determination primary beneficiary “consolidator” variable interest entity “vie” based whether entity 1 power direct matters significantly impact activities vie 2 obligation absorb losses right receive benefits vie could potentially significant vie guidance changes consideration kickout rights ability remove enterprise power direct activities vie determining entity vie may cause certain additional entities considered vies contrast prior authoritative guidance new guidance requires ongoing reconsideration primary beneficiary also amends events trigger reassessment whether entity vie guidance effective financial statements issued fiscal years beginning november 15 2009 currently assessing impact guidance may consolidated financial statements disclosures item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • benefits effects results redomestication switzerland • benefits effects results strategic renewal initiative • deterioration global economic conditions • changes investment oil gas oil refining chemicalpetrochemical power generation industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war terrorist attacks andor natural disasters affecting facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing global competition • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong challenges drivers business segments discussed detail section entitled “ results operationsbusiness segments” within item 7 undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed furnished securities exchange commission sec overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos expenses corporate finance group refer cf group exploring intend continue explore acquisitions within engineering construction industry strategically complement expand technical capabilities access new market segments also exploring acquisitions within power generation industry complement products global power group offers subsequent 2012 fiscal yearend us operations acquired usbased firm specializes management construction commissioning pharmaceutical biotech facilities included within global ec group 2012 acquired multidiscipline full service engineering procurement construction management company located north america included within global ec group business segment 2011 acquired company based germany designs manufactures installs equipment utilizes circulating dry ash flue gas scrubbing technology types steam generators power industrial sectors included within global power group business segment assurance consummate acquisitions future summary financial results summary financial results 2012 2011 2010 follows 1 please refer section entitled “ results operations” within item 7 discussion 2 please refer section entitled “ liquidity capital resources” within item 7 discussion net income attributable foster wheeler ag decreased 2012 compared 2011 primarily driven pretax impacts increased asbestosrelated provision 20600 increased sales pursuit costs 18500 well unfavorable aftertax impacts decreased equity earnings projects chile italy totaling 17600 impact higher effective tax rate 2012 compared 2011 decline partially offset pretax impact increased contract profit 35900 net impairment charge 11500 recognized connection camden new jersey wastetoenergy facility 2012 net income attributable foster wheeler ag decreased 2011 compared 2010 primarily driven pretax decrease contract profit 57300 included unfavorable impact inclusion curtailment gain settlement fee earned recognized 2010 decline also included unfavorable impact inclusion gain 21900 recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt favorable impacts 13200 related inclusion decreased equity earnings 2010 two projects italy recorded impairment charges inclusion 4000 gain related revaluation contingent consideration liability recognized 2011 please refer discussion within section entitled “ results operations” within item 7 challenges drivers primary operating focus continues booking quality new business effectively efficiently executing contracts global markets operate largely dependent overall economic conditions global regional economic growth rates resultant demand oil gas electric power petrochemicals refined products business groups impacted unfavorable economic growth rates respective global markets 2012 additionally potential downside risk continued unfavorable global economic growth rates driven primarily continued sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented slowdown economic growth rate china geopolitical oil supply risks could impact global economic growth significant rise oil prices risks materialize business groups could impacted engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities clients plan investments based longterm time horizons believe global demand energy chemicals pharmaceuticals continue grow longterm clients continue invest new upgraded capacity meet demand global markets engineering construction industry experienced intense competition among engineering construction contractors pricing pressure contracts awarded seen instances protracted client bidding contract award processes clients releasing tranches work piecemeal basis however seeing clients continuing develop new projects making final investment decisions moving forward previously planned projects challenges drivers global ec group discussed detail section entitled “ results operationsbusiness segmentsglobal ec groupoverview segment” within item 7 demand products services global power group negatively impacted 2012 due increased level timing delays related project award dates however believe opportunities continue growth regions asia middle east south america driven growing electricity demand number constraining market factors continue impact markets serve factors include political environmental sensitivity regarding coalfired steam generators particularly us western europe well outlook continued lower natural gas pricing next three five years increased attractiveness natural gas relation coal generation electricity factors may continue future challenges drivers global power group discussed detail section entitled “ results operationsbusiness segmentsglobal power groupoverview segment” within item 7 new orders backlog unfilled orders tables summarize new orders backlog unfilled orders period defined section entitled “ backlog new orders” within item 7 please refer section entitled “ backlog new orders” within item 7 detail results operations operating revenues operate two business groups global ec group global power group please refer section entitled “ business segments” within item 7 discussion products services business segments composition operating revenues varies period based portfolio contracts execution given period operating revenues dependent upon strength various geographic markets industries serve ability address markets industries operating revenues geographic region based upon projects executed 2012 2011 2010 follows australasia primarily represents australia new zealand pacific islands 2012 vs 2011 operating revenues decreased 2012 compared 2011 primarily result decreased flowthrough revenues 1014600 described excluding impact change flowthrough revenues currency fluctuations operating revenues increased 1 2012 compared 2011 increase operating revenues excluding flowthrough revenues currency fluctuations 2012 result increased operating revenues global ec group partially offset decreased operating revenues global power group flowthrough revenues costs result purchase materials equipment thirdparty services behalf customer reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flowthrough costs flowthrough revenues costs impact contract profit net earnings 2011 vs 2010 operating revenues increased 2011 compared 2010 includes increased flowthrough revenues 186400 excluding impact change flowthrough revenues currency fluctuations operating revenues increased 6 2011 compared 2010 increase operating revenues excluding flowthrough revenues currency fluctuations 2011 result significantly increased operating revenues global power group partially offset decreased operating revenues global ec group please refer section entitled “ business segments” within item 7 discussion related operating revenues view market outlook operating groups contract profit contract profit computed operating revenues less cost operating revenues “flowthrough” amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce con tract profit margin included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance 2012 vs 2011 contract profit increased 2012 compared 2011 increase result increased contract profit global ec group global power group additionally increase contract profit net impairment charge 11500 recognized 2012 connection global power group’s camden new jersey wastetoenergy facility 2011 vs 2010 contract profit declined 2011 compared 2010 decline net result decreased contract profit global ec group unfavorable impact inclusion curtailment gain 20100 related uk pension plan settlement fee earned 11800 recognized global ec group 2010 partially offset increased contract profit global power group please refer section entitled “ business segments” within item 7 information related contract profit contract profit margins operating groups selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs 2012 vs 2011 sga expenses increased 2012 compared 2011 primarily result increased sales pursuit costs 18500 increased general overhead costs 3800 charge 1900 incurred 2012 recognize accelerated depreciation expense executive offices geneva switzerland connection decision relocate principal executive offices one existing facilities reading united kingdom 2011 vs 2010 sga expenses increased 2011 compared 2010 primarily result increased sales pursuit costs 14700 general overhead costs 4800 partially offset increased expenses 2010 related relocation principal executive offices geneva switzerland 8000 decreased charge severancerelated postemployment benefits 6000 2011 compared 2010 2011 sga expenses included severancerelated postemployment benefits charge 1100 included charges global ec group cf group 600 500 respectively 2010 sga expenses included severancerelated postemployment benefits charge 7100 cf group income net income net 2012 consisted primarily equity earnings 23000 generated investments primarily ownership interests build operate projects chile italy 2012 equity earnings global power group’s project chile global ec group’s projects italy 20300 2700 respectively additionally recognized governmental economic subsidies nonincomebased tax credits 5200 income net decreased 2012 compared 2011 primarily driven decreased equity earnings global power group’s project chile 10600 decreased equity earnings global ec group’s projects italy 7000 unfavorable impact inclusion 4000 gain 2011 related revaluation contingent consideration liability partially offset increased governmental economic subsidies nonincomebased tax credits 3700 impact related favorable settlement claim client legacy project 2000 income net 2011 consisted primarily equity earnings 40100 generated investments primarily ownership interests build operate projects chile italy 2011 equity earnings global power group’s project chile global ec group’s projects italy 30900 9700 respectively additionally recognized 4000 gain 2011 related revaluation contingent consideration liability income net decreased 2011 compared 2010 primarily driven unfavorable impact inclusion 21900 gain recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt decreased valueadded tax refunds nonincomebased tax credits 3400 partially offset increased equity earnings global power group’s project chile 10200 increased equity earnings global ec group’s investments 5900 includes favorable impact inclusion decreased equity earnings 2010 13200 related impairment charges recognized two global ec group’s projects italy 4000 gain 2011 related revaluation contingent consideration liability global ec group income net 2010 consisted primarily equity earnings 24000 generated investments primarily ownership interests build operate projects italy chile 21900 gain recognized payment remaining balance camden new jersey wastetoenergy facility’s project debt pollution control finance authority camden county pcfa state new jersey information related equity earnings please refer sections within item 7 entitled “ business segmentsglobal power group” global power group’s project chile “ business segmentsglobal ec group” global ec group’s projects italy well note 5 consolidated financial statements included annual report form 10k deductions net deductions net includes various items legal fees consulting fees bank fees net penalties unrecognized tax benefits impact net foreign exchange transactions within period net foreign exchange transactions include net amount transaction losses gains arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries net foreign exchange transaction gains losses 2012 2011 2010 primarily driven exchange rate fluctuations cash balances held certain subsidiaries denominated currency functional currency subsidiaries deductions net 2012 consisted primarily legal fees 16100 bank fees 4800 net penalties unrecognized tax benefits 3700 net previously accrued tax penalties ultimately assessed provision environmental remediation costs 2200 consulting fees 1000 deductions net 2011 consisted primarily legal fees 17800 consulting fees 12000 net penalties unrecognized tax benefits 4000 net previously accrued tax penalties ultimately assessed bank fees 3500 partially offset net foreign exchange transaction gain 1100 deductions net 2010 consisted primarily legal fees 17800 net foreign exchange transaction losses 5800 consulting fees 4700 bank fees 4300 net penalties unrecognized tax benefits 1700 net previously accrued tax penalties ultimately assessed charge unamortized fees expenses related amendment restatement october 2006 us senior secured credit agreement july 2010 1600 interest income 2012 vs 2011 decrease interest income 2012 compared 2011 primarily result lower average cash equivalents balances lesser extent lower investment yields cash equivalents balances unfavorable foreign currency fluctuations 2011 vs 2010 increase interest income 2011 compared 2010 primarily result higher investment yields cash equivalents balances lesser extent higher average cash equivalents balances favorable foreign currency fluctuations interest expense 2012 vs 2011 increase interest expense 2012 compared 2011 primarily net result increased interest expense unrecognized tax benefits 2900 net previously accrued interest ultimately assessed partially offset favorable impact decreased average borrowings 2011 vs 2010 interest expense decreased 2011 compared 2010 primarily result favorable impact decreased average borrowings net asbestosrelated provision 2012 vs 2011 net asbestosrelated provision increased 2012 compared 2011 result unfavorable impact increase us net asbestosrelated provision 12100 related revaluation asbestos liability increased asbestos defense costs projected 15year estimate unfavorable impact inclusion gain settlement coverage litigation certain us asbestos insurance carriers 6100 recognized 2011 unfavorable impact related revaluation uk asbestosrelated asset 2400 2011 vs 2010 net asbestosrelated provision increased 2011 compared 2010 net result decreased gain settlement coverage litigation certain us asbestos insurance carriers 2011 compared 2010 7900 partially offset decreased provision related revaluation us asbestos liability 3400 2011 2010 provisions included charges increase us asbestos liability increased asbestos defense costs projected 15year estimate please refer note 16 consolidated financial statements included annual report form 10k information provision income taxes although swiss corporation listed us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets effective tax rate fluctuate significantly period may differ considerably us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate ii inability recognize tax benefit losses generated certain unprofitable operations iii varying mix income earned jurisdictions operate addition deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate conversely periods operating units subject valuation allowance generate pretax losses corresponding increase valuation allowance unfavorable impact effective tax rate effective tax rate 2012 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate 10percentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax incentives credits items • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us contributed approximate sevenpercentage point increase effective tax rate • valuation allowance decrease jurisdiction previously subject full valuation allowance due improved expectations future operating performance result business acquisition organic growth prospects contributed approximate threepercentage point reduction effective tax rate effective tax rate 2011 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate 175percentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax incentives credits items • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us contributed approximate sixpercentage point increase effective tax rate effective tax rate 2010 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate 17percentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax incentives credits items • total changes valuation allowance contributed approximate fivepercentage point increase effective tax rate result net impact valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us reversal valuation allowance deferred tax assets nonus jurisdiction monitor jurisdictions valuation allowances deferred tax assets established previous years evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire 2026 beyond based current tax laws net income attributable noncontrolling interests net income attributable noncontrolling interests represents thirdparty ownership interests net income global power group’s martinez california gasfired cogeneration subsidiary manufacturing subsidiaries poland people’s republic china well global ec group’s subsidiaries malaysia south africa change net income attributable noncontrolling interests based upon changes net income subsidiaries andor changes noncontrolling interests’ ownership interest subsidiaries 2012 vs 2011 net income attributable noncontrolling interests relatively unchanged 2012 compared 2011 primarily net result decreased net income operations south africa partially offset increased net income operations china poland 2011 vs 2010 net income attributable noncontrolling interests decreased 2011 compared 2010 net result decreases net income operations people’s republic china poland south africa partially offset increase net income operations martinez california ebitda discussed defined primary measure operating performance used chief operating decision maker addition two business groups also represent operating segments financial reporting purposes report financial results associated management entities managed one two business groups include corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group cf group also represents operating segment financial reporting purposes 2012 vs 2011 ebitda relatively unchanged 2012 compared 2011 primarily net result increased asbestosrelated provision 20600 increased sales pursuit costs 18500 decreased equity earnings projects chile italy totaling 17600 partially offset increased contract profit 47400 reflect impact impairment charge 11500 recognized connection camden new jersey wastetoenergy facility increased governmental economic subsidies nonincomebased tax credits 3700 impact related favorable settlement claim client legacy project 2000 impairment charge recognized 2012 connection camden new jersey wastetoenergy facility recorded depreciation expense within cost operating revenues consolidated statement operations therefore reflected ebitda please refer note 4 consolidated financial statements included annual report form 10k information 2011 vs 2010 ebitda decreased 2011 compared 2010 primarily driven decreased contract profit 57300 net result decreased contract profit global ec group partially offset increased contract profit global power group decrease contract profit also included unfavorable impact inclusion curtailment gain settlement fee earned recognized global ec group 2010 decline ebitda also included unfavorable impact inclusion gain recognized global power group 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt favorable impact inclusion decreased equity earnings 2010 two global ec group projects italy recorded impairment charges please refer preceding discussion items within “ results operations” section individual segment explanations ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income attributable foster wheeler ag interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance certain covenants senior unsecured credit agreement use adjusted form ebitda covenant calculations ebitda presented herein adjusted certain unusual infrequent items specifically excluded terms senior unsecured credit agreement believe line item consolidated statement operations entitled “net income attributable foster wheeler ag” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income attributable foster wheeler ag indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income attributable foster wheeler ag users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest depreciation expense 2012 included impairment charge 11500 recognized connection camden new jersey wastetoenergy facility within global power group business segment please refer note 4 consolidated financial statements included annual report form 10k information ebitda table includes following 1 please refer “revenue recognition longterm contracts” note 1 consolidated financial statements included annual report form 10k information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions global power group increased 2012 favorable claim settlement legacy project subcontractor approximately 6900 recognized first quarter 2012 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 consolidated financial statements included annual report form 10k information regarding revaluation asbestos liability related asset 4 curtailment gain closure uk pension plan future defined benefit accrual global ec group 5 settlement fee received net charges incurred due client’s decision proceed prospective power project development italy within global ec group accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments global ec group results global ec group’s operating revenues geographic region based upon projects executed 2012 2011 2010 follows australasia primarily represents australia new zealand pacific islands please refer section entitled “ overview segment” view market outlook global ec group 2012 vs 2011 global ec group experienced decrease operating revenues 30 2012 compared 2011 decrease primarily driven decreased flowthrough revenues 1015000 excluding flowthrough revenues foreign currency fluctuations global ec group’s operating revenues increased 2 2012 compared 2011 global ec group’s ebitda decreased 2012 compared 2011 primarily driven unfavorable impact increased sales pursuit costs 14200 resulting increased new proposal activity decreased equity earnings global ec group’s projects italy 7000 unfavorable impact increased general overhead costs 6100 unfavorable impact inclusion 4000 gain related revaluation contingent consideration liability recognized 2011 unfavorable impact inclusion 1500 charge 2012 related writeoff capitalized costs wind farm development project italy due new legislation longer economically viable project unfavorable impacts partially offset increased contract profit 16900 increase contract profit primarily resulted increased contract profit margins lesser extent increased volume operating revenues excluding flowthrough revenues equity earnings 2012 compared 2011 unfavorably impacted results one projects italy recorded charge establish reserve receivable balance emission rights earned prior 2012 decreased earnings result extended facility maintenance shutdown 2012 2011 vs 2010 global ec group experienced increase operating revenues 3 2011 compared 2010 increase primarily driven increased flowthrough revenues 187800 change operating revenues also included unfavorable impact inclusion settlement fee earned 11800 global ec group recognized 2010 noted excluding flowthrough revenues foreign currency fluctuations settlement fee recognized 2010 global ec group’s operating revenues decreased 8 2011 compared 2010 global ec group’s ebitda decreased 2011 compared 2010 primarily driven decreased contract profit 61400 excluding impact curtailment gain settlement fee earned recognized 2010 decrease contract profit primarily resulted decreased contract profit margins decreased volume operating revenues excluding flowthrough revenues ebitda decline also included unfavorable impacts inclusion 20100 curtailment gain related 2010 future benefit accrual closure uk defined benefit pension plan 9800 settlement fee recognized 2010 described ebitda negatively impacted increased sales pursuit costs 2011 compared 2010 10800 driven increased new proposal activity decline ebitda partially offset increased equity earnings global ec group’s investments 5900 2010 equity earnings included impairment charges 13200 recognized two global ec group’s projects italy equity interest investment impairment charges 2010 two equity interest investments electric power generation projects italy centro energia teverola spa cet centro energia ferrara spa cef terminated longterm incentivized power offtake agreements place authority energy light termination power offtake agreements respective partners cet cef reviewed economic viability plant result decision made shut cet plant effective january 1 2011 following termination power offtake agreement partner cef decided continue operate cef plant least temporarily merchant basis considered possible future sale plant result foregoing operating decisions cet cef recorded impairment charges fourth quarter 2010 write fixed assets fair value financial statements additionally fourth quarter 2010 investments cet cef reduced equity losses based cet’s cef’s 2010 financial results inclusive respective impairment charges result foregoing carrying value cet cef investments approximated fair value december 31 2010 partner cef concluded continue operate plant continuing consider longterm economic viability plant potential disposal options equity earnings cet cef investments 2011 insignificant equity loss cet cef investments 2010 totaled 8200 inclusive 2010 impairment charges totaling 13200 please refer note 5 consolidated financial statements included annual report form 10k information 2010 settlement fee 2010 received settlement fee 11800 included operating revenues due client’s decision proceed power plant development project related prospective engineering procurement construction contract incurred 2000 costs related project included writeoff capitalized costs project company development costs items contributed net favorable impact ebitda 2010 approximately 9800 overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • design supply directfired furnaces including fired heaters waste heat recovery generators used range refinery chemical petrochemical oil gas processes including furnaces used proprietary delayed coking hydrogen production technologies global ec group owns one leading technologies sydecsm delayed coking used refinery residue upgrading addition refinery residue upgrading technologies solvent deasphalting visbreaking hydrogen production process used oil refineries petrochemical plants proprietary sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct also thermal treatment technology based proprietary slagging rotary kiln processing hazardous toxic waste streams additionally global ec group experience able work wide range processes owned others global ec group generates revenues design engineering procurement construction project management activities pursuant contracts spanning approximately four years duration generates equity earnings returns noncontrolling interest investments various power production facilities engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities clients plan investments based longterm time horizons believe global demand energy chemicals pharmaceuticals continue grow longterm clients continue invest new upgraded capacity meet demand global ec group impacted unfavorable economic growth rates markets 2012 result global markets engineering construction industry experienced intense competition among engineering construction contractors pricing pressure contracts awarded seen instances protracted client bidding contract award processes clients releasing tranches work piecemeal basis engineering construction industry may impacted potential downside risk global economic growth driven primarily continued sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented slowdown economic growth rate china geopolitical oil supply risks could impact global economic growth significant rise oil prices risks materialize global ec group could impacted however seeing clients continuing develop new projects making final investment decisions moving forward previously planned projects continued successful booking contracts varying types sizes key end markets including project management consultancy contract large clean fuels project kuwait frontend engineering design feed engineering procurement construction management epcm contract cogeneration facility asia epcm contracts cogeneration facility lubricants facility expansion two new chemical facilities asia feed contract oil sands project canada feedepcm contract refinery project eastern europe design supply contract delayed coker heater middle east contract two basic engineering packages cokers south america believe success regard reflection technical expertise project execution performance longterm relationships clients safety performance selective approach pursuit new prospects believe significant differentiators global power group results global power group’s operating revenues geographic region based upon projects executed 2012 2011 2010 follows australasia primarily represents australia new zealand pacific islands nm meaningful please refer section entitled “ overview segment” view market outlook global power group 2012 vs 2011 global power group experienced decrease operating revenues 2012 compared 2011 4 decrease primarily driven decreased volume business unfavorable impact foreign currency fluctuations excluding foreign currency fluctuations global power group’s operating revenues decreased 1 2012 compared 2011 global power group’s ebitda increased 2012 compared 2011 primarily driven increased contract profit 30700 excluding impairment charge 11500 recognized 2012 discussed increase contract profit primarily resulted increased contract profit margins partially offset decreased volume operating revenues additionally increase contract profit included favorable impact settlement subcontractor approximately 6900 2012 favorable impact inclusion outofperiod correction recorded 2011 reduction final estimated profit approximately 4600 discussed preceding section within item 7 entitled “results operationsebitda” increase ebitda also included unfavorable impact decreased equity earnings global power group’s project chile 10600 favorable impact related decreased legal fees 5200 please see discussion regarding global power group’s project chile 2011 vs 2010 global power group experienced significant increase operating revenues 2011 compared 2010 increase primarily driven increased volume business additional favorable impact foreign currency fluctuations excluding foreign currency fluctuations global power group’s operating revenues increased 40 2011 compared 2010 global power group’s ebitda increased 2011 compared 2010 primarily driven increased contract profit 35600 increase contract profit primarily resulted increased volume operating revenues partially offset decreased contract profit margins including impact outofperiod correction recorded 2011 reduction final estimated profit approximately 4600 discussed item 7 “ results operationsebitda” ebitda 2011 also benefited increased equity earnings global power group’s project chile 10200 increase ebitda net unfavorable impact inclusion gain 21900 recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt wastetoenergy facility 2012 impairment charge fourth quarter 2012 recorded impairment charge 11500 connection camden new jersey wastetoenergy facility within global power group business segment impairment charge recorded depreciation expense within cost operating revenues consolidated statement operations therefore reflected ebitda please refer note 4 consolidated financial statements included annual report form 10k information equity interest investment chile impact 2010 earthquake february 27 2010 earthquake occurred coast chile caused significant damage global power group’s project chile result damage project’s facility suspended normal operating activities date project included estimated recovery lost profits business interruption insurance policy financial statements covered period facility suspended normal operating activities facility began operating less normal utilization second quarter 2011 achieved normal operating activities third quarter 2011 proceeds business interruption insurance based market rates electricity period facility suspended normal operating activities equity earnings project chile 20300 30900 20700 2012 2011 2010 respectively decrease equity earnings 2012 compared 2011 primarily driven impact lower marginal rates electrical power generation impact higher statutory tax rate chile partially offset increase project’s volume electricity produced 2012 increase equity earnings 2011 compared 2010 primarily driven increase project’s volume electricity produced 2011 well higher marginal rates 2011 electrical power generation overview segment global power group designs manufactures erects steam generators auxiliary equipment electric power generating stations district heating power plants industrial facilities worldwide competitive differentiation serving markets ability products cleanly efficiently burn wide range fuels singularly combination particular circulating fluidizedbed refer cfb steam generators able burn coals varying quality well petroleum coke lignite municipal waste wood biomass numerous materials among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business additionally global power group owns operates wastetoenergy facility holds controlling interest operates combinedcycle gas turbine facility owns noncontrolling interest petcokefired cfb facility refinery steam power generation operates university cogeneration power facility steamelectric generation global power group offers number products services related steam generators including • design manufacture installation auxiliary replacement equipment utility power industrial facilities including surface condensers feedwater heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • design supply installation nitrogenoxide nox reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • design supply installation flue gas desulfurization equipment types steam generators industrial equipment • broad range site services including construction erection services maintenance engineering steam generator upgrading life extension plant repowering • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries global power group impacted unfavorable economic growth rates markets 2012 result demand products services global power group negatively impacted increased level timing delays related project award dates however believe opportunities continue asia middle east south america driven growing electricity demand result economic growth rates regions number constraining market factors continue impact markets serve political environmental sensitivity regarding coalfired steam generators continues cause prospective projects utilizing coal primary fuel postponed cancelled clients experience difficulty obtaining required environmental permits decide wait additional clarity regarding governmental regulations sensitivity especially pronounced us western europe concern coalfired steam generators relative alternative fuel sources contribute toward global warming discharge greenhouse gas emissions atmosphere outlook continued lower natural gas pricing next three five years driven increasing supply new liquefied natural gas capacity increased attractiveness natural gas relation coal generation electricity addition constraints global credit market may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation factors could negatively impact investment power sector turn could negatively impact global power group’s business potential downside risk global economic growth driven primarily continued sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented geopolitical oil supply risks could impact global economic growth significant rise oil prices risks materialize global power group could impacted longerterm believe global demand electrical energy continue grow believe majority growth driven emerging economies solidfuelfired steam generators continue fill significant portion incremental growth new generating capacity emerging economies globally see growing need repower older coal plants new efficient cleaner burning plants including coal fuels order meet environmental financial reliability goals set policy makers many countries fuel flexibility cfb steam generators enables burn wide variety fuels coal produce carbonneutral electricity fired biomass addition utility steam generators designed incorporate supercritical steam technology believe significantly improves power plant efficiency reduces power plant emissions currently executing project four 550 mwe supercritical cfb steam generators power project south korea believe indication successful scaleup cfb technology advances cfb supercritical technology verticaltube oncethrough design commercial operation units scheduled 2015 completed engineering supply project pilotscale approximately 30 megawatt thermal equivalent approximately 10 megawatt electrical mwe cfb steam generator incorporates carboncapturing flexiburntm technology pilot plant began successfully capturing co2 september 2012 additionally together parties grant agreement european commission considering projects develop carboncapturing technology grant agreement stipulates funding program used carboncapture storage technology development applicable 300 mwe oxyfuel combustion power plant recently awarded contract heat recovery steam generators ohio also awarded contract design review licensee india pc steam generator liquidity capital resources cash flows activities cash equivalents shortterm investments restricted cash balances nm meaningful total cash equivalents shortterm investments restricted cash held nonus entities december 31 2012 2011 522300 630000 respectively please refer note 1 consolidated financial statements included annual report form 10k additional details cash equivalents restricted cash balances 2012 experienced decrease cash equivalents 135700 primarily result cash used repurchase shares pay related commissions share repurchase program 91000 cash used payments related business acquisitions 69700 cash used capital expenditures 35200 increase restricted cash excluding foreign currency translation effects 18600 partially offset cash provided operating activities 93300 favorable impact exchange rate changes cash equivalents 13900 cash flows operating activities net cash provided operating activities 2012 primarily resulted cash provided net income 262700 excludes noncash charges 112900 partially offset cash used fund working capital 143000 mandatory contributions pension plans 21700 cash used us uk net asbestosrelated payments 9000 please refer note 16 consolidated financial statements included annual report form 10k information net asbestosrelated payments decrease net cash provided operating activities 92400 2012 compared 2011 resulted primarily increase cash used fund working capital resulted decrease cash 153100 partially offset decreased contributions pension plans 49300 driven lower discretionary contributions 51300 decreased cash provided net income 14000 increase net cash provided operating activities 7100 2011 compared 2010 resulted primarily favorable change working capital resulted increase cash 37600 decreased contributions pension plans 27600 driven lower discretionary contributions 25300 partially offset decreased cash provided net income 60700 working capital varies period depending mix stage completion commercial terms conditions contracts timing related cash receipts 2012 used cash fund working capital global ec group global power group cash used services rendered purchases materials equipment exceeded cash receipts client billings included impact delayed project payments within increase receivables balance generated cash conversion working capital 2011 cash receipts client billings exceeded cash used services rendered purchases materials equipment 2010 used cash fund working capital fully described “ outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability maintain increase cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “ global ec groupoverview segment” “ global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities 2012 attributable primarily payments related business acquisitions net cash acquired 69700 investing activities included capital expenditures 35200 net cash used result increase restricted cash excluding foreign currency translation effects 18600 primarily driven increased client dedicated funds partially offset cash provided return investment unconsolidated affiliates 6200 net cash used investing activities 2011 attributable primarily payments related business acquisitions 29400 capital expenditures 28100 net cash used result increase restricted cash 18600 net cash used investing activities 2010 attributable primarily capital expenditures 23300 payments related business acquisitions 4200 partially offset decrease restricted cash 6000 proceeds sale investments assets 5100 return investment unconsolidated affiliates 3200 capital expenditures 2012 2011 2010 related primarily project construction leasehold improvements information technology equipment office equipment information capital expenditures segment please see note 14 consolidated financial statements included annual report form 10k cash flows financing activities net cash used financing activities 2012 attributable primarily cash used repurchase shares pay related commissions share repurchase program 91000 financing activities included cash used distributions noncontrolling interests 18300 repayment debt capital lease obligations 13000 net cash used financing activities 2011 attributable primarily cash used repurchase shares pay related commissions share repurchase program 409400 financing activities included cash used repayment debt capital lease obligations 12500 distributions noncontrolling interests 11400 partially offset cash provided exercise stock options 11900 net cash used financing activities 2010 attributable primarily cash used repurchase shares share repurchase program 99200 financing activities included repayment debt capital lease obligations 16700 distributions noncontrolling interests 8000 partially offset cash provided exercise stock options 25700 outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations changes working capital activities unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling twelvemonth period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next twelve months based forecasts primary cash needs working capital expenditures pension contributions net asbestosrelated payments may also use cash acquisitions discretionary pension plan contributions repurchase shares share repurchase program described majority cash balances invested shortterm interest bearing accounts maturities less three months creditworthy financial institutions around world significant deterioration current global economic credit market environment particularly eurozone countries could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions andor unfavorably impact liquidity financial statements continue monitor global economic environment particularly countries operations assets continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next twelve months dependent cash repatriations subsidiaries cover payments expenses parent holding company switzerland cover cash needs related asbestosrelated liability overhead expenses us discretion specific liquidity needs funding acquisitions share repurchase program described consequently require cash repatriations switzerland us entities located countries normal course operations meet swiss us cash needs successfully repatriated cash many years believe repatriate required amount cash switzerland us additionally continue access revolving credit portion senior unsecured credit facility needed 2012 2011 2010 repatriated cash us owned nonus subsidiaries branches certain specific liquidity needs totaling approximately 18600 45100 35100 respectively repatriations made nonus subsidiaries previously provided potential incremental deferred taxes eventual repatriation earnings accordingly incremental us tax consequence period repatriation please refer note 1 consolidated financial statements included annual report form 10k information related unremitted earnings determination whether earnings indefinitely reinvested related deferred tax implications net asbestosrelated payments predominately related us subsidiaries include indemnity defense costs net insurance proceeds 2012 us net asbestosrelated cash outflows approximately 8800 2013 expect us net cash outflows approximately 14700 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease august 3 2012 entered new fiveyear senior unsecured credit agreement replaced amended restated senior unsecured credit agreement july 2010 new senior credit agreement provides facility 750000 contains increase option permitting us subject certain requirements arrange existing lenders andor new lenders provide aggregate 300000 additional commitments term senior credit agreement may request subject certain requirements two oneyear extensions contractual termination date issue 750000 letter credit portion facility letters credit issued new senior credit agreement performance pricing decreased increased result improvements reductions corporate credit ratings defined senior credit agreement based current credit ratings letter credit fees performance nonperformance letters credit issued new senior credit agreement 075 150 per annum outstanding amount respectively excluding nominal fronting fee also option use 250000 750000 revolving borrowings rate equal adjusted libor defined senior credit agreement plus 150 subject also performance pricing noted approximately 250600 225600 letters credit outstanding senior credit agreements effect december 31 2012 2011 respectively funded borrowings senior credit agreements effect december 31 2012 2011 based current operating plans cash forecasts intend borrow senior credit agreement 2013 please refer note 7 consolidated financial statements included annual report form 10k information regarding debt obligations required make mandatory contributions us pension plans 2013 based minimum statutory funding requirements based minimum statutory funding requirements 2013 expect make mandatory contributions totaling approximately 21900 nonus pension plans 2013 additionally may elect make discretionary contributions us andor nonus pension plans 2013 september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 approved shareholders extraordinary general meeting february 24 2011 february 22 2012 board directors proposed additional increase share repurchase program approximately 419398 approved shareholders 2012 annual general meeting may 1 2012 based aggregate share repurchases program december 31 2012 authorized repurchase additional 420100 outstanding shares date repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand december 31 2012 repurchased 43911078 shares aggregate cost approximately 1084300 since inception repurchase program announced september 12 2008 executed repurchases accordance 10b51 repurchase plans well privately negotiated transactions pursuant share repurchase program 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans information please refer part ii item 5 annual report form 10k declared paid cash dividend since july 2001 plans declare pay cash dividends current senior unsecured credit agreement contains limitations cash dividend payments well restricted payments offbalance sheet arrangements noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilebased project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease obligations pension postretirement benefit funding requirements expected cash flows related contractual obligations outstanding december 31 2012 follows funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available depend performance investment portfolio actuarial experience projections assume discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2013 expect fund 14700 asbestos liability indemnity defense costs cash flows 2013 net cash expected received existing insurance settlements please refer note 16 consolidated financial statements included annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated settlement obligations total liability including accrued interest penalties 93100 december 31 2012 please refer note 13 consolidated financial statements included annual report form 10k information contingently liable standby letters credit bank guarantees surety bonds primarily guarantees performance projects currently execution warranty balances include standby letters credit issued senior unsecured credit agreement facilities worldwide discussion please refer section entitled “liquidity capital resourcesoutlook” within item 7 december 31 2012 commitments period expiration follows please refer note 9 consolidated financial statements included annual report form 10k discussion guarantees backlog new orders new orders recorded added backlog unfilled orders based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect new orders project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts new orders measured terms future revenues australasia primarily represents australia new zealand pacific islands backlog measured terms future revenues australasia primarily represents australia new zealand pacific islands foreign currency translation impact backlog foster wheeler scope backlog resulted increases 100800 79500 respectively december 31 2012 compared december 31 2011 inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion time numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes available specific project circumstances change including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed sec final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 33 43 46 separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 2012 2011 2010 respectively changes final estimated contract profit resulted net increase 66000 35200 56800 reported contract profit 2012 2011 2010 respectively relating revaluation work performed contracts prior periods changes final estimated contract profit revisions 2012 global power group increased favorable settlement subcontractor approximately 6900 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling approximately 7800 included final estimated profit reductions global ec group global power group approximately 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements impact contract profit measured beginning year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 31 2012 recorded total liabilities 275300 comprised estimated liability 42700 relating open outstanding claims estimated liability 232600 relating future unasserted claims december 31 2027 since 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years since time recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2012 activity arpc recommended certain assumptions used estimate future asbestos liability updated december 31 2012 accordingly developed revised estimate aggregate indemnity defense costs december 31 2027 considering advice arpc 2012 revalued liability asbestos indemnity defense costs december 31 2027 275300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded net charge 28100 2012 included charge related updating assumptions increased asbestos defense costs projected 15year estimate lesser extent adjustment actual claim settlement experience year accrual another year estimated claims rolling 15year asbestosrelated liability estimate total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2027 liability estimate based upon following information andor assumptions number open claims forecasted number future claims broken disease type mesothelioma lung cancer nonmalignancies estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred december 31 2027 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2027 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2027 december 31 2012 total cumulative indemnity costs paid prior insurance recoveries approximately 795500 total cumulative defense costs paid approximately 388700 approximately 33 total defense indemnity costs december 31 2012 recorded assets 136400 represents best estimate settled probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2027 asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate settled probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2027 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2012 2011 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2012 2011 2010 2011 reached agreement insurer bankruptcy liquidation written receivable prior 2010 asset awarded bankruptcy liquidation insurer 4500 included asbestosrelated assets december 31 2011 receivable subsequently collected 2012 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected plan update forecasts periodically take consideration experience update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amount claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities december 31 2012 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based december 31 2012 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 42000 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations approximately 85 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries would decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 31 2012 recorded total liabilities 33000 comprised estimated liability relating open outstanding claims 7800 estimated liability relating future unasserted claims december 31 2027 25200 asset substantially equal amount recorded expected uk asbestosrelated insurance recoveries liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability recorded uk would increase approximately 46400 corresponding increase asbestosrelated asset defined benefit pension postretirement benefit plans defined benefit pension plans us uk canada finland france india south africa postretirement benefit plans opeb plans health care life insurance benefits us canada defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans certain employees us canada may become eligible health care life insurance benefits postretirement benefits qualify commence receipt normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 defined benefit pension opeb plans accounted accordance current accounting guidance requires us recognize funded status defined benefit pension opeb plans consolidated balance sheet guidance also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension opeb plan liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate opeb plans • annual inflation rate utilize business judgment establishing estimates used calculations pension opeb plan liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate pension andor opeb plan liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension opeb plans 2012 2011 2010 salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 59 71 past three years following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate accumulated net actuarial losses prior service credits pension plans amortized accumulated comprehensive loss net periodic benefit cost next year 18100 1600 respectively estimated amortization net transition obligation next year inconsequential net actuarial losses reflect differences expected actual plan experience including returns plan assets changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants approximately 11 30 18 years canadian south african finnish plans respectively average remaining life expectancy participants closed plans approximately 22 29 years us uk plans respectively since benefits closed onetenth percentage point decrease increase funding rates used calculating future funding requirements us plan 2017 would impact aggregate contributions next five years onetenth percentage point decrease funding rates used calculating future funding requirements uk plan 2017 would increase aggregate contributions next five years approximately 5100 increase onetenth percentage point would decrease aggregate contributions approximately 5000 accumulated net actuarial losses prior service credits amortized accumulated comprehensive loss net periodic postretirement benefit cost connection opeb plans next year 800 3500 respectively net actuarial losses outside corridor amortized average life expectancy inactive participants approximately 18 years benefits closed prior service credits amortized schedules established date plan change approximately 8 years please refer note 8 consolidated financial statements included annual report form 10k discussion defined benefit pension opeb plans sharebased compensation plans sharebased compensation plans include awards stock options restricted stock units performancebased restricted stock units collectively “restricted awards” measure awards fair value grant date recognize compensation cost consolidated statements operations vesting period following table summarizes sharebased compensation expense related income tax benefit december 31 2012 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price grant date using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period certain executives awarded performancebased restricted share units performance rsus awards number restricted share units ultimately vest depend share price performance specified performance goals defined performancebased award agreements estimate grant date fair value performance rsu award using monte carlo valuation model recognize fair value performance rsu award compensation expense ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application current accounting guidance compensation expense record awards future periods may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercisevesting expiration forfeiture sharebased payments future stock options performance rsus may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date expense reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date expense reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments please refer note 11 consolidated financial statements included annual report form 10k discussion sharebased compensation plans goodwill intangible assets least annually evaluate goodwill potential impairment test goodwill impairment reporting unit level determined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists four reporting units one within global power group business segment three within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed reporting units case perform goodwill impairment test first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step compares implied fair value reporting unit’s goodwill based hypothetical purchase price allocation carrying amount goodwill fourth quarter year evaluate goodwill reporting unit based assumptions used estimate fair value reporting units assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist determined income market valuation approaches would considered market participants income valuation approach employ discounted cash flow model estimate fair value reporting unit model requires use significant estimates assumptions regarding future revenues costs margins capital expenditures changes working capital terminal year growth rate cost capital cash flow models based forecasted results applicable reporting units models also assume 3 growth rate terminal year actual results could differ projections market valuation approach employ guideline publicly traded company method indicates fair value equity reporting unit comparing publicly traded companies similar lines business identifying selecting guideline companies analyze business financial profiles relative similarity factors size growth risk profitability analyzed compared reporting units 2012 annual evaluation noted indicated fair value carrying value reporting units goodwill 22300 related one global ec group’s reporting units estimate fair value reporting unit 2012 impairment test sufficiently excess carrying value even conducting various sensitivity analyses key assumptions adjustment carrying value goodwill required however performance unit deteriorate future could result decline estimated fair value carrying value could exceed fair value future periods could lead impairment goodwill income taxes deferred tax assets liabilities established tax attributes credits loss carryforwards temporary differences book tax basis assets liabilities deferred tax assets liabilities adjusted effects changes tax laws rates based date enactment within jurisdiction taxpaying component current deferred tax assets liabilities noncurrent deferred tax assets liabilities combined presented net amount deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions valuation allowance 408700 recorded december 31 2012 primarily us majority us federal tax benefits valuation allowances established expire 2026 beyond based current tax laws recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement subsidiaries file income tax returns many tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years 2008 number tax years audit relevant tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including 2013 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time december 31 2012 57100 unrecognized tax benefits would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense please refer note 13 consolidated financial statements included annual report form 10k discussion income taxes item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • timing success proposed offer acquisition us amec plc • risk business adversely impacted pending proposed offer acquisition us amec plc • benefits effects results redomestication switzerland • deterioration global economic conditions • changes investment oil gas oil refining chemicalpetrochemical power generation industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war terrorist attacks natural disasters andor adverse weather conditions affecting facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing global competition • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong challenges drivers business segments discussed detail section entitled “results operationscontinuing operationsbusiness segments” within item 7 undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed furnished securities exchange commission sec overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos expenses corporate finance group refer cf group exploring intend continue explore acquisitions within engineering construction industry strategically complement expand global ec group’s technical capabilities access new market segments second quarter 2013 acquired upstream consultancy business located united kingdom specializes field development project decision support focused evaluation implementation oil gas field developments covering greenfield brownfield assets also second quarter 2013 acquired engineering project management business located mexico experience offshore onshore upstream oil gas downstream oil gas power projects additionally first quarter 2013 acquired usbased business specializes management construction commissioning pharmaceutical biotech facilities also capabilities manage engineering procurement construction facilities addition fourth quarter 2012 acquired outstanding shares privately held multidiscipline full service engineering procurement construction management business located north america results operations acquired businesses included global ec group also exploring acquisitions within power generation industry complement products global power group offers assurance consummate acquisitions future please refer note 2 consolidated financial statements annual report form 10k information regarding acquisition activities 2013 2012 2011 acquisitions included consolidated financial results respective acquisition dates throughout item 7 periodtoperiod financial results impacted acquisitions particularly acquisitions fourth quarter 2012 first quarter 2013 referred acquisitions “businesses acquired subsequent beginning 2012” april 17 2013 board directors approved plan sell wastetoenergy facility camden new jersey completed sale facility august 2013 presentation financial results cash flows periods presented asset liability balances business periods prior completion sale reclassified consolidated statement operations consolidated balance sheet consolidated statement cash flows respective captions related discontinued operations reclassifications also made notes consolidated financial statements management’s discussion analysis financial condition results operations section camden facility formerly included global power group business segment completed sale camden facility august 2013 based proceeds received costs disposal recognized gain 300 within incomeloss discontinued operations income taxes consolidated statement operations 2013 please refer note 18 consolidated financial statements annual report form 10k information regarding discontinued operations february 13 2014 entered implementation agreement “implementation agreement” amec plc “amec” relating acquisition issued registered shares par value chf 300 per share foster wheeler ag “fw shares” amec terms subject conditions implementation agreement amec commence exchange offer “offer” acquire fw shares please refer note 19 consolidated financial statements annual report form 10k information regarding amec offer february 26 2014 board directors approved proposal shareholders onetime dividend 040 per share please refer note 19 consolidated financial statements annual report form 10k information regarding proposed dividend summary financial results continuing operations summary financial results 2013 2012 2011 continuing operations follows 1 please refer section entitled “results operationscontinuing operations” within item 7 discussion 2 please refer section entitled “liquidity capital resources” within item 7 discussion ebitda discussed defined within section entitled “results operationscontinuing operationsebitda” within item 7 used measure operating performance operating groups referred discussion income continuing operations attributable foster wheeler ag 2013 vs 2012 income continuing operations attributable foster wheeler ag decreased 2013 compared 2012 decrease primarily result unfavorable pretax impact decreased ebitda global power group experienced decrease ebitda 57500 global ec group experienced decrease ebitda 8300 2013 compared 2012 decrease ebitda net favorable change ebitda cf group 10200 mainly driven decreased sga expenses 2012 vs 2011 income continuing operations attributable foster wheeler ag decreased 2012 compared 2011 global power group experienced increase ebitda 26500 2012 compared 2011 whereas global ec group experienced decrease ebitda 18300 comparing two years net increase ebitda two business groups offset decrease ebitda cf group 9700 included unfavorable impact increased asbestosrelated provision 20600 2012 compared 2011 additionally results 2012 unfavorably impacted higher effective tax rate 293 compared effective tax rate 249 2011 please refer section entitled “results operationscontinuing operationsbusiness segments” within item 7 discussion related ebitda results operating groups discontinued operations income discontinued operations attributable foster wheeler ag 300 2013 increase 13500 compared 2012 increase primarily net result favorable impact resulting impairment charge 11500 recognized 2012 decreased depreciation 4800 2013 partially offset additional impairment charge 3900 recognized 2013 decrease depreciation expense result recognizing depreciation expense camden facility business met accounting criteria business held sale period prior sale 2013 discussed please refer note 18 consolidated financial statements annual report form 10k information regarding discontinued operations new orders backlog unfilled orders tables summarize new orders backlog unfilled orders period tables include amounts discontinued operations new orders three years backlog december 31 2012 discontinued operations new orders backlog amounts insignificant based consolidated business group balances amounts global ec group include flowthrough revenues defined section entitled “results operationscontinuing operationsoperating revenues” within item 7 417200 462800 1577700 2013 2012 2011 respectively defined section entitled “backlog new orders” within item 7 please refer section entitled “backlog new orders” within item 7 detail challenges drivers primary operating focus continues booking quality new business effectively efficiently executing contracts global markets operate largely dependent overall economic conditions global regional economic growth rates resultant demand oil gas electric power petrochemicals refined products minerals metals business groups impacted unfavorable economic growth rates respective global markets recent years additionally potential downside risk continued unfavorable global economic growth rates driven primarily continued sovereign debt bank funding pressures speed effectiveness implementation government macroeconomic policies number key advanced emerging economies slower growth anticipated emerging economies significantly people’s republic china civil unrest risks materialize ability business groups book work could negatively impacted could material negative impact business engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities clients plan investments based longterm time horizons believe global demand energy chemicals minerals pharmaceuticals continue grow longterm clients continue invest new upgraded capacity meet demand global markets engineering construction industry experiencing intense competition among engineering construction contractors pricing pressure contracts awarded clients’ bidding contract award processes continue protracted clients releasing expect continue release tranches work piecemeal basis however seeing clients continuing develop new projects making final investment decisions moving forward previously planned projects includes stronger pipeline projects north america chemicals natural gas liquefaction lng due availability cheap gas supply shale gas challenges drivers global ec group discussed detail section entitled “results operationscontinuing operationsbusiness segmentsglobal ec groupoverview segment” within item 7 global gross domestic product gdp growth key driver demand power slow economic growth recent years negatively impacted demand products services however believe gradual upturn global economic growth begin progress 2014 believe improve demand products services global power group compared recent years however number constraining market factors continue impact markets serve factors include political environmental sensitivity regarding coalfired steam generators certain geographies outlook continued lower natural gas pricing next three five years north america driven increasing supply natural gas increased attractiveness natural gas relation coal generation electricity addition constraints global credit market may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation factors may continue future could material negative impact business challenges drivers global power group discussed detail section entitled “results operationscontinuing operationsbusiness segmentsglobal power groupoverview segment” within item 7 results operationscontinuing operations following sections provide discussion results operations continuing operations operating revenues operate two business groups global ec group global power group please refer section entitled “business segments” within item 7 discussion products services business segments composition operating revenues varies period based portfolio contracts execution given period operating revenues dependent upon strength various geographic markets industries serve ability address markets industries operating revenues geographic region based upon projects executed 2013 2012 2011 follows 2013 vs 2012 operating revenues decreased 2013 compared 2012 primarily result decreased flowthrough revenues 130000 described excluding impact change flowthrough revenues currency impacts operating revenues increased 1 2013 compared 2012 increase operating revenues excluding flowthrough revenues currency fluctuations 2013 result increased operating revenues global ec group substantially offset decreased operating revenues global power group operating revenues increase global ec group included favorable impact 2013 related businesses acquired subsequent beginning 2012 flowthrough revenues costs result purchase materials equipment thirdparty services behalf customers reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flowthrough costs flowthrough revenues costs impact contract profit net earnings 2012 vs 2011 operating revenues decreased 2012 compared 2011 primarily result decreased flowthrough revenues 1014600 described excluding impact change flowthrough revenues currency fluctuations operating revenues increased 1 2012 compared 2011 increase operating revenues excluding flowthrough revenues currency fluctuations 2012 result increased operating revenues global ec group partially offset decreased operating revenues global power group please refer section entitled “business segments” within item 7 discussion related operating revenues view market outlook operating groups contract profit contract profit computed operating revenues less cost operating revenues flowthrough amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce contract profit margin included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance 2013 vs 2012 contract profit decreased 2013 compared 2012 decrease net result decreased contract profit global power group partially offset increased contract profit global ec group contract profit increase global ec group included favorable impact 2013 related businesses acquired subsequent beginning 2012 vs 2011 contract profit increased 2012 compared 2011 increase result increased contract profit global ec group global power group please refer section entitled “business segments” within item 7 information related contract profit contract profit margins operating groups selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs 2013 vs 2012 sga expenses increased 2013 compared 2012 primarily result aggregate impact businesses acquired subsequent beginning 2012 impact acquired businesses increased sga expenses 13100 much attributable compensation expense recognized earnout provisions associated acquisitions increase sga expenses also included increase charge severancerelated postemployment benefits 7300 recognized 2013 increased sales pursuit costs 4800 partially offset charge 1900 incurred 2012 related former executive offices geneva switzerland described 2013 sga expenses included severancerelated postemployment benefits charges 5300 global power group 1600 global ec group 400 cf group 2012 vs 2011 sga expenses increased 2012 compared 2011 primarily result increased sales pursuit costs 18500 increased general overhead costs 3800 charge 1900 incurred 2012 recognize accelerated depreciation expense executive offices geneva switzerland connection decision relocate principal executive offices one existing facilities reading united kingdom income net income net 2013 consisted primarily equity earnings 15400 generated investments primarily ownership interests build operate projects chile italy 2013 equity earnings global power group’s project chile 27500 whereas global ec group’s projects italy experienced equity loss 12500 inclusive impact impairment charge 22400 one projects please refer section entitled “business segmentsglobal ec group” within item 7 information related equity interest investment impairment charge additionally recognized governmental economic subsidies nonincomebased tax credits 2800 income net decreased 2013 compared 2012 primarily driven decreased equity earnings global ec group’s projects italy 15200 inclusive impact impairment charge 22400 one projects noted unfavorable impact inclusion gain recognized 2012 related favorable settlement claim client legacy project 2000 partially offset increased equity earnings global power group’s project chile 7200 income net 2012 consisted primarily equity earnings 23000 generated investments primarily ownership interests build operate projects chile italy 2012 equity earnings global power group’s project chile global ec group’s projects italy 20300 2700 respectively additionally recognized governmental economic subsidies nonincomebased tax credits 5200 income net decreased 2012 compared 2011 primarily driven decreased equity earnings global power group’s project chile 10600 decreased equity earnings global ec group’s projects italy 7000 unfavorable impact inclusion 4000 gain 2011 related revaluation contingent consideration liability partially offset increased governmental economic subsidies nonincomebased tax credits 3700 impact related favorable settlement claim client legacy project 2000 income net 2011 consisted primarily equity earnings 40100 generated investments primarily ownership interests build operate projects chile italy 2011 equity earnings global power group’s project chile global ec group’s projects italy 30900 9700 respectively additionally recognized 4000 gain 2011 related revaluation contingent consideration liability information related equity earnings please refer sections within item 7 entitled “business segmentsglobal power group” global power group’s project chile “business segmentsglobal ec group” global ec group’s projects italy well note 5 consolidated financial statements included annual report form 10k deductions net deductions net includes various items legal fees consulting fees bank fees net penalties unrecognized tax benefits impact net foreign exchange transactions within period net foreign exchange transactions include net amount transaction losses gains arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries deductions net 2013 consisted primarily legal fees 22700 bank fees 4200 net penalties unrecognized tax benefits 1300 net previously accrued tax penalties ultimately assessed provision environmental remediation costs 1400 consulting fees 1100 deductions net 2012 consisted primarily legal fees 16100 bank fees 4800 net penalties unrecognized tax benefits 3700 net previously accrued tax penalties ultimately assessed provision environmental remediation costs 2200 consulting fees 1000 deductions net 2011 consisted primarily legal fees 17800 consulting fees 12000 net penalties unrecognized tax benefits 4000 net previously accrued tax penalties ultimately assessed bank fees 3500 partially offset net foreign exchange transaction gain 1100 net foreign exchange transaction gain 2011 primarily driven exchange rate fluctuations cash balances held certain subsidiaries denominated currency functional currency subsidiaries interest income 2013 vs 2012 decrease interest income 2013 compared 2012 primarily result lower average cash equivalents balances lesser extent lower investment yields cash equivalents balances 2012 vs 2011 decrease interest income 2012 compared 2011 primarily result lower average cash equivalents balances lesser extent lower investment yields cash equivalents balances unfavorable foreign currency fluctuations interest expense 2013 vs 2012 decrease interest expense 2013 compared 2012 primarily net result favorable impact decreased average borrowings excluding foreign currency translation effects decreased interest expense unrecognized tax benefits 1000 net previously accrued interest ultimately assessed partially offset increased interest expense value added tax payroll liabilities 1300 2013 2012 vs 2011 increase interest expense 2012 compared 2011 primarily net result increased interest expense unrecognized tax benefits 2900 net previously accrued interest ultimately assessed partially offset favorable impact decreased average borrowings excluding foreign currency translation effects net asbestosrelated provision 2013 vs 2012 net asbestosrelated provision 2013 experienced minimal change compared 2012 net result favorable impact inclusion insurance recovery gain recognized 2013 upon collection insurance receivable approximately 15800 related insolvent insurance carrier previously writtenoff favorable impact inclusion charge recognized 2012 related revaluation uk asbestosrelated asset 2400 partially offset unfavorable impact increase us net asbestosrelated provision 17900 increase us net asbestosrelated provision resulted impact increase estimate new claim filings decrease estimate claim filings result monetary payments refer zeropay rate 2012 vs 2011 net asbestosrelated provision increased 2012 compared 2011 result unfavorable impact increase us net asbestosrelated provision 12100 related revaluation asbestos liability increased asbestos defense costs projected 15year estimate unfavorable impact inclusion gain settlement coverage litigation certain us insurance carriers 6100 recognized 2011 unfavorable impact related revaluation uk asbestosrelated asset 2400 please refer note 16 consolidated financial statements included annual report form 10k information provision income taxes although swiss corporation shares listed us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets effective tax rate fluctuate significantly period may differ considerably us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate ii inability recognize tax benefit losses generated certain unprofitable operations iii varying mix income earned jurisdictions operate addition deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate conversely periods operating units subject valuation allowance generate pretax losses corresponding increase valuation allowance unfavorable impact effective tax rate effective tax rate 2013 effective tax rate 2013 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate fivepercentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax exempts incentives credits items • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us partially offset valuation allowance releases certain nonus jurisdictions contributed approximate fourpercentage point increase effective tax rate effective tax rate 2012 effective tax rate 2012 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate 10percentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax incentives credits items • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us contributed approximate fivepercentage point increase effective tax rate • valuation allowance decrease jurisdiction previously subject full valuation allowance due improved expectations future operating performance result business acquisition organic growth prospects contributed approximate threepercentage point reduction effective tax rate effective tax rate 2011 effective tax rate 2011 lower us statutory rate 35 due principally net impact following • income earned nonus tax jurisdictions contributed approximate 16percentage point reduction effective tax rate primarily tax rates lower us statutory rate well additional impacts equity income joint ventures tax incentives credits items • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us contributed approximate sixpercentage point increase effective tax rate monitor jurisdictions valuation allowances deferred tax assets established previous years evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire 2025 beyond based current tax laws net income attributable noncontrolling interests net income attributable noncontrolling interests represents thirdparty ownership interests net income global power group’s martinez california gasfired cogeneration subsidiary manufacturing subsidiaries poland people’s republic china well global ec group’s subsidiaries malaysia south africa change net income attributable noncontrolling interests based upon changes net income subsidiaries andor changes noncontrolling interests’ ownership interest subsidiaries 2013 vs 2012 net income attributable noncontrolling interests decreased 2013 compared 2012 primarily net result decreased net income subsidiaries malaysia experienced net loss 2013 martinez california poland partially offset increased net income subsidiary china 2012 vs 2011 net income attributable noncontrolling interests relatively unchanged 2012 compared 2011 primarily net result decreased net income subsidiary south africa partially offset increased net income subsidiaries china poland ebitda discussed defined primary measure operating performance used chief operating decision maker addition two business groups also represent operating segments financial reporting purposes report financial results associated management entities managed one two business groups include corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group cf group also represents operating segment financial reporting purposes 2013 vs 2012 ebitda decreased 2013 compared 2012 global power group experienced decrease ebitda 57500 global ec group experienced decrease ebitda 8300 2013 compared 2012 decrease ebitda two business groups partially offset increase ebitda cf group 10200 mainly driven decreased sga expenses 2012 vs ebitda relatively unchanged 2012 compared 2011 global power group experienced increase ebitda 26500 2012 compared 2011 whereas global ec group experienced decrease ebitda 18300 comparing two years net increase ebitda two business groups offset decrease ebitda cf group 9700 included unfavorable impact increased asbestosrelated provision 20600 2012 compared 2011 please refer preceding discussion items within “results operationscontinuing operations” section individual segment explanations additional details ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income attributable foster wheeler ag interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance certain covenants senior unsecured credit agreement use adjusted form ebitda covenant calculations ebitda presented herein adjusted certain unusual infrequent items specifically excluded terms senior unsecured credit agreement believe line item consolidated statement operations entitled “net income attributable foster wheeler ag” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income attributable foster wheeler ag indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income attributable foster wheeler ag users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda continuing operations net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest ebitda table includes following 1 please refer “revenue recognition longterm contracts” note 1 consolidated financial statements included annual report form 10k information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions global power group increased 2012 favorable claim settlement legacy project subcontractor approximately 6900 recognized first quarter 2012 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 consolidated financial statements included annual report form 10k information regarding revaluation asbestos liability related asset 4 impairment charge related equity interest investment wastetoenergy project italy please refer note 5 consolidated financial statements included annual report form 10k information 5 charges facility shutdown costs included facility exit lease termination costs facilities global power group please refer note 14 consolidated financial statements included annual report form 10k information accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments global ec group results global ec group’s operating revenues geographic region based upon projects executed 2013 2012 2011 follows please refer section entitled “overview segment” view market outlook global ec group 2013 vs 2012 global ec group experienced increase operating revenues 4 2013 compared 2012 increase net decreased flowthrough revenues 129300 excluding flowthrough revenues foreign currency fluctuations global ec group’s operating revenues increased 15 2013 compared 2012 global ec group’s ebitda decreased 2013 compared 2012 decrease included impact decreased equity earnings projects italy 15200 inclusive impact impairment charge 22400 one projects discussed decrease ebitda also included unfavorable impact additional sga expenses related businesses acquired subsequent beginning 2012 13100 much attributable compensation expense recognized earnout provisions associated acquisitions global ec group’s ebitda 2013 also unfavorably impacted charge severancerelated postemployment benefits 4900 comprised amounts recognized contract profit sga 3300 1600 respectively global ec group’s decrease ebitda partially offset increased contract profit 12800 included favorable impact businesses acquired subsequent beginning 2012 inclusive charge severancerelated postemployment benefits discussed decrease ebitda also net favorable impact resulting inclusion charge recognized 2012 related revaluation uk asbestosrelated asset 2400 favorable impact inclusion 1500 charge recognized 2012 related writeoff capitalized costs wind farm development project discussed increase contract profit primarily resulted increased volume operating revenues excluding flowthrough revenues partially offset decreased contract profit margins 2013 equity earnings favorably impacted two items occurred 2013 governmental authority mandated rate change energy generated prior 2013 favorably impacted three projects aggregate amount 4900 governmental return investment credit received one projects deemed critical energy producing facility favorably impacted project 2200 additionally increase equity earnings projects italy favorably impacted inclusion two items recognized 2012 charge establish reserve receivable emission rights impact extended facility maintenance shutdown 2012 also described equity interest investment impairment charge equity earnings 2013 included impact impairment charge 22400 equity interest investment wastetoenergy project italy reduction fair value investment resulted changed market conditions respect waste tariffs type waste delivered plant coupled reduced operating performance plant compared projected performance partner investment concluded continue operate plant may consider future capital investments improve operating performance including potential increase overall waste treatment electric production compared current levels impairment recorded investee level result foregoing carrying value investment approximated fair value december 31 2013 2012 vs 2011 global ec group experienced decrease operating revenues 30 2012 compared 2011 decrease primarily driven decreased flowthrough revenues 1015000 excluding flowthrough revenues foreign currency fluctuations global ec group’s operating revenues increased 2 2012 compared 2011 global ec group’s ebitda decreased 2012 compared 2011 primarily driven unfavorable impact increased sales pursuit costs 14200 resulting increased new proposal activity decreased equity earnings global ec group’s projects italy 7000 unfavorable impact increased general overhead costs 6100 unfavorable impact inclusion 4000 gain related revaluation contingent consideration liability recognized 2011 charge recognized 2012 related revaluation uk asbestosrelated asset 2400 unfavorable impact inclusion 1500 charge 2012 related writeoff capitalized costs wind farm development project due legislation introduced 2012 longer economically viable project unfavorable impacts partially offset increased contract profit 16900 increase contract profit primarily resulted increased contract profit margins lesser extent increased volume operating revenues excluding flowthrough revenues equity earnings 2012 compared 2011 unfavorably impacted results one projects italy recorded charge establish reserve receivable balance emission rights earned prior 2012 decreased earnings result extended facility maintenance shutdown 2012 overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities lng facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated minerals metals sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • design supply directfired furnaces including fired heaters waste heat recovery generators used range refinery chemical petrochemical oil gas processes including furnaces used proprietary delayed coking hydrogen production technologies global ec group owns one leading technologies sydecsm delayed coking used refinery residue upgrading addition refinery residue upgrading technologies solvent deasphalting visbreaking hydrogen production process used oil refineries petrochemical plants also proprietary sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct additionally global ec group owns operates electric power generating wind farms italy also owns noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project located italy noncontrolling interest joint venture company fully licensed engineer procure construct processing facilities china global ec group generates revenues design engineering procurement construction project management activities pursuant contracts spanning approximately four years duration generates equity earnings returns noncontrolling interest investments various power production facilities engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities clients plan investments based longterm time horizons believe global demand energy chemicals minerals pharmaceuticals continue grow longterm clients continue invest new upgraded capacity meet demand global markets engineering construction industry still experiencing intense competition among engineering construction contractors pricing pressure contracts awarded clients’ bidding contract award processes continue protracted particularly projects sponsored national oil companies additionally clients releasing expect continue release tranches work piecemeal basis engineering construction industry may impacted potential downside risk global economic growth driven primarily continued sovereign debt bank funding pressures speed effectiveness implementation government macroeconomic policies number key advanced emerging economies slower growth anticipated emerging economies significantly china civil unrest risks materialize global ec group could impacted however seeing clients continuing develop new projects making final investment decisions moving forward previously planned projects includes much stronger pipeline projects north america chemicals lng due availability cheap gas supply shale gas continue successful booking contracts varying types sizes key end markets including engineering procurement contract clean fuels project latin america frontend engineering design feed engineering procurement construction management epcm onshore gas facilities asia main release epcm project chemical facility expansion north america epcm award chemicals facility asia additional work epcm refinery expansion project africa additional work epcm contract refinery upgrade europe feed grassroots gas processing facility eurasia project management services offshore wellhead platform asia engineering material supply steam methane reformer new refinery asia engineering procurement construction award coker slide valves two refineries latin america engineering material supply crude heater refinery latin america prefeed grassroots lng facility russia believe success regard reflection technical expertise project execution performance longterm relationships clients safety performance selective approach pursuit new prospects believe significant differentiators global power group results global power group’s operating revenues geographic region based upon projects executed 2013 2012 2011 follows please refer section entitled “overview segment” view market outlook global power group 2013 vs 2012 global power group experienced decrease operating revenues 2013 compared 2012 18 decrease primarily driven decreased volume business excluding foreign currency fluctuations global power group’s operating revenues decreased 20 2013 compared 2012 global power group’s ebitda decreased 2013 compared 2012 primarily driven decreased contract profit 44100 inclusive charge severancerelated postemployment benefits 2013 global power group incurred charges severancerelated postemployment benefits 17000 comprised amounts recognized contract profit sga 11700 5300 respectively global power group’s decrease ebitda also included charges 2013 facility shutdown costs totaled 2100 unfavorable impact inclusion gain recognized 2012 related favorable settlement claim client legacy project 2000 decreased governmental economic subsidies nonincome tax credits 900 yearoveryear impact items decreased ebitda partially offset increased equity earnings 2013 global power group’s project chile 7200 decrease contract profit primarily resulted decreased volume operating revenues partially offset increased contract profit margins additionally decrease contract profit included unfavorable impact settlement subcontractor approximately 6900 2012 discussed preceding section within item 7 entitled “results operationscontinuing operationsebitda” please see discussion regarding global power group’s project chile 2012 vs 2011 global power group experienced decrease operating revenues 2012 compared 2011 4 decrease primarily driven decreased volume business unfavorable impact foreign currency fluctuations excluding foreign currency fluctuations global power group’s operating revenues decreased 1 2012 compared 2011 global power group’s ebitda increased 2012 compared 2011 primarily driven increased contract profit 45200 increase contract profit primarily resulted increased contract profit margins partially offset decreased volume operating revenues additionally increase contract profit included favorable impact settlement subcontractor approximately 6900 2012 favorable impact inclusion outofperiod correction recorded 2011 reduction final estimated profit approximately 4600 discussed preceding section within item 7 entitled “results operationscontinuing operationsebitda” increase ebitda also included unfavorable impact decreased equity earnings global power group’s project chile 10600 favorable impact related decreased legal fees 5200 please see discussion regarding global power group’s project chile equity interest investment chile equity earnings project chile 27500 20300 30900 2013 2012 2011 respectively increase equity earnings 2013 compared 2012 primarily driven net impact two items 3200 increase share project’s 2012 earnings recognized result revised earnings allocation 2012 approved connection approval project’s governing board 2012 earnings distribution 2013 3000 increase reversal insurancerelated contingency 2013 decrease equity earnings 2012 compared 2011 primarily driven impact lower marginal rates electrical power generation impact higher statutory tax rate chile partially offset increase project’s volume electricity produced 2012 february 27 2010 earthquake occurred coast chile caused significant damage global power group’s project chile result damage project’s facility suspended normal operating activities date project included estimated recovery lost profits business interruption insurance policy financial statements covered period facility suspended normal operating activities facility began operating less normal utilization second quarter 2011 achieved normal operating activities third quarter 2011 proceeds business interruption insurance based market rates electricity period facility suspended normal operating activities overview segment global power group designs manufactures installs steam generators auxiliary equipment electric power generating stations district heating power plants industrial facilities worldwide believe competitive differentiation serving markets ability products cleanly efficiently burn wide range fuels singularly combination global power group’s steam generators utilize broad range technologies offering independent power producers utilities municipalities industrial clients solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste flue gases steam used power generation district heating industrial processes among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business particular circulating fluidizedbed refer cfb steam generators able burn coals varying quality well numerous materials additionally global power group holds controlling interest operates combinedcycle gas turbine facility owns noncontrolling interest petcokefired cfb facility refinery steam power generation operates university cogeneration power facility steamelectric generation global power group offers number products services related steam generators including • design manufacture installation auxiliary replacement equipment utility power industrial facilities including surface condensers feedwater heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • design supply installation nitrogenoxide nox reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • design supply installation flue gas desulfurization equipment types steam generators industrial equipment • broad range site services including construction erection services plant maintenance steam generator upgrading life extension engineering replacement parts improving plant environmental performance plant repowering • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries global power group impacted unfavorable economic growth rates markets 2013 result demand products services global power group negatively impacted increased level timing delays related project award dates however believe opportunities continue asia middle east south america driven growing electricity demand result economic growth rates regions number constraining market factors continue impact markets serve political environmental sensitivity regarding coalfired steam generators continues cause prospective projects utilizing coal primary fuel postponed cancelled clients experience difficulty obtaining required environmental permits decide wait additional clarity regarding governmental regulations sensitivity especially pronounced us western europe due concern coalfired steam generators relative alternative fuel sources contribute toward global warming discharge greenhouse gas emissions atmosphere outlook continued lower natural gas pricing next three five years north america driven increasing supply natural gas increased attractiveness natural gas relation coal generation electricity addition constraints global credit market may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation factors could negatively impact investment power sector turn could negatively impact global power group’s business potential downside risk continued unfavorable global economic growth rates driven primarily continued sovereign debt bank funding pressures speed effectiveness implementation government macroeconomic policies number key advanced emerging economies slower growth anticipated emerging economies significantly china civil unrest risks materialize global power group could impacted longerterm believe global demand electrical energy continue grow believe majority growth driven emerging economies solidfuelfired steam generators continue fill significant portion incremental growth new generating capacity emerging economies globally see growing need repower older coal plants new efficient cleaner burning plants including coal fuels order meet environmental financial reliability goals set policy makers many countries fuel flexibility cfb steam generators enables burn wide variety fuels coal produce carbonneutral electricity fired biomass addition utility steam generators designed incorporate supercritical steam technology believe significantly improves power plant efficiency reduces power plant emissions currently executing project four 550 megawatt electrical mwe supercritical cfb steam generators power project south korea believe project shows growing acceptance cfb technology large utility boiler market sector provides growing market opportunity cfb technology project allow us demonstrate advanced cfb design featuring verticaltube oncethrough ultrasupercritical steam technology commercial operation units scheduled 2015 completed engineering supply project pilotscale approximately 30 megawatt thermal equivalent approximately 10 mwe cfb steam generator incorporates carboncapturing flexiburntm technology pilot plant began successfully capturing co2 september 2012 recently awarded contract design supply 250 mwe cfb steam generator south korea include selective catalytic reduction technology system also awarded contract canadian refinery design supply three package steam generating systems liquidity capital resources cash flows activities cash equivalents restricted cash balances total cash equivalents restricted cash held nonus entities december 31 2013 2012 493000 522300 respectively please refer note 1 consolidated financial statements included annual report form 10k additional details cash equivalents restricted cash balances 2013 experienced decrease cash equivalents 26100 primarily result cash used repurchase shares pay related commissions share repurchase program 150100 cash used payments related business acquisitions 52100 cash used capital expenditures 27700 increase restricted cash excluding foreign currency translation effects 17400 repayment debt capital lease obligations 14900 uses cash partially offset cash provided operating activities 192000 proceeds received disposition business 48600 cash flows operating activities net cash provided operating activities 2013 primarily resulted cash provided net income 257800 included gain related cash receipts 15800 insurance receivable related insolvent insurance carrier previously writtenoff excluded noncash charges 156700 partially offset cash used fund working capital 24600 mandatory contributions pension plans 21400 cash used us net asbestosrelated payments 18200 excluded collection insurance receivable 15800 gain recognized net income please refer note 16 consolidated financial statements included annual report form 10k information net asbestosrelated payments increase net cash provided operating activities 100000 2013 compared 2012 resulted primarily decrease cash used fund working capital resulted increase cash 118400 partially offset increased asbestosrelated payments 9200 decrease net cash provided operating activities 91600 2012 compared 2011 resulted primarily increase cash used fund working capital resulted decrease cash 144400 partially offset decreased contributions pension plans 49300 driven lower discretionary contributions 51300 working capital varies period depending mix stage completion commercial terms conditions contracts timing related cash receipts 2013 used cash fund working capital cash used services rendered purchases materials equipment exceeded cash receipts client billings 2012 used cash fund working capital cash used services rendered purchases materials equipment exceeded cash receipts client billings included impact delayed project payments contributed increase receivables balance 2012 generated cash conversion working capital 2011 cash receipts client billings exceeded cash used services rendered purchases materials equipment project payments delayed particularly contracts involving national oil companies due customers’ internal processes approval invoices release funds accounts receivable december 31 2013 2012 included greater concentration receivables national oil companies relative december 31 2011 particular 54400 46900 december 31 2013 2012 respectively accounts receivable due national oil company venezuela although payment history client good payments continue significantly delayed additionally number large projects global power group 2012 final phases execution commissioning virtually cash collected advance general delay payment customers indicative customer credit risk cases payments delayed due disagreements us clients regarding level quality work performed regarding billing terms assess contractual right invoice client believe probable commercial risk collection contract revenues provide allowance valuation contract work progress individual contract level fully described “outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability maintain increase cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “global ec groupoverview segment” “global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities 2013 attributable primarily payments related business acquisitions net cash acquired 52100 capital expenditures 27700 net cash used result increase restricted cash excluding foreign currency translation effects 17400 primarily driven increased client dedicated funds partially offset proceeds received disposition business 48600 net cash used investing activities 2012 attributable primarily payments related business acquisitions net cash acquired 69700 investing activities included capital expenditures 34700 net cash used result increase restricted cash excluding foreign currency translation effects 18100 partially offset cash provided return investment unconsolidated affiliates 6200 increase restricted cash primarily attributable increased cash received client dedicated accounts projectrelated purchases net cash used investing activities 2011 attributable primarily payments related business acquisitions 29400 capital expenditures 26200 net cash used result increase restricted cash 18700 capital expenditures 2013 2012 2011 related primarily project construction leasehold improvements information technology equipment office equipment information capital expenditures segment please see note 14 consolidated financial statements included annual report form 10k cash flows financing activities net cash used financing activities 2013 attributable primarily cash used repurchase shares pay related commissions share repurchase program 150100 financing activities included cash used repayment debt capital lease obligations 14900 distributions noncontrolling interests 12600 partially offset cash provided exercise stock options 19200 net cash used financing activities 2012 attributable primarily cash used repurchase shares pay related commissions share repurchase program 91000 financing activities included cash used distributions noncontrolling interests 18300 repayment debt capital lease obligations 13000 net cash used financing activities 2011 attributable primarily cash used repurchase shares pay related commissions share repurchase program 409400 financing activities included cash used repayment debt capital lease obligations 12500 distributions noncontrolling interests 11400 partially offset cash provided exercise stock options 11900 outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations changes working capital activities unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling twelvemonth period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next twelve months based forecasts primary cash needs working capital proposed dividend payment described capital expenditures pension contributions net asbestosrelated payments may also use cash discretion acquisitions discretionary pension plan contributions repurchase shares share repurchase program described majority cash balances invested shortterm interest bearing accounts maturities less three months creditworthy financial institutions around world significant deterioration current global economic credit market environment could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions andor unfavorably impact liquidity financial statements continue monitor global economic environment particularly countries operations assets continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next twelve months dependent cash repatriations subsidiaries cover payments expenses parent holding company switzerland cover cash needs related asbestosrelated liability overhead expenses us discretion specific liquidity needs funding acquisitions share repurchase program described consequently require cash repatriations switzerland us entities located countries normal course operations meet swiss us cash needs successfully repatriated cash many years believe repatriate required amount cash switzerland us additionally continue access revolving credit portion senior unsecured credit facility needed 2013 2012 2011 repatriated cash us owned nonus subsidiaries branches certain specific liquidity needs totaling approximately 40000 18600 45100 respectively repatriations made nonus subsidiaries previously provided potential incremental deferred taxes eventual repatriation earnings accordingly incremental us tax consequence period repatriation please refer note 1 consolidated financial statements included annual report form 10k information related unremitted earnings determination whether earnings indefinitely reinvested related deferred tax implications net asbestosrelated payments predominately related us subsidiaries include indemnity defense costs net insurance proceeds 2013 us net asbestosrelated cash outflows approximately 2400 net cash proceeds received 2013 related collection receivable insolvent insurance carrier previously writtenoff 2014 expect us net cash outflows approximately 32000 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease august 3 2012 entered new fiveyear senior unsecured credit agreement replaced amended restated senior unsecured credit agreement july 2010 new senior credit agreement provides facility 750000 contains increase option permitting us subject certain requirements arrange existing lenders andor new lenders provide aggregate 300000 additional commitments term senior credit agreement may request subject certain requirements two oneyear extensions contractual termination date issue 750000 letter credit portion facility letters credit issued new senior credit agreement performance pricing decreased increased result improvements reductions corporate credit ratings defined senior credit agreement based current credit ratings letter credit fees performance nonperformance letters credit issued new senior credit agreement 075 150 per annum outstanding amount respectively excluding nominal fronting fee also option use 250000 750000 revolving borrowings rate equal adjusted libor defined senior credit agreement plus 150 subject also performance pricing noted approximately 253900 225600 letters credit outstanding senior credit agreements effect december 31 2013 2012 respectively funded borrowings senior credit agreements effect december 31 2013 2012 based current operating plans cash forecasts intend borrow senior credit agreement meet nondiscretionary liquidity needs 2014 please refer note 7 consolidated financial statements included annual report form 10k information regarding debt obligations required make mandatory contributions us pension plans 2014 based minimum statutory funding requirements based minimum statutory funding requirements 2014 expect make mandatory contributions totaling approximately 22900 nonus pension plans 2014 additionally may elect make discretionary contributions us andor nonus pension plans 2014 september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 approved shareholders extraordinary general meeting february 24 2011 february 22 2012 board directors proposed additional increase share repurchase program approximately 419398 approved shareholders 2012 annual general meeting may 1 2012 based aggregate share repurchases program december 31 2013 authorized repurchase additional 270054 outstanding shares date repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand december 31 2013 repurchased 50502778 shares aggregate cost approximately 1234344 since inception repurchase program announced september 12 2008 executed repurchases accordance 10b51 repurchase plans well privately negotiated transactions pursuant share repurchase program 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans information please refer part ii item 5 annual report form 10k february 26 2014 board directors approved proposal shareholders onetime dividend 040 per share intend ask shareholders approve dividend annual general meeting may 7 2014 subject shareholder approval dividend paid shortly annual general meeting dividend linked conditional closing offer covenants senior unsecured credit agreement limit ability pay proposed dividend expect swiss withholding taxes dividend offbalance sheet arrangements noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilebased project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease obligations pension postretirement benefit funding requirements expected cash flows related contractual obligations outstanding december 31 2013 follows 1 determining payments interest rate swap agreements used difference weightedaverage fixed interest rate 448 based terms interest rate swap agreements variable rates underlying debt facilities based upon estimated 6month euribor plus spread varying 09 10 throughout life debt facilities payments related underlying variable rate debt facilities included interest line table please refer note 7 consolidated financial statements included annual report form 10k discussion interest rate swap agreements 2 funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available depend performance investment portfolio actuarial experience projections assume discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2013 expect fund 32000 asbestos liability indemnity defense costs cash flows 2014 net cash expected received existing insurance settlements please refer note 16 consolidated financial statements included annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated settlement obligations total liability including accrued interest penalties approximately 112900 december 31 2013 please refer note 13 consolidated financial statements included annual report form 10k information contingently liable standby letters credit bank guarantees surety bonds primarily guarantees performance projects currently execution warranty balances include standby letters credit issued senior unsecured credit agreement facilities worldwide discussion please refer section entitled “liquidity capital resourcesoutlook” within item 7 december 31 2013 commitments period expiration follows please refer note 9 consolidated financial statements included annual report form 10k discussion guarantees backlog new orders new orders recorded added backlog unfilled orders based signed contracts well agreed letters intent determined legally binding likely proceed backlog fluctuate one reporting period next due timing new awards contract revenue recognized consolidated financial statements timing duration backlog execution dependent upon scope type nature work executed expect earn approximately 56 revenues backlog december 31 2013 contract performance 2014 although cannot predict certainty portion backlog earned given year elapsed time award contract completion performance short several quarters may approximately four years point time backlog contains portfolio contracts various stages completion executed varying rates varying durations although backlog represents business considered likely performed cancellations scope adjustments may occur dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations backlog adjusted quarterly reflect new orders project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts tables detail new orders backlog unfilled orders period include amounts discontinued operations periods prior 2013 insignificant based consolidated business group balances new orders measured terms future revenues backlog measured terms future revenues foreign currency translation impact backlog foster wheeler scope backlog resulted decreases 8300 12300 respectively december 31 2013 compared december 31 2012 inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion time numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes available specific project circumstances change including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed sec final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 36 33 43 separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 2013 2012 2011 respectively changes final estimated contract profit resulted net increase 98900 66000 35200 reported contract profit 2013 2012 2011 respectively relating revaluation work performed contracts prior periods changes final estimated contract profit revisions 2012 global power group increased favorable settlement subcontractor approximately 6900 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling approximately 7800 included final estimated profit reductions global ec group global power group approximately 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements impact contract profit measured beginning year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 31 2013 recorded total liabilities 278200 comprised estimated liability 46800 relating open outstanding claims estimated liability 231400 relating future unasserted claims december 31 2028 since 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years since time recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2013 activity arpc recommended certain assumptions used estimate future asbestos liability updated december 31 2013 accordingly developed revised estimate aggregate indemnity defense costs december 31 2028 considering advice arpc 2013 revalued liability asbestos indemnity defense costs december 31 2028 278200 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded net charge 46000 2013 net asbestosrelated provision net result revaluation asbestos liability related asset resulting • charge related impact increase estimate new claim filings • decrease estimate claim filings result monetary payments refer zeropay rate 15year estimate partially offset • favorable impact inclusion gain recognized 2013 upon collection insurance receivable approximately 15800 related insolvent insurance carrier previously writtenoff discussed net asbestosrelated provision also impacted lesser extent • adjustment actual claim settlement experience year • accrual another year estimated claims rolling 15year asbestosrelated liability estimate believe increase estimate new claim filings decrease zeropay rate shortterm nature longerterm trend revert previous forecast continue monitor parameters adjust forecasts actual results differ assumptions total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2028 liability estimate based upon following information andor assumptions number open claims forecasted number future claims broken disease type mesothelioma lung cancer nonmalignancies estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies zero pay rate well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred december 31 2028 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2028 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2028 december 31 2013 total cumulative indemnity costs paid prior insurance recoveries approximately 825900 total cumulative defense costs paid approximately 409700 approximately 33 total defense indemnity costs december 31 2013 recorded assets 111500 represents best estimate settled probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2028 asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate settled probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2028 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2013 2012 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2013 2012 2011 2013 recognized gain approximately 15800 upon collection insurance receivable related insolvent insurance carrier previously writtenoff 2011 reached agreement insurer bankruptcy liquidation written receivable prior 2010 asset awarded bankruptcy liquidation insurer 4500 included asbestosrelated assets december 31 2011 receivable subsequently collected 2012 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected plan update forecasts periodically take consideration experience update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amount claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities december 31 2013 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based december 31 2013 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 40300 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations approximately 85 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries would decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 31 2013 recorded total liabilities 33100 comprised estimated liability relating open outstanding claims 8500 estimated liability relating future unasserted claims december 31 2028 24600 asset substantially equal amount recorded expected uk asbestosrelated insurance recoveries liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability recorded uk would increase approximately 52400 corresponding increase asbestosrelated asset defined benefit pension postretirement benefit plans defined benefit pension plans us uk canada finland france india south africa postretirement benefit plans opeb plans health care life insurance benefits us canada defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans certain employees us canada may become eligible health care life insurance benefits postretirement benefits qualify commence receipt normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 defined benefit pension opeb plans accounted accordance current accounting guidance requires us recognize funded status defined benefit pension opeb plans consolidated balance sheet guidance also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension opeb plan liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate opeb plans • annual inflation rate utilize business judgment establishing estimates used calculations pension opeb plan liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate pension andor opeb plan liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension opeb plans 2013 2012 2011 salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 58 68 past three years following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate accumulated net actuarial losses prior service credits pension plans amortized accumulated comprehensive loss net periodic benefit cost next year 16900 2300 respectively estimated amortization net transition obligation next year inconsequential net actuarial losses reflect differences expected actual plan experience including returns plan assets changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants approximately 12 24 19 years canadian south african finnish plans respectively average remaining life expectancy participants closed plans approximately 22 29 years us uk plans respectively since benefits closed onetenth percentage point decrease increase funding rates used calculating future funding requirements us plan 2018 would impact aggregate contributions next five years onetenth percentage point decrease funding rates used calculating future funding requirements uk plan 2018 would increase aggregate contributions next five years approximately 4500 increase onetenth percentage point would decrease aggregate contributions approximately 4500 accumulated net actuarial gains prior service credits amortized accumulated comprehensive loss net periodic postretirement benefit cost connection opeb plans next year 100 3500 respectively net actuarial losses outside corridor amortized average life expectancy inactive participants approximately 15 years benefits closed prior service credits amortized schedules established date plan change approximately 7 years please refer note 8 consolidated financial statements included annual report form 10k discussion defined benefit pension opeb plans sharebased compensation plans sharebased compensation plans include awards stock options restricted awards restricted awards consist restricted stock units performancebased restricted stock units performance rsus measure awards fair value grant date recognize compensation cost consolidated statements operations vesting period following table summarizes sharebased compensation expense related income tax benefit december 31 2013 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows grant stock options 2013 2012 2011 estimated fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions stock options granted 2012 2011 • expected volatilitywe estimated volatility share price grant date using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected termwe estimated expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest ratewe estimated riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividendswe used expected dividend yield zero declared paid cash dividend since july 2001 planned time grant estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period performance rsu awards number restricted share units ultimately vest depend share price performance specified performance goals defined performancebased award agreements estimate grant date fair value performance rsu award using monte carlo valuation model recognize fair value performance rsu award compensation expense ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application current accounting guidance compensation expense record awards future periods may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercisevesting expiration forfeiture sharebased payments future stock options performance rsus may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date expense reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date expense reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments please refer note 11 consolidated financial statements included annual report form 10k discussion sharebased compensation plans goodwill intangible assets least annually evaluate goodwill potential impairment test goodwill impairment reporting unit level determined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists five reporting unitsone within global power group business segment four within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed reporting units case perform goodwill impairment test first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step compares implied fair value reporting unit’s goodwill based hypothetical purchase price allocation carrying amount goodwill fourth quarter year evaluate goodwill reporting unit based assumptions used estimate fair value reporting units assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist determined income market valuation approaches would considered market participants income valuation approach employ discounted cash flow model estimate fair value reporting unit model requires use significant estimates assumptions regarding future revenues costs margins capital expenditures changes working capital terminal year growth rate cost capital cash flow models based forecasted results applicable reporting units models also assume 3 growth rate terminal year actual results could differ projections market valuation approach employ guideline publicly traded company method indicates fair value equity reporting unit comparing publicly traded companies similar lines business identifying selecting guideline companies analyze business financial profiles relative similarity factors size growth risk profitability analyzed compared reporting units 2013 annual evaluation noted indicated fair value carrying value reporting units income taxes deferred tax assets liabilities established tax attributes credits loss carryforwards temporary differences book tax basis assets liabilities deferred tax assets liabilities adjusted effects changes tax laws rates based date enactment within jurisdiction taxpaying component current deferred tax assets liabilities noncurrent deferred tax assets liabilities combined presented net amount deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions valuation allowance approximately 420100 recorded december 31 2013 primarily us majority us federal tax benefits valuation allowances established expire 2025 beyond based current tax laws recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement subsidiaries file income tax returns many tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years 2009 fourth quarter 2013 recorded tax provision approximately 10700 related tax audit nonus jurisdiction number tax years audit relevant tax authorities various jurisdictions including several states within us anticipate several audits may concluded foreseeable future including 2013 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time december 31 2013 68300 unrecognized tax benefits would recognized affect effective tax rate recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense please refer note 13 consolidated financial statements included annual report form 10k discussion income taxes item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • benefits effects results redomestication relocation principal executive offices geneva switzerland • search permanent chief executive officer • benefits effects results strategic renewal initiative • deterioration global economic conditions • changes investment oil gas oil refining chemicalpetrochemical power generation industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war andor terrorist attacks facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing global competition • compliance debt covenants • recoverability claims customers others us claims thirdparties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong challenges drivers business segments discussed detail section entitled “ results operationsbusiness segments” within item 7 undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission sec overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos expenses corporate finance group refer cf group exploring intend continue explore acquisitions within engineering construction industry strategically complement expand technical capabilities access new market segments also exploring acquisitions within power generation industry complement global power group product offering however assurance consummate acquisitions future summary financial results summary financial results fiscal years 2010 2009 2008 follows 1 please refer section entitled “ results operations” within item 7 discussion 2 please refer section entitled “ liquidity capital resources” within item 7 discussion net income attributable foster wheeler ag decreased fiscal year 2010 compared fiscal year 2009 primarily driven pretax decrease contract profit 159900 decreased equity earnings global ec group fiscal year 2010 compared fiscal year 2009 two projects italy recorded impairment charges increase effective tax rate also contributed decline net income attributable foster wheeler ag decreased fiscal year 2009 compared fiscal year 2008 primarily driven pretax decrease contract profit 137000 increase effective tax rate please refer discussion within section entitled “ results operations” within item 7 challenges drivers primary operating focus continues booking quality new business executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities global economic downturn experienced 2008 2009 caused many engineering construction clients reevaluate size timing scope capital spending plans relation kinds energy petrochemical pharmaceutical projects execute global economic outlook continues improve noted signs market improvement fiscal year 2010 saw increased number clients implementing capital spending plans number clients however releasing tranches work piecemeal basis conducting analysis deciding proceed investments reevaluating size timing configuration specific planned projects also seeing clients reactivating planned projects previously placed hold developing new projects challenges drivers global ec group discussed detail section entitled “ results operationsbusiness segmentsglobal ec groupoverview segment” within item 7 new order activity global power group business unfavorably affected several trends began fiscal year 2008 however demand new solidfuel steam generators improved fiscal year 2010 markets evidenced significantly increased new orders driven primarily growing electricity demand industrial production economies around world recover recent global economic downturn challenges drivers global power group discussed detail section entitled “ results operationsbusiness segmentsglobal power groupoverview segment” within item 7 new orders backlog unfilled orders tables summarize new orders backlog unfilled orders period defined section entitled “ backlog new orders” within item 7 please refer section entitled “ backlog new orders” within item 7 detail results operations operating revenues operate two business groups global ec group global power group please refer section entitled “ business segments” within item 7 discussion products services business segments composition operating revenues varies period based portfolio contracts execution given period operating revenues dependent upon strength various geographic markets industries serve ability address markets industries operating revenues geographic region based upon projects executed fiscal years 2010 2009 2008 follows australasia primarily represents australia south africa new zealand pacific islands fiscal year 2010 vs fiscal year 2009 operating revenues declined fiscal year 2010 compared fiscal year 2009 decline primarily result decreased flowthrough revenues 470100 described decreased operating revenues operating groups foreign currency fluctuations minimal impact decline operating revenues operating revenues decreased approximately 16 excluding impact change flowthrough revenues fiscal year 2010 compared fiscal year 2009 flowthrough revenues costs result purchase materials equipment thirdparty services behalf customer reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flowthrough costs flowthrough revenues costs impact contract profit net earnings please refer section entitled “ business segments” within item 7 discussion related operating revenues view market outlook operating groups fiscal year 2009 vs fiscal year 2008 operating revenues declined fiscal year 2009 compared fiscal year 2008 decline primarily result decreased flowthrough revenues 785000 decreased operating revenues operating groups net decrease due foreign currency fluctuations relative us dollar operating revenues decreased approximately 20 excluding impact change flowthrough revenues foreign currency fluctuations compared fiscal year 2008 contract profit contract profit computed operating revenues less cost operating revenues “flowthrough” amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce contract profit margin included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance fiscal year 2010 vs fiscal year 2009 operating groups experienced decreased contract profit fiscal year 2010 compared fiscal year 2009 partially offset favorable impact curtailment gain approximately 20100 fiscal year 2010 related uk pension plan closed future defined benefit accrual settlement fee 11800 global ec group received fiscal year 2010 please refer section entitled “ business segments” within item 7 information related contract profit operating groups fiscal year 2009 vs fiscal year 2008 decrease contract profit fiscal year 2009 compared fiscal year 2008 resulted contract profit decreases operating groups severancerelated postemployment benefits charge 7800 global ec group incurred fiscal year 2009 partially offset favorable impact commitment fee 7500 global power group received fiscal year 2009 charge 6700 global power group incurred fiscal year 2008 legacy project ireland severancerelated postemployment benefits charge 6600 global power group incurred fiscal year 2008 please refer section entitled “ business segments” within item 7 information related contract profit operating groups selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs fiscal year 2010 vs fiscal year 2009 increase sga expenses fiscal year 2010 compared fiscal year 2009 resulted primarily increased costs related redomestication switzerland 10300 increased charge severancerelated postemployment benefits 2500 partially offset decreased general overhead costs 3300 sales pursuit research development costs relatively flat fiscal year 2010 included severancerelated postemployment benefits charge 7100 cf group fiscal year 2009 included severancerelated postemployment benefits charge 4600 included charges cf group global ec group 3700 900 respectively fiscal year 2009 vs fiscal year 2008 increase sga expenses fiscal year 2009 compared fiscal year 2008 resulted increased pension costs 11900 related us pension plans frozen new entrants additional benefit accruals increased sales pursuit costs 3300 increased charge severancerelated postemployment benefits 2500 research development costs relatively unchanged general overhead costs decreased 6200 income net fiscal year 2010 income net fiscal year 2010 consisted primarily equity earnings 24000 generated investments primarily ownership interests build operate projects italy chile 21900 gain recognized camden new jersey wastetoenergy facility payment remaining balance project’s debt pollution control finance authority camden county pcfa state new jersey information please refer note 16 consolidated financial statements annual report form 10k income net increased fiscal year 2010 compared fiscal year 2009 net result 12000 increase gain recognized camden new jersey wastetoenergy facility payment remaining balance project’s debt pcfa state new jersey increase equity earnings global power group’s project chile 4600 activities including 2600 valueadded tax refunds nonincome tax credits partially offset decrease equity earnings global ec group’s projects italy fiscal year 2010 global ec group’s equity earnings decreased 16100 compared fiscal year 2009 two projects italy recorded impairment charges information related equity earnings please refer sections within item 7 entitled “ business segmentsglobal power group” global power group’s project chile “ business segmentsglobal ec group” global ec group’s projects italy well note 5 consolidated financial statements annual report form 10k fiscal year 2009 income net fiscal year 2009 consisted primarily 34500 equity earnings generated investments described 9900 gain recognized payment 2009 debt service obligation camden project’s debt pcfa state new jersey described slight decrease income net fiscal year 2009 compared fiscal year 2008 resulted primarily decrease equity earnings global power group’s project chile 5300 1700 gain insurance settlement fiscal year 2008 partially offset increase equity earnings 6300 global ec group’s projects italy fiscal year 2008 income net fiscal year 2008 consisted primarily 33400 equity earnings generated investments described 9600 gain recognized payment 2008 debt service obligation camden project’s debt pcfa state new jersey described 1700 gain insurance settlement deductions net deductions net includes various items legal fees consulting fees bank fees net penalties unrecognized tax benefits impact net foreign exchange transactions within period net foreign exchange transactions include net amount transaction losses gains arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries fiscal year 2010 deductions net fiscal year 2010 consisted primarily 17800 legal fees 5800 net foreign exchange transaction losses 4700 consulting fees 4300 bank fees 1700 net penalties unrecognized tax benefits net previously accrued tax penalties ultimately assessed charge 1600 unamortized fees expenses related amendment restatement october 2006 us senior secured credit agreement july 2010 charge 900 writeoff capitalized costs due decision proceed power plant development project fiscal year 2010 net foreign exchange transaction losses primarily driven exchange rate fluctuations cash balances held certain subsidiaries denominated currency functional currency subsidiaries fiscal year 2009 deductions net fiscal year 2009 consisted primarily 16400 legal fees 4000 consulting fees 3900 bank fees 2500 net penalties unrecognized tax benefits net previously accrued tax penalties ultimately assessed 800 provision dispute resolution environmental remediation cost 800 loss sale fixed assets partially offset 1000 net foreign exchange gains fiscal year 2008 deductions net fiscal year 2008 consisted primarily 23100 legal fees 16500 net foreign exchange losses 4300 bank fees 4200 provision dispute resolution environmental remediation costs 1500 consulting fees 1400 fees related redomestication switzerland partially offset net 2400 decrease penalties unrecognized tax benefits included 5000 previously accrued tax penalties ultimately assessed interest income fiscal year 2010 vs fiscal year 2009 increase interest income fiscal year 2010 compared fiscal year 2009 driven primarily higher average cash equivalents balances lesser extent favorable impact higher interest rates investment yields fiscal year 2009 vs fiscal year 2008 decrease interest income fiscal year 2009 compared fiscal year 2008 driven primarily lower interest rates investment yields lesser extent unfavorable impact lower average cash equivalents balances interest expense fiscal year 2010 vs fiscal year 2009 interest expense fiscal year 2010 increased compared fiscal year 2009 primarily resulted increase net interest expense unrecognized tax benefits 3800 partially offset decreased average borrowings accrued interest expense unrecognized tax benefits fiscal years 2010 2009 net reversal previously accrued interest expense unrecognized tax benefits ultimately assessed 1900 5100 respectively fiscal year 2009 vs fiscal year 2008 decrease interest expense fiscal year 2009 compared fiscal year 2008 primarily resulted 5100 previously accrued interest expense unrecognized tax benefits ultimately assessed fiscal year 2009 decreased average borrowings net increased fw power srl project debt construction electric power generating wind farm projects italy net asbestosrelated provision fiscal year 2010 vs fiscal year 2009 decrease net asbestosrelated provision fiscal year 2010 compared fiscal year 2009 primarily resulted increased gain 12800 fiscal year 2010 compared fiscal year 2009 settlement coverage litigation asbestos insurance carriers decrease 8200 provision fiscal year 2010 compared fiscal year 2009 fiscal year 2010 2009 provisions included charges increase asbestos liability increased asbestos defense costs projected 15 year estimate fiscal year 2009 vs fiscal year 2008 increase net asbestosrelated provision fiscal year 2009 compared fiscal year 2008 primarily resulted decreased gain 34900 fiscal year 2009 compared fiscal year 2008 settlement coverage litigation certain asbestos insurance carriers partially offset decrease 15100 provision fiscal year 2009 compared fiscal year 2008 fiscal year 2009 2008 provisions included charges increase asbestos liability increased asbestos defense costs projected respective 15 year estimates please refer note 16 consolidated financial statements annual report form 10k information provision income taxes effective tax rate fluctuate significantly period may differ significantly us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate result inability recognize tax benefit losses generated certain unprofitable operations result varying mix income earned jurisdictions operate addition deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate conversely periods operating units subject valuation allowance generate pretax losses corresponding increase valuation allowance unfavorable impact effective tax rate fiscal year 2010 effective tax rate fiscal year 2010 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 17 percentage point reduction effective tax rate • total changes valuation allowance contributed approximate five percentage point increase effective tax rate result net impact valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily united states reversal valuation allowance deferred tax assets nonus jurisdiction fiscal year 2009 effective tax rate fiscal year 2009 lower us statutory rate 35 due principally net impact income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 15percentage point reduction effective tax rate fiscal year 2009 fiscal year 2008 effective tax rate fiscal year 2008 lower us statutory rate 35 due principally impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 14percentage point reduction effective tax rate fiscal year 2008 • total changes valuation allowance contributed approximate sixpercentage point reduction effective tax rate fiscal year 2008 included net impact following • valuation allowance decrease consisted reversal valuation allowance deferred tax assets one nonus subsidiaries • decrease valuation allowance recognized earnings jurisdictions full valuation allowance • establishment valuation allowance deferred tax assets another nonus subsidiaries • inability recognize tax benefit losses subject valuation allowance certain jurisdictions permanent differences monitor jurisdictions valuation allowances deferred tax assets established previous years evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire fiscal year 2025 beyond based current tax laws net income attributable noncontrolling interests net income attributable noncontrolling interests represents thirdparty ownership interests net income global power group’s martinez california gasfired cogeneration subsidiary manufacturing subsidiaries poland people’s republic china well global ec group’s subsidiaries malaysia south africa change net income attributable noncontrolling interests based upon changes net income subsidiaries andor changes noncontrolling interests’ ownership interest subsidiaries fiscal year 2010 vs fiscal year 2009 increase net income attributable noncontrolling interests fiscal year 2010 compared fiscal year 2009 primarily resulted increase 3900 subsidiary martinez california changes included increase subsidiary south africa substantially offset decreases subsidiaries people’s republic china malaysia fiscal year 2009 vs fiscal year 2008 increase net income attributable noncontrolling interests fiscal year 2009 compared fiscal year 2008 primarily resulted 2300 increase subsidiary south africa lesser extent subsidiary martinez california ebitda discussed defined primary measure operating performance used chief operating decision maker addition two business groups also represent operating segments financial reporting purposes report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group cf group also treat operating segment financial reporting purposes fiscal year 2010 vs fiscal year 2009 ebitda decreased fiscal year 2010 compared fiscal year 2009 primarily driven decreased contract profit 159900 also experienced decreased equity earnings global ec group fiscal year 2010 compared fiscal year 2009 two projects italy recorded impairment charges abovenoted decreases ebitda fiscal year 2010 compared fiscal year 2009 partially offset decrease net asbestosrelated provision includes benefit gain settlement coverage litigation insurance carriers fiscal year 2010 increased gain recognized income net related camden new jersey project payment remaining balance project’s debt pcfa state new jersey please refer preceding discussion items within “ results operations” section fiscal year 2009 vs fiscal year 2008 ebitda decreased fiscal year 2009 compared fiscal year 2008 primarily driven decreased contract profit 137000 lesser extent decreased interest income increased net asbestosrelated provision please refer preceding discussion items within “ results operations” section see individual segment explanations additional details ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income attributable foster wheeler ag interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance certain covenants us senior secured credit agreement use adjusted form ebitda covenant calculations ebitda presented herein adjusted certain unusual infrequent items specifically excluded terms us senior secured credit agreement believe line item consolidated statement operations entitled “net income attributable foster wheeler ag” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income attributable foster wheeler ag indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income attributable foster wheeler ag users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net income attributable foster wheeler ag shown 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 ebitda includes following please refer “revenue recognition longterm contracts” note 1 consolidated financial statements annual report form 10k information regarding changes final estimated contract profit please refer note 16 consolidated financial statements annual report form 10k information regarding revaluation asbestos liability related asset accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments global ec group results global ec group’s operating revenues geographic region based upon projects executed fiscal years 2010 2009 2008 follows australasia primarily represents australia south africa new zealand pacific islands please refer section entitled “ overview segment” view market outlook global ec group fiscal year 2010 vs fiscal year 2009 global ec group experienced decrease operating revenues 17 fiscal year 2010 compared fiscal year 2009 decline included net impact decreased flowthrough revenues 468800 partially offset favorable impact settlement fee 11800 global ec group received fiscal year 2010 noted foreign currency fluctuations minimal impact decline operating revenues excluding flowthrough revenues settlement fee noted global ec group’s operating revenues decreased 10 fiscal year 2010 compared fiscal year 2009 please refer “ overview segment” section discussion global ec group’s market outlook decrease global ec group’s ebitda fiscal year 2010 compared fiscal year 2009 resulted primarily net impact following • decreased contract profit 149000 excluding favorable contract profit impacts fiscal year 2010 curtailment gain settlement fee fiscal years 2010 2009 severancerelated postemployment benefits charges noted contract profit decrease primarily result decreased contract profit margins lesser extent volume decrease operating revenues • favorable impact curtailment gain 20100 fiscal year 2010 related uk pension plan closed future defined benefit accrual included contract profit • net favorable impact approximately 9800 settlement fee received fiscal year 2010 net charges incurred due decision proceed power plant development project related prospective engineering procurement construction contract described • net favorable impact 5000 decreased severancerelated postemployment benefits charges fiscal year 2010 compared fiscal year 2009 fiscal years 2010 2009 included severancerelated postemployment benefits charges 3700 8700 respectively predominantly impacted contract profit fiscal years • fiscal year 2010 global ec group’s equity earnings decreased 16100 compared fiscal year 2009 two projects italy recorded impairment charges result termination power offtake agreements local energy authority described noted fiscal year 2010 received settlement fee 11800 included operating revenues due decision proceed power plant development project related prospective engineering procurement construction contract result decision proceed project incurred charge approximately 900 writeoff capitalized costs project company additionally incurred approximately 1100 development costs associated project fiscal year 2010 development costs included sga items contributed net favorable impact ebitda approximately 9800 fiscal year 2010 two equity interest investments electric power generation projects italy centro energia teverola spa cet centro energia ferrara spa cef recognized revenue 2010 financial statements related termination fees italian economic development ministry termination longterm incentivized power offtake agreements place authority energy light termination power offtake agreement cet partner cet decided shut plant effective january 1 2011 cet recorded impairment charge write assets primarily fixed assets fair value financial statements result decision shut plant cet investment reduced equity loss 5300 inclusive 8000 impairment charge fiscal year 2010 based cet’s 2010 financial results result foregoing carrying value cet investment approximated fair value december 31 2010 partner cef decided continue operate plant following termination power offtake agreement partner continue review economic viability project may consider potential sale plant 2011 light termination power offtake agreement cef recorded impairment charge considered estimates related continued operation plant potential sale plant write assets primarily fixed assets fair value financial statements cef investment reduced equity loss 2900 inclusive 5200 impairment charge fiscal year 2010 based cef’s 2010 financial results result foregoing carrying value cef investment approximated fair value december 31 2010 please refer note 5 consolidated financial statements annual report form 10k information fiscal year 2009 vs fiscal year 2008 global ec group experienced decrease operating revenues 22 fiscal year 2009 compared fiscal year 2008 decline included net impact decreased flowthrough revenues excluding flowthrough revenues foreign currency fluctuations global ec group’s operating revenues decreased 6 fiscal year 2009 compared fiscal year 2008 decrease global ec group’s ebitda fiscal year 2009 compared fiscal year 2008 resulted primarily net impact following • decreased contract profit 91300 fiscal year 2009 excluding unfavorable contract profit impact fiscal year 2009 severancerelated postemployment benefits charge noted contract profit decrease primarily result decreased volume operating revenues described contract profit margins remained unchanged • unfavorable impact 8700 severancerelated postemployment benefits charge fiscal year 2009 predominantly impacted contract profit described • net unfavorable impact 29700 related foreign currency fluctuations relative us dollar settlement transactions denominated foreign currencies fiscal year 2009 • 6300 equity earnings increase fiscal year 2009 global ec group’s projects italy compared fiscal year 2008 overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • design supply directfired furnaces including fired heaters waste heat recovery generators used range refinery chemical petrochemical oil gas processes including furnaces used proprietary delayed coking hydrogen production technologies global ec group owns one leading technologies sydecsm delayed coking used refinery residue upgrading addition refinery residue upgrading technologies solvent deasphalting visbreaking hydrogen production process used oil refineries petrochemical plants fiscal fourth quarter 2010 global ec group acquired proprietary sulfur recovery technology business acquisition sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct additionally global ec group experience able work wide range processes owned others global ec group generates revenues design engineering procurement construction project management activities pursuant contracts spanning approximately four years duration generates equity earnings returns noncontrolling interest investments various power production facilities engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities global economic downturn experienced 2008 2009 caused many engineering construction clients reevaluate size timing scope capital spending plans relation kinds energy petrochemical pharmaceutical projects execute seen instances postponement cancellation prospects clients electing proceed investments phases clients releasing us proceed projects phases clients conducting analysis deciding proceed investments clients resizing reconfiguring relocating prospective projects make economically viable intensified competition among engineering construction contractors resulted pricing pressure factors may continue 2011 lesser extent global economic conditions improve global economic recovery continuing varying rates region seeing new projects developing projects moving forward clients reexamining previously postponed projects review business cases proceeding projects addition believe world demand energy chemicals continue grow long term clients continue invest new upgraded capacity meet demand moreover continued successful booking contracts varying types sizes key end markets including new contract award basic engineering design frontend engineering design two new refineries brazil project management consultancy contract expansion oil export terminal iraq engineering procurement construction management contract germany cogeneration plant engineering procurement construction management contracts gas compression facilities western europe services potential refinery restart project us success regard reflection technical expertise longterm relationships clients selective approach pursuit new prospects believe significant differentiators global power group results global power group’s operating revenues geographic region based upon projects executed fiscal years 2010 2009 2008 follows australasia primarily represents australia south africa new zealand pacific islands please refer section entitled “ overview segment” view market outlook global power group fiscal year 2010 vs fiscal year 2009 global power group experienced decrease operating revenues fiscal year 2010 compared fiscal year 2009 29 foreign currency fluctuations minimal impact decline decrease result decreased volume business please refer “ overview segment” section discussion global power group’s market outlook decrease global power group’s ebitda fiscal year 2010 compared fiscal year 2009 resulted primarily net impact following • decreased contract profit 49800 fiscal year 2010 primarily result volume decrease operating revenues partially offset increased contract profit margins • decreased sga expenses 9900 fiscal year 2010 primarily result decreased sales pursuit costs 5100 general overhead costs 4100 • 12000 increase gain recognized camden new jersey wastetoenergy facility payment remaining balance project’s debt pcfa state new jersey fiscal year 2010 • increase equity earnings global power group’s project chile 4600 includes recognition insurance recoveries fiscal year 2010 described february 27 2010 earthquake occurred coast chile caused significant damage global power group’s project chile project’s facility suspended normal operating activities date normal operating activities anticipated resume late first quarter 2011 project included estimated recovery business interruption insurance policy financial statements december 31 2010 global power group’s equity earnings project chile 20700 fiscal year 2010 included global power group’s equity interest aftertax estimated recovery project’s business interruption insurance policy fiscal year 2009 vs fiscal year 2008 global power group experienced decrease operating revenues fiscal year 2009 compared fiscal year 2008 37 excluding foreign currency fluctuations decrease result decreased volume business decrease global power group’s ebitda fiscal year 2009 compared fiscal year 2008 resulted primarily net impact following • decreased contract profit 41200 fiscal year 2009 primarily result volume decrease operating revenues significantly offset increased contract profit margins • decreased equity earnings global power group’s project chile 5300 fiscal year 2009 • net unfavorable impact 5100 related foreign currency fluctuations relative us dollar settlement transactions denominated foreign currencies fiscal year 2009 • favorable impact comparing fiscal year 2008 9000 severancerelated postemployment benefits charge fiscal year 2008 decreased contract profit 6600 increased sga 2100 remainder included deductions net severance charge resulted efforts rightsize power generation business match market conditions • unfavorable impact comparing fiscal year 2008 7500 commitment fee received fiscal year 2008 contract global power group awarded included contract profit • favorable impact comparing fiscal year 2008 6700 charge legacy project ireland fiscal year 2008 included contract profit please refer note 16 consolidated financial statements annual report form 10k information overview segment global power group designs manufactures erects steam generators auxiliary equipment electric power generating stations district heating power plants industrial facilities worldwide competitive differentiation serving markets ability products cleanly efficiently burn wide range fuels singularly combination particular cfb steam generators able burn coals varying quality well petroleum coke lignite municipal waste wood biomass numerous materials among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business additionally global power group owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group offers number products services related steam generators including • designing manufacturing installing auxiliary replacement equipment utility power industrial facilities including surface condensers steam generators solar thermal power plants feedwater heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • installation nitrogenoxide nox reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • broad range site services including construction erection services maintenance engineering steam generator upgrading life extension plant repowering • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries global power group business new order activity unfavorably affected since fiscal year 2008 weakness global economy impact nearterm growth demand electricity steam industrial production processes addition political environmental sensitivity regarding coalfired steam generators caused number global power group’s prospective projects postponed cancelled clients experienced difficulty obtaining required environmental permits decided wait additional clarity regarding governmental regulations environmental concern especially pronounced us western europe linked view solidfuelfired steam generators contribute global warming discharge greenhouse gas emissions atmosphere addition depressed level natural gas pricing since 2008 increased attractiveness fuel relation coal generation electricity finally constraints global credit market impacting may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation demand new solidfuel steam generators improved markets fiscal year 2010 evidenced significantly increased new orders believe continue improve fiscal year 2011 driven primarily growing electricity demand industrial production economies around world recover recent global economic downturn seeing increased demand products asia eastern europe evidenced increased proposal activity longerterm believe world demand electrical energy continue grow solidfuelfired steam generators continue fill significant portion incremental growth new generating capacity addition seeing growing need repower older coal plants new clean coal plants order drive environmental financial reliability benefits relation performance mature coal plant fleets us europe russia fuel flexibility cfb steam generators enables burn wide variety fuels coal produce carbonneutral electricity fired biomass addition utility steam generators designed incorporate supercritical steam technology significantly improves power plant efficiency reduces power plant emissions recently received award carry detailed engineering supply pilotscale approximately 30 megawatt thermal equivalent approximately 10 megawatt electrical mwe cfb steam generator incorporates carboncapturing flexiburntm technology operational pilot facility utilized validate design fullscale carboncapturing cfb power plant recently signed together parties grant agreement european commission ec support technology development commercial scale approximately 300 mwe carbon capture storage ccs demonstration plant featuring flexiburntm cfb technology development work demonstrates project meets specified technology investment goals construction commercial scale demonstration plant could begin 2012 plant could operational 2015 project one six european based ccs projects selected funding ec european energy program recovery selected project utilizing cfb technology ccs application liquidity capital resources fiscal year 2010 activities cash equivalents restricted cash balances nm meaningful total cash equivalents restricted cash held nonus entities december 31 2010 2009 849500 806800 respectively please refer note 1 consolidated financial statements annual report form 10k additional details cash equivalents restricted cash balances fiscal year 2010 cash equivalents increased 60000 increase primarily result 178700 cash provided operating activities 25700 proceeds stock option exercises partially offset 99200 cash used repurchase shares share repurchase program 23300 capital expenditures 16700 related repayment debt capital lease obligations 5100 decrease cash equivalents due effect exchange rate changes cash flows operating activities net cash provided operating activities fiscal year 2010 primarily resulted cash provided net income 309400 includes gain related cash receipts 10400 settlement coverage litigation certain asbestos insurance carriers excludes noncash charges 78700 partially offset mandatory discretionary contributions pension plans 98600 included discretionary contributions 76600 cash used fund working capital 36500 decrease net cash provided operating activities 111900 fiscal year 2010 compared fiscal year 2009 resulted primarily decreased cash provided net income 150300 increased pension plan contributions 27200 driven higher discretionary contributions 28300 partially offset decreased cash used fund working capital 91600 decreased cash used asbestosrelated activities 24900 decrease net cash provided operating activities 138300 fiscal year 2009 compared fiscal year 2008 resulted primarily decreased cash provided net income 142900 includes gain related cash receipts 36100 settlement coverage litigation certain asbestos insurance carriers fiscal year 2008 increase cash used working capital 73000 partially offset decreased pension plan contributions 34200 included lower discretionary contributions 14200 working capital varies period depending mix stage completion commercial terms conditions contracts timing related cash receipts experienced decrease cash used working capital fiscal year 2010 compared fiscal year 2009 cash receipts client billings increased relative cash used services rendered purchases materials equipment decrease cash used working capital fiscal year 2010 driven global power group partially offset use cash fund working capital global ec group fully described “ outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability increase maintain cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “ global ec groupoverview segment” “ global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities fiscal year 2010 attributable primarily capital expenditures 23300 payments related business acquisitions 4200 partially offset decrease restricted cash 6000 proceeds sale investments assets 5100 return investment unconsolidated affiliates 3200 net cash used investing activities fiscal year 2009 attributable primarily capital expenditures 45600 included 18100 expenditures fw power srl construction electric power generating wind farm projects italy payments totaling approximately 32600 primarily two business acquisitions specializing upstream oil gas engineering services net cash used investing activities fiscal year 2008 attributable primarily capital expenditures 103900 included 54300 expenditures related fw power srl projects noted investing activities included payments related business acquisitions 14900 increase investments advances unconsolidated affiliates 7600 capital expenditures fiscal years related primarily project construction including expenditures related fw power srl wind farm projects fiscal years 2009 2008 noted leasehold improvements information technology equipment office equipment capital expenditures decreased 22300 fiscal year 2010 compared fiscal year 2009 result decreased expenditures global ec group expenditures global power group relatively flat information capital expenditures segment please see note 14 consolidated financial statements annual report form 10k cash flows financing activities nm meaningful net cash used financing activities fiscal year 2010 attributable primarily cash used repurchase shares share repurchase program 99200 please see ‘‘ outlook” section details regarding share repurchase program financing activities included repayment debt capital lease obligations 16700 distributions noncontrolling interests 8000 partially offset cash provided exercises stock options 25700 net cash provided financing activities fiscal year 2009 attributable primarily proceeds issuance debt 13100 proceeds exercise share purchase warrants 2800 partially offset repayment debt capital lease obligations 12700 distributions noncontrolling interests 2200 net cash used financing activities fiscal year 2008 attributable primarily cash used repurchase shares share repurchase program 485600 financing activities included repayment debt capital lease obligations 28700 includes 19000 cash acquire 1999c robbins bonds defined note 7 consolidated financial statements annual report form 10k distributions us noncontrolling interests 9600 partially offset proceeds issuance debt 54600 cash provided exercises stock options 2800 outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations changes working capital activities unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling 12month period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months based forecasts primary cash needs working capital expenditures pension contributions asbestos liability indemnity defense costs may also use cash acquisitions discretionary pension plan contributions repurchase shares share repurchase program described majority cash balances invested shortterm interest bearing accounts maturities less three months continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next 12 months dependent cash repatriations subsidiaries cover essentially payments expenses holding company principal executive offices switzerland cover cash needs related asbestos related liability overhead expenses us discretion acquisition shares share repurchase program described consequently require cash repatriations switzerland us entities located countries normal course operations meet swiss us cash needs successfully repatriated cash many years believe repatriate required amount cash switzerland us additionally continue access revolving credit portion us senior secured credit facility needed fiscal year 2010 net cash inflows approximately 9700 resulting insurance settlement proceeds excess asbestos liability indemnity defense costs payments fiscal year 2011 expect net cash outflows approximately 5700 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease july 30 2010 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered fouryear amendment restatement us senior secured credit agreement entered october 2006 amended restated us senior secured credit agreement provides facility 450000 includes provision permits future incremental increases aggregate 225000 total additional availability facility amended restated us senior secured credit agreement permits us issue 450000 letters credit facility letters credit issued amended restated us senior secured credit agreement performance pricing decreased increased result improvements reductions corporate credit rating reported moody’s investors service refer moody’s andor standard poor’s sp received corporate credit rating bbb issued sp fiscal year 2010 amended restated us senior secured credit agreement reduces pricing letters credit issued agreement based current ratings letter credit fees performance financial letters credit issued amended restated us senior secured credit agreement 1000 2000 per annum outstanding amount respectively excluding fronting fees performance pricing expected materially impact liquidity capital resources fiscal year 2011 also option use 100000 450000 revolving borrowings rate equal adjusted libor defined agreement plus 2000 subject also performance pricing noted borrowings outstanding december 31 2010 assets andor stock certain us nonus subsidiaries collateralize obligations amended restated us senior secured credit agreement event corporate credit rating issued moody’s least baa3 issued sp least bbb liens securing obligations amended restated us senior secured credit agreement automatically released terminated approximately 310100 308000 letters credit outstanding us senior secured credit agreement effect december 31 2010 2009 respectively funded borrowings us senior secured credit agreement outstanding december 31 2010 2009 intend borrow us senior secured credit facility fiscal year 2011 please refer note 7 consolidated financial statements annual report form 10k information regarding debt obligations february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s project chile project’s facility suspended normal operating activities date subsequent date unconsolidated affiliate filed claim insurance carrier preliminary assessment extent damage completed estimate required cost repairs developed based assessment cost estimate well correspondence received insurance carrier expect property damage insurance recovery sufficient cover estimated costs repairing facility insurance carrier also provided preliminary assessment business interruption insurance recovery due project advance insurance proceeds assessment based assessment expect business interruption insurance recovery substantially compensate project loss profits facility suspended operations resumed february 2011 please refer note 5 consolidated financial statements annual report form 10k information equity interest project required make mandatory contributions us pension plans fiscal year 2011 based minimum statutory funding requirements based minimum statutory funding requirements fiscal year 2011 expect make mandatory contributions totaling approximately 24000 nonus pension plans fiscal year 2011 additionally may elect make additional discretionary contributions us andor nonus pension plans fiscal year 2011 september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 designation repurchased shares cancellation approved shareholders extraordinary general meeting february 24 2011 based aggregate share repurchases program december 31 2010 authorized repurchase additional 500600 outstanding shares repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand december 31 2010 repurchased 22411229 shares aggregate cost approximately 584400 executed repurchases accordance 10b51 repurchase plans well privately negotiated transactions pursuant share repurchase program 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans information please refer part ii item 5 annual report form 10k declared paid cash dividend since july 2001 plans declare pay cash dividends current us senior secured credit agreement contains limitations cash dividend payments well restricted payments offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilebased project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease obligations pension funding requirements expected cash flows related contractual obligations outstanding december 31 2010 follows funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available depend performance investment portfolio actuarial experience projections assume discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2011 expect fund 5700 asbestos liability indemnity defense costs cash flows fiscal year 2011 net cash expected received existing insurance settlements please refer note 16 consolidated financial statements annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated settlement obligations total liability including accrued interest penalties 77100 december 31 2010 please refer note 13 consolidated financial statements annual report form 10k information contingently liable standby letters credit bank guarantees surety bonds primarily guarantees performance projects currently execution warranty balances include standby letters credit issued us senior secured credit agreement discussion please refer section entitled “ liquidity capital resourcesoutlook” within item 7 facilities worldwide december 31 2010 commitments period expiration follows please refer note 9 consolidated financial statements annual report form 10k discussion guarantees backlog new orders new orders recorded added backlog unfilled orders based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts australasia primarily represents australia south africa new zealand pacific islands new orders measured terms future revenues industry backlog measured terms future revenues contract type australasia primarily represents australia south africa new zealand pacific islands foreign currency translation impact backlog foster wheeler scope backlog resulted decreases 102700 86200 respectively december 31 2010 compared december 31 2009 foreign currency translation impact backlog foster wheeler scope backlog resulted increases 262700 85600 respectively december 31 2009 compared december 26 2008 inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixed price contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total estimated contract costs estimates progress toward completion determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed sec final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 46 43 33 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 fiscal years 2010 2009 2008 respectively changes final estimated contract profit resulted net increase 56800 69000 26700 reported contract profit fiscal years 2010 2009 2008 respectively relating revaluation work performed contracts prior periods changes fiscal year 2009 included 24300 positive settlements two projects global ec group 14800 associated receipt payment long outstanding arbitration award impact contract profit measured beginning fiscal year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 31 2010 recorded total liabilities 337500 comprised estimated liability 78500 relating open outstanding claims valued estimated liability 259000 relating future unasserted claims fiscal year 2025 total 59000 recorded accrued expenses 278500 recorded asbestosrelated liability consolidated balance sheet since yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years since time recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review fiscal year 2010 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal yearend 2010 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2025 considering advice arpc fiscal year 2010 revalued liability asbestos indemnity defense costs fiscal year 2025 337500 connection updating estimated asbestos liability related asset recorded charge 19400 fiscal year 2010 resulting primarily 15 year liability estimate projected fiscal year 2025 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2025 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2025 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred fiscal year 2025 historically defense costs represented approximately 318 total defense indemnity costs december 31 2010 cumulative indemnity costs paid prior insurance recoveries approximately 729300 total defense costs paid approximately 340700 december 31 2010 recorded assets 219900 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims fiscal year 2025 54400 asset recorded within accounts notes receivableother 165500 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims fiscal year 2025 asbestosrelated assets discounted time value money considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2010 2009 recorded allowance uncollectible balances outstanding asbestos insurancerelated assets write receivables insurers become insolvent writeoffs fiscal years 2010 2009 2008 assumed recovery estimate asbestos insurance asset currently insolvent insurers overall historic average combined indemnity defense cost per resolved claim december 31 2010 approximately 29 average cost per resolved claim increasing believe continue increase future plan update forecasts periodically take consideration experience considerations update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities fiscal year 2010 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based fiscal yearend 2010 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 52300 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations approximately 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries would decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 31 2010 recorded total liabilities 31000 comprised estimated liability relating open outstanding claims 5800 estimated liability relating future unasserted claims fiscal year 2025 25200 total 1900 recorded accrued expenses 29100 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1900 recorded accounts notes receivableother 29100 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation asbestos liability related asset recorded uk would approximately 53100 defined benefit pension postretirement benefit plans defined benefit pension plans united states united kingdom canada finland france india south africa postretirement benefit plans opeb plans health care life insurance benefits united states canada us plans closed new entrants additional benefit accruals canadian finnish french plans noncontributory uk pension plan closed new entrants additional benefit accruals contributory additionally one subsidiaries united states also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 defined benefit pension opeb plans accounted accordance current accounting guidance requires us recognize funded status defined benefit pension opeb plans consolidated balance sheet guidance also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension opeb plan liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate opeb plans • annual inflation rate utilize business judgment establishing estimates used calculations defined benefit pension opeb plan liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate defined benefit pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension postretirement benefit plans fiscal years 2010 2009 2008 salary growth applicable closed plans future salary levels affect benefits payable na applicable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 69 72 past three years following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation united states united kingdom defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate accumulated net actuarial losses pension plans amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 13300 estimated amortization prior service costs net transition obligation immaterial net actuarial losses reflect differences expected actual plan experience including returns plan assets changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants approximately 11 15 18 years canadian south african finnish plans respectively average remaining life expectancy participants closed plans approximately 25 29 years us uk plans respectively since benefits closed onetenth percentage point decrease funding rates used calculating future funding requirements us plans 2015 would increase aggregate contributions next five years approximately 3400 increase onetenth percentage point would decrease aggregate contributions approximately 3500 onetenth percentage point decrease funding rates used calculating future funding requirements uk plans 2015 would increase aggregate contributions next five years approximately 5000 increase onetenth percentage point would decrease aggregate contributions approximately 4000 accumulated net actuarial losses prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost connection opeb plans next fiscal year 300 3600 respectively net actuarial losses outside corridor amortized average life expectancy inactive participants approximately 20 years benefits closed prior service credits amortized schedules established date plan change approximately 8 years please refer note 8 consolidated financial statements annual report form 10k discussion defined benefit pension postretirement benefit plans sharebased compensation plans sharebased compensation plans include restricted awards stock option awards measure awards fair value grant date recognize compensation cost consolidated statements operations vesting period following table summarizes sharebased compensation expense related income tax benefit december 31 2010 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows estimate fair value option award date grant using blackscholes option valuation model incorporates assumptions regarding number complex subjective variables recognize fair value option compensation cost ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price date grant using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application current accounting guidance future periods compensation expense record future awards may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense option pricing models developed use estimating value traded options vesting hedging restrictions fully transferable cause dilution sharebased payments characteristics significantly different freely traded options changes subjective input assumptions materially affect estimates fair value existing valuation models may provide reliable measures fair value sharebased compensation consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercise expiration forfeiture sharebased payments future stock options may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments please refer note 11 consolidated financial statements annual report form 10k discussion sharebased compensation plans goodwill intangible assets least annually evaluate goodwill potential impairment test goodwill impairment reporting unit level defined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists two reporting units one within global power group business segment one within global ec group business segment goodwill impairment test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter fiscal year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable determined income market valuation approaches provide inputs estimate fair value reporting units would considered market participants income valuation approach employed discounted cash flow model estimate fair value reporting unit model requires use significant estimates assumptions regarding future revenues costs margins capital expenditures changes working capital terminal year growth rate cost capital cash flow models based forecasted results applicable reporting units models also assume 3 growth rate terminal year actual results could differ projections market valuation approach employed guideline publicly traded company method indicates fair value equity reporting unit comparing publicly traded companies similar lines business identifying selecting guideline companies analyzed business financial profiles relative similarity factors size growth risk profitability analyzed compared reporting units noted indicated fair value income approach market approach carrying value reporting unit goodwill 48500 intangible assets 9800 relate global power group’s european reporting unit experienced number performance related issues prior years however performance reporting unit improved recent years calculation estimated fair value reporting unit sufficiently excess carrying value even conducting various sensitivity analyses key assumptions adjustment carrying value goodwill required however performance unit deteriorate future carrying value could exceed fair value future periods could lead impairment goodwill calculation estimated fair value global ec group’s reporting units significantly excess respective carrying value even conducting various sensitivity analyses key assumptions income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions statutory purposes majority deferred tax assets valuation allowance provided december 31 2010 begin expire 2025 later based current tax laws valuation allowance 373900 recorded december 31 2010 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2006 number tax years audit relevant state nonus tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2011 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time december 31 2010 54900 unrecognized tax benefits would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations fiscal year 2010 recorded net interest expense net penalties unrecognized tax benefits 800 1700 respectively included previously accrued interest expense tax penalties ultimately assessed 1900 2000 respectively please refer note 13 consolidated financial statements annual report form 10k discussion income taxes item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except per share amounts management’s discussion analysis financial condition results operations sections report form 10k contain forwardlooking statements based management’s assumptions expectations projections various industries within company operates forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited following could cause business conditions results differ materially contained forwardlooking statements changes rate worldwide economic growth major international economies changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries changes financial condition customers changes regulatory environment changes project design schedules contract cancellations changes trade monetary fiscal policies worldwide currency fluctuations war terrorist attacks facilities either owned equipment services may provided outcomes pending future litigation including litigation regarding company’s liability damages insurance coverage asbestos exposure protection validity patents intellectual property rights increasing competition foreign domestic companies monetization certain facilities recoverability claims customers additional information see item 1 “businessrisk factors business” following discussion read conjunction consolidated financial statements notes thereto company’s continuing business strategy maintain focus core business segments engineering construction energy markets current management team began restructuring process fourth quarter 2001 continued process throughout 2002 restructuring activities change accounting principle goodwill reduction estimates claim recoveries reflect recent adverse experience due management’s desire monetize claims poor economic conditions impacting markets served company resulted significant charges throughout five quarters ending december 27 2002 charges major component 2002 net loss shareholders’ deficit additionally weak performance worldwide equity markets low interest rates continue significant negative impacts pension liabilities operations united kingdom united tates adjustments pension liabilities major component accumulated comprehensive loss section shareholders’ deficit cash flow operations especially strong 2002 net cash flow operations increased 160400 2002 generated operations ec energy groups refer liquidity section item 7 discussion cash flow operations resulted timing several major projects management’s comprehensive plan enhance cash generation much positive cash flow relating timing projects expected reverse 2003 three years ended december 27 2002 results operations details pretax change accounting principle charges major category outlined 1 company’s implementation sfas 142 resulted impairment goodwill two domestic reporting units energy group totaling 101800 one domestic reporting unit ec group 48700 refer note 2 financial statements discussion requirements sfas 142 2 losses recognized anticipation sales charleston wte facility 19000 hudson falls wte facility 35500 within energy group sale charleston wte facility completed october 2002 2001 energy group recorded 40300 losses deductions related sale two hydrogen plants located venezuela chile 5000 may 2001 mt carmel cogeneration facility 35300 completed december 2001 amounts recorded deductions 3 company reduced estimates claim recoveries reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company charges reflected cost operating revenues 136200 2002 32000 2001 deductions 5000 2001 charges include claims writedowns establishment provision probable liquidated damages 4 net charge 80500 2002 reported additional cost operating revenues 82200 offset reduction energy group’s deductions 1700 charge 123600 2001 recorded cost operating revenues 2001 charge 123600 consists 84400 related heat recovery steam generators “hrsg’s” 2000 early 2001 company extremely successful marketing products however determined company underestimated cost seven contracts cost underestimates primarily related construction subcontracted fabrication corrective action taken projects resulting 84400 charge product line part energy group warranty rework issues one project resulted cost 11100 ec group cost related technical production issue refinery unit additional charges fourth quarter 2001 relating doubtful receivables made establish reserves 28100 approximately 20 receivable balances largest indonesian customer amount 4000 5 provision future asbestos claims recorded 2002 deductions based company’s revaluation estimated future claims solvency insurance carriers provided coverage 6 provision impairment recorded cost operating revenues 13400 relating writedown fixed assets deductions 5300 dansville ny manufacturing facility provisions sfas 144 cash outflows related mothballing facility expected approximately 4000 2003 immaterial thereafter 7 37100 recorded deductions cf group corporate restructuring performance intervention activities fully described liquidity capital resources section report 8 company recorded deductions increased pension postretirement medical costs 10600 9100 2002 2001 respectively increased pension costs 2002 2001 largely attributable impact poor performance equity markets low interest rates united states united kingdom 2001 charge also includes 4100 related restatement postretirement medical benefits accordance sfas 106 9 severance costs 7700 recorded 2002 500 cost operating revenues 4300 general overhead 2900 deductions amounts paid next two years 2001 severance costs 4700 recorded general overhead costs amounts substantially paid close 2002 10 charges 2002 2001 primarily represent accrual legal settlements provisions amounts recorded follows years ended 2002 2001 respectively ec group cost operating revenues 1000 0 deductions 5000 0 energy group deductions 8400 0 cf selling general administrative expenses 4900 0 deductions 4600 33500 2001 charge consisted 20000 related cancellation companyowned life insurance plan decision cancel plan made communicated insurance company fourth quarter 2001 company surrendered policies underlying plan first quarter 2002 remaining 13500 consisted primarily following items company entered agreement sell noncore subsidiary recognized 6000 loss sale company reached agreement settle outstanding issues respect exit robbins facility march 2002 requiring company record charge earnings 6000 primary issues settled dispute title owner property distribution proceeds sale facility management recognizes ec energy groups subject charges due contract disputes previously described order mitigate charges future company taken following actions date • undertook series management actions including leadership changes performance interventions • implemented comprehensive contract accounting policies procedures related training programs companywide basis • established project risk management group provides corporate oversight • strengthened financial controls relating project execution cash management • supplemented financial expertise critical areas • expanded scope audit activities internally externally • strengthened expertise contract audits outsourcing internal audit function deloitte touche llp company took significant action reduce operating costs 2002 improve efficiencies match internal resources workload requirements staff reductions mothballing dansville ny manufacturing facility total number staff reductions approximated 1500 occurred primarily north american operations technical nontechnical positions eliminated including executive middle management engineering manufacturing administrative support staff overhead personnel consolidated operating revenues increase 2002 operating revenues resulted primarily ec group’s operations continental europe energy group’s operation finland entities executing several major projects europe see individual group discussions additional details 2001 decrease mainly due reduction flowthrough costs shift united kingdom towards reimbursable serviceonly contracts consolidated gross earnings operating revenues minus cost operating revenues noted chart describing charges gross earnings 2002 2001 negatively impacted charges relating revised claims estimates revisions contract estimates receivable reserves phase mothballing dansville ny manufacturing facility consolidated selling general administrative expenses sga expenses 2002 include charges severance 4300 versus 4700 2001 legal feessettlements 4850 versus 0 2001 severance charges included energy group amount 1400 corporate finance group “cf” amount 2900 charges legal fees included cf management continues seek overhead cost reductions improved efficiencies alternate methods conducting management functions corporate center operating units cost savings staff reductions fully reflected 2002 results time phasing reductions severance costs previously noted consolidated income decline 2002 income attributable primarily 2001 licensing sales agreement energy group’s north american operation similar transaction occurred 2002 income 2000 included gain approximately 12000 sale 50 ownership interest wastetoenergy facility located italy income 2002 includes interest income 12300 versus 9100 2001 equity income investments 15900 versus 14400 2001 consolidated deductions 2002 2001 contain many charges detailed beginning item 7 deductions 2002 include 26200 charge potentially insolvent insurance companies involved company’s asbestos defense charge incurred 2001 deductions 2002 also include charges losses recognized anticipation asset sales 54500 versus charge 40300 2001 2002 charges relate energy group’s charleston sc facility sold october 2002 continuing discussions potential buyer hudson falls ny wastetoenergy facility 2001 charges relate sale power generation facility mt carmel pa two hydrogen plants located venezuela chile deductions 2002 also include charges performance intervention restructuring totaling 37100 legal settlements charges 18050 versus 13500 2001 also included charges mothballing dansville ny manufacturing facility 5300 6100 2002 2001 respectively deductions 2001 include charge cancellation company owned life insurance policy 20000 revision claims estimates 5000 management expects deductions continue significant restructuring activities completed consolidated tax provision provisions sfas 109 prohibit company recording domestic tax benefits due cumulative losses incurred domestically three years ended december 27 2002 accordingly tax provision recorded pretax loss 360100 represents primarily state foreign income taxes change theoretical tax benefit 74500 actual provision 123400 2001 primarily due establishment provisions sfas 109 valuation allowance domestic deferred tax assets 194600 fourth quarter 2001 statutory purposes majority domestic federal tax benefits reserves taken expire 2020 beyond based current tax laws 2000 low effective tax rate 291 primarily due nonrecurring foreign tax benefits tax provision fiscal 2000 15200 earnings income taxes 52200 net loss incomeconsolidated net loss 2002 primarily due pretax charges totaling 545900 detailed chart shown beginning item 7 charges relate cumulative effects change accounting principle goodwill 150500 revisions project claim estimates 136200 revised contract costs estimates receivable reserves 80500 losses recognized anticipation sale two energy group operating plants 54500 provision asbestos recoveries 26200 mothballing dansville ny manufacturing facility 18700 performance intervention restructuring activities 37100 severance 7700 pension post retirement charges 10600 legal charges 23900 portions charges incurred certain foreign operations subject tax benefits 2001 net loss mainly resulted charges related revised contract costs estimates receivables reserves 123600 losses recognized anticipation asset sales 40300 revised claims estimates 37000 provision domestic plant impairment 6100 pension post retirement charges 9100 cancellation company owned life insurance 20000 legal charges 13500 cumulative effect change accounting principle goodwillnet 0 tax company subjected reporting units step one goodwill impairment test prescribed sfas 142 determined three entities required step two evaluation upon completion evaluations goodwill determined impaired charge 150500 recorded charge 48700 incurred relates domestic us operating unit ec group charge 101800 incurred relates two domestic us operating units energy group engineering construction group professional manhours chargeable contracts increased approximately 3 2002 increase reflected throughout group’s operating units increase operating revenues us dollar terms primarily attributed continental europe operating unit three major projects executed increase operating revenue partially offset reduced flowthrough revenues operations united kingdom company includes reimbursable third party costs “flowthrough costs” reimbursable plus fee contracts company determines responsible engineering specification procurement management third party costs behalf client amount flowthrough costs fluctuate significantly year normally little impact profitability funding flow costs generally provided client advance disbursement operating revenues 2001 likewise impacted reduction flowthrough revenues united kingdom march 7 2003 company sold operating business whollyowned subsidiary foster wheeler environmental corporation net cash proceeds 80000 consisting 72000 sales proceeds balance cash retained business operating revenues associated entity approximated 300000 330000 2002 2001 respectively 2002 ec gross earnings negatively impacted charges contract receivable reserves amount 34850 revised charges relating claims estimates 86800 refer table beginning item 7 discussion charges ec group’s gross earnings decreased fiscal 2001 compared fiscal 2000 largely due 51700 charge related claim reassessments contract related receivables writedowns world economic growth 2002 continued sluggish investment weak many market sectors served ec group oil refining margins depressed discouraged investment although company continued win business result spending clean fuels production refinery market active us europe contracts also awarded refinery owners middle east second half year gradual recovery ec industry expected 2003 two years lower activity market activity heavily influenced political situation middle east overall pattern worldwide economic recovery benefits improved economic conditions evidenced growth new orders likely evidenced 20045 current year energy group increase energy group’s 2002 operating revenues reflects strong performance finnish operations major projects executed poland germany estonia ireland operating revenues operating units relatively constant excluding reduction approximately 21000 2002 reflecting divestitures mt carmel charleston projects december 2001 october 2002 respectively 2001 operating revenues increase primarily reflected execution significant contracts awarded 2000 north american operating unit gross earnings 2002 negatively impacted charges contract cost revisions receivable reserves 47350 claims estimates revisions 40800 provision mothballing dansville ny manufacturing facility 13400 gross earnings 2001 impacted charges totaling 103900 primarily related revisions contract costs related receivable reserves company continuously reviews viability monetizing selected power systems facilities based current economic conditions company continue operate facilities normal course business management’s periodic reviews undiscounted cash flows indicate adjustment carrying amounts required company decides monetize assets possible amounts realized could differ materially balances reflected financial statements first second quarters 2002 company recorded charges reduce carrying values two power systems operating plants amounts 19000 35500 respectively first facility sold october 2002 company discussions third party respect second facility north american power market continues suffer slow economic growth capacity financial difficulties independent power producers growth opportunities north american power market expected shift toward maintenance service contracts away supply new equipment associated solid fuel boiler contracts internationally growth opportunities circulating fluidized bed boilers expected continue selective european asian markets financial condition shareholders’ deficit yearend 2002 780900 compared 2001 48400 summary 2002 decrease considering restatement 2001 follows shareholders’ deficit december 28 2001 restated 48400 net loss prior cumulative effect change accounting principle 374700 cumulative effect prior years december 28 2001 change accounting principle goodwill net 0 tax 150500 minimum pension liability adjustment 226000 foreign currency translation adjustment 18700 shareholders’ deficit december 27 2002 780900 major components comprising net loss listed chart beginning discussion results operations charge change accounting principle relating goodwill relates two us entities energy group aggregate amount 101800 one us entity ec group amount 48700 adjustments minimum pension liability resulted charges relating plans united kingdom amount 166400 us amount 55700 canada amount 3900 reflect weak equity markets lower interest rates past three years fiscal 2002 2001 2000 investments land buildings equipment 53400 34000 45800 respectively increase 2002 primarily related buyout operating lease financing agreement corporate office building new jersey approximately 33000 approximately 4700 routine capital expenditures company’s build operate plants 15700 capital expenditures worldwide decrease 2001 primarily due lower investments foreign build operate plants line previously announced repositioning plan types plants capital expenditures continue directed primarily toward strengthening supporting company’s core businesses limited terms within senior credit facility net debt decreased 124500 690500 2002 compared decrease 109000 815000 2001 net debt includes corporate debt special purpose project debt capital lease obligations bank loans subordinated robbins facility exit funding obligations convertible subordinated notes preferred trust securities net cash short term investments 2002 decrease primarily due significant cash provided operating activities 160000 year 2001 company issued 210000 principal amount convertible subordinated notes net proceeds used repay 76300 364day revolving credit facility expired may 30 2002 reduce advances outstanding existing revolving credit agreement 2001 decrease accomplished primarily sale 50 percent interest wastetoenergy facility italy also company entered salel easeback office building spain resulted gross proceeds approximately 21000 liquidity capital resources accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well company maintaining credit facilities bonding capacity adequate conduct business company incurred significant losses years twoyear period ended december 27 2002 shareholder deficit 780939 december 27 2002 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement accordingly company received waivers covenant violations ultimately negotiated new credit facilities august 2002 management believes operating plans met sufficient assure compliance terms new debt agreements amended assurance company 2003 matters raise substantial doubt company’s ability continue going concern company’s plans regard matters described december 27 2002 company cash equivalents hand shortterm investments restricted cash 429000 increase 205000 2001 total 343000 held foreign subsidiaries 69000 restricted august 2002 company finalized senior credit facility lender group facility including 71000 term loan 69000 revolving credit facility 149000 letter credit facility expires april 30 2005 facility secured assets domestic subsidiaries stock domestic subsidiaries 66 stock firsttier foreign subsidiaries facility scheduled repayments prior maturity april 30 2005 facility requires prepayments proceeds assets sales issuance debt equity excess cash flow company retains first 77000 amounts also retains 50 share ba lance financial covenants facility commence end first quarter 2003 include senior leverage ratio minimum earnings interest taxes depreciation amortization “ebitda” level described agreement amended sale foster wheeler environmental corporation march 7 2003 cumulative sales proceeds received defined agreement approximate 75000 amendment 1 credit agreement obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred fourth quarter 2002 11000 contingency risks favorably resolved additional project reserves established 19000 leaving contingency balance 33000 amendment 2 credit agreement entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company must make prepayment principal aggregate amount 10000 refer exhibit 1035 filed part report form 10k complete amendment company finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility company initial noncancelable period 20 years proceeds saleleaseback sufficient repay balance outstanding previous operating financing lease arrangement 33000 second corporate office building repayment included 2002 capital expenditures longterm capital lease obligation 43700 december 27 2002 included capital lease obligations accompanying consolidated balance sheet third quarter 2002 company also completed receivables financing arrangement 40000 funding available company dependent amount characteristics domestic receivables amount available company fluctuates daily company estimates approximately 15000 20000 available 2003 financing arrangement expires august 2005 subject covenant compliance financial covenants commence end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding december 27 2002 company 0 borrowings outstanding facility company initiated comprehensive plan enhance cash generation improve profitability 2002 management’s comprehensive plan address company’s domestic liquidity issues included generating approximately 150000 asset sales collection receivables resolving disputed claims end first quarter 2003 additional 40000 following six months december 27 2002 company generated approximately 60000 efforts sale operating business foster wheeler environmental corporation march 7 2003 additional 80000 generated additional 10000 also received efficient working capital management 40000 still expected received asset sales claims recoveries course year 2003 management forecasts cash hand together cash operations asset sales collection receivables claims recoveries sufficient fund company’s working capital needs first quarter 2004 failure company achieve forecasts could material adverse effect company’s financial condition senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates company compliance debt covenants throughout 2003 forecast indicates ebitda excess minimum debt covenant amounts 2003 however assurance actual results match forecasts company violate covenants company violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations saleleaseback arrangement certain specialpurpose project debt would allow debt accelerated total amount debt could accelerated including amount outstanding senior credit facility 935600 december 27 2002 unlikely company would able repay amounts borrowed payment dates accelerated failure company repay amounts would material adverse effect company’s financial condition operations debt covenants potential payment acceleration requirements raise substantial doubts company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty due company’s significant leverage management reviewing various options restructure balance sheet although definitive plans finalized point options may include among things debt equity exchanges debt exchanges equity exchanges additional asset sales assurances however company successfully effect foregoing company generated cash flow operations 160000 2002 sources cash include effects positive timing flows several major projects us europe results management’s comprehensive cash management activities management expects much positive timing flows major projects reverse 2003 forecasts cash flow 2003 operations negative offset part sales proceeds foster wheeler environmental corporation sale collections project claims restricted cash 2002 amounted 84800 utilized primarily support foreign bank guarantees letters credit 68800 domestic escrow deposit connection todak litigation 16000 capital expenditures 54000 includes 33000 repayment operating lease financing corporate office building 4700 capital expenditures company’s build operate plants 15700 capital expenditures worldwide proceeds longterm debt 70000 relate drawings early 2002 prior revolving credit agreement proceeds lease financing 45000 relate sale leaseback corporate office building whose proceeds used repay operating lease financing another office building excess funds treated prepaid deposit sale leaseback repayment longtem debt 45600 consists primarily repayments 20300 tax exempt corporate debt plus 20200 debt associated special purpose projects second quarter 2002 original receivable sales agreement terminated per terms agreement purchaser collected 50000 accounts receivable payments past several years company required terms several government contracts provide initial funding required projects part company’s continuing process improvement company reorganized project risk management group second quarter 2002 appointed corporate vice president head purpose group help company avoid projects unmanageable risk ensure awarded projects executed without exposing company additional financial risk group carefully scrutinize contract proposals negative cash flow terms company intend take contracts similar payment terms future 360000 losses prior years robbins facility significant negative impact company’s cumulative liquidity debt levels related interest cost substantial discussed note 20 company reached final agreement debtor project companies march 5 2002 robbins facility negative impact future cash flows residual debt service cumulative cash flow operations 2000 2001 negative 105000 largely costs associated project claims trade receivables excess 180 days company’s liquidity action plan includes resolution outstanding claims successful positive impact management’s forecast future cash flows collection receivables one primary focuses company’s comprehensive plan enhance cash generation improve profitability benefits intervention began accrue 2002 changes policies procedures expected improve company’s future operations company’s working capital varies period depending mix stage completion commercial terms conditions company’s contracts working capital needs increased prior years result company’s satisfying requests customers favorable payment terms contracts requests generally include reduced advance payments less favorable payment schedules company january 13 1999 fw preferred capital trust delaware business trust issued 175000 preferred trust securities preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year beginning april 15 1999 distributions may deferred periods five years time additional interest accrues 90 company elected defer distributions 2002 senior credit facility requires company continue defer dividends preferred trust securities term senior credit facility maturity date preferred trust securities january 15 2029 may june 2001 company issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 65 per annum payable semiannually june 1 december 1 year notes may converted common shares initial conversion rate 623131 common shares per 1000 principal amount 1605 per common share subject adjustment certain circumstances net proceeds approximately 202900 used repay advances outstanding revolving credit agreement debt issuance costs amortized term notes component interest expense board directors company discontinued common stock dividend july 2001 contractual obligations company contractual obligations comprised bank loans corporate debt special purpose project debt subordinated robbins facility exit funding obligations convertible subordinated notes preferred trust securities company also obligated noncancelable operating lease obligations aggregate maturities december 27 2002 contractual obligations follows certain instances normal course business company provided security contract performance consisting standby letters credit bank guarantees surety bonds december 27 2002 commitments period expiration follows company may experience difficulty obtaining surety bonds bank guaranteesletters credit unsecured basis future due changing view toward risk loss current market company’s creditrating may impact company’s ability secure new business see note 14 accompanying financial statements discussion guarantees subsidiary company entered longterm contract government agency completed four phases first phase design permitting licensing spent fuel facility phase completed price 66700 addition company process submitting requests equitable adjustment related contract amount excess 15000 claims included accompanying financial statements net realizable amount 9000 expected realized appropriate federal acquisition regulations recently started second phase billed cost plus fee basis expected last approximately 24 months phase company must respond questions regarding initial design included phase one phase three expected begin first quarter 2004 construction startup testing facility fixed price 11 4000 subject escalation phase expected last two years requires subsidiary company fund construction cost addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years 2001 company completed sale interest two hydrogen production plants south america cogeneration facility pennsylvania certain equity interests italy transactions resulted proceeds 54100 reduction debt 30000 net aftertax charges 27900 2000 subsidiary company sold 50 percent interest lomellina energia srl wastetoenergy facility located northern italy reduced company’s net debt approximately 130000 also 2000 transaction completed relating petropower project chile essentially monetization projected future cash flows project transaction resulted increase approximately 42500 limited recourse debt similar decrease corporate debt backlog new orders elapsed time award contract completion performance may four years dollar amount backlog necessarily indicative future earnings company related performance work backlog unfilled orders includes amounts based signed contracts well agreed letters intent management determined likely performed although backlog represents business considered firm cancellations scope adjustments may occur due factors outside company’s control changes project schedules project cancellations company cannot predict certainty portion backlog performed given year backlog adjusted reflect project cancellations deferrals sale subsidiaries revised project scope cost reduction backlog attributable ec group’s operations uk united states balance reflects decline energy group’s north american operations partially offset increase european operations total 59 2002 new orders us dollar terms projects awarded company’s subsidiaries located outside united states compared 55 fiscal 2001 63 fiscal 2000 approximately 62 55 65 new orders 2002 2001 2000 projects located outside north america approximately 44 2002 new orders fixed price contracts key geographic regions contributing new orders awarded fiscal 2002 europe united states asia middle east additional information included group discussions engineering construction group ec decline backlog attributed operations united states uk two major engineering procurement construction projects awarded oil refineries united states uk 2001 significant portions contracts executed 2002 projects include large quantities flowthrough costs similar sized projects us dollar terms awarded 2002 decline new orders us dollar terms relates two projects noted reduced bookings domestic environmental subsidiary divested march 2003 overall level bookings us dollar terms less group’s recent history approximately 84 yearend backlog 77 2002 bookings reimbursable plus fee contracts approximately 51 2002 backlog 78 new orders projects located outside north america world economic growth 2002 continued sluggish investment weak many market sectors served ec group oil refining margins depressed discouraged investment although company continued win business result spending clean fuels production refinery market active united states europe contracts also awarded refinery owners middle east second half year 2003 expected year gradual recovery ec industry two years lower activity heavily influenced political situation middle east overall pattern worldwide economic recovery benefits improved economic conditions evidenced growth new orders likely realized 20045 current year majority future upstream oil gas refinery projects expected located outside united states backlog future new orders reduced reflect divestiture foster wheeler environmental corporation “fwenc” march 2003 fwenc’s backlog december 27 2002 approximately 1861200 energy group energy group’s backlog decreased 112100 end 2002 representing 7 decrease 2001 turn represented 20 decrease backlog end fiscal 2000 decrease 2002 due execution several large heat recovery steam generators selective catalytic reduction contracts booked 2001 decline new orders 2002 81900 6 2001 primarily result operations north america partially offset increased bookings operations finland major circulating fluidized bed boiler project ireland awarded approximately 84 2002 yearend backlog 71 new orders fixed price projects approximately 66 2002 backlog 40 new orders projects located outside north america north american power market continues suffer slow economic growth capacity financial difficulties independent power producers growth opportunities north american power market expected shift toward maintenance service contracts away supply new equipment associated solid fuel boiler contracts internationally growth opportunities circulating fluidized bed boilers expected continue select european asian markets matters ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation processes ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment design plant construction based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result charges materially excess amounts provided accounts inflation effect inflation company’s revenues earnings minimal although majority company’s revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete future periods addition contracts provide price adjustments escalation clauses application critical accounting policies company’s financial statements presented accordance generally accepted accounting principles management audit committee board directors approve critical accounting policies highlighted accounting policies management considers significant understanding operations company’s business well key estimates used implementing policies revenue recognition revenues profits long term fixed price contracts recorded percentage completion method progress towards completion measured using cost method efforts expended method variations thereof methods applied consistently contracts similar characteristics similar circumstances cost method revenues profits recognized based ratio costs incurred bear total estimated costs efforts expended method revenue profits recognized based ratio incurred labor hours bear total estimated labor hours variations two methods used multiyear contracts require significant engineering effort multiple delivery units methods subject physical verification actual progress towards completion revenues profits costs reimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete long term contracts” percentageofcompletion method preferable method revenue recognition set forth american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” company thousands projects reporting segments various stages completion contracts require estimates determine appropriate final estimated cost “fec” profits revenue recognition percentage complete determining fec company uses significant estimates forecast quantities expended ie manhours materials equipment costs quantities including exchange rate fluctuations schedule execute scope work including allowances weather labor civil unrest determining revenues company must estimate percentage complete likelihood client paying work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances recent financial results resultant intervention actions initiated management evidence fact estimates significantly different actual results project estimates made individual project basis revised additional information becomes available throughout life cycle contracts fec complete longterm contracts indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentage complete project life cycle four years duration extremely difficult calculate sensitivities estimates given thousands individual contracts normally exist point time estimates projectspecific rather broadbased percentages claims recognition claims amounts excess agreed contract price amounts included original contract price contractor seeks collect clients others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied management’s determination existence following con ditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred amounts recorded material disclosed notes financial statements costs attributable claims treated costs contract performance incurred 2002 company revised estimates claim revenues reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company result pretax charges approximating 136200 recorded company continues actively pursue claims recoveries recognized income collected december 27 2002 company approximately 9000 requests equitable adjustment recorded contracts process amount relates primarily claim us government agency project currently executed claim unsuccessful costs charged cost operating revenues company policy requires new claims excess 500 formally reviewed approved corporate chief financial officer prior recorded financial results asbestos company recorded assets 569000 relating probable insurance recoveries approximately 35000 recorded accounts notes receivables 534000 recorded long term company funded approximately 59000 december 27 2002 total liability recorded comprised estimated liability relating open outstanding claims approximately 337500 estimated liability relating future unasserted claims approximately 217300 total 35000 recorded accrued expenses 519800 recorded asbestos related liability consolidated balance sheet liability estimate future asbestosrelated defense costs indemnity payments based upon assumed average claim resolution costs applied currently pending estimated future claims asset estimate recoveries insurers based upon assumptions relating cost allocation resoluti pending litigation certain insurers well recoveries funding arrangement insurers covers claims brought 1993 june 12 2001 company currently negotiations insurers regarding arrangement handling asbestos claims filed june 12 2001 defense costs indemnity payments expected incurred next sixteen years management company considered asbestos litigation financial viability legal obligations insurance carriers believes except insurers become may become insolvent reserve provided insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimates assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainty ultimate number claims filed amounts claim costs impact bankruptcies companies currently involved litigation company’s ability recover insurers uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future exceeds company’s estimate likely costs defense indemnity similarly exceed company’s estimates factors beyond company’s control could material adverse effect company’s financial condition results operations cash flows company’s subsidiaries effective managing asbestos litigation part 1 company’s subsidiaries access historical project documents business records going back 50 years allowing defend determining present location cause alleged asbestos claim timing extent presence 2 company’s subsidiaries maintain good records insurance policies identified policies issued since 1952 3 company’s subsidiaries consistently vigorously defended claims resulted dismissal claims without merit settlement claims amounts considered reasonable san francisco california jury returned verdict march 26 2002 finding foster wheeler liable 10600 case todak vs foster wheeler corporation case brought foster wheeler us navy several companies 59 yearold man suffering mesothelioma allegedly resulted exposure asbestos company believes credible evidence presented plaintiff exposed asbestos contained foster wheeler product addition verdict clearly excessive set aside reduced appeal company appealed verdict management company believes financial obligation may ultimately result entry judgment case paid insurance pension details company’s pension plans included note 7 company relies professional actuary firms calculate pension liability annual service cost cash contributions required calculations rely heavily estimates future events often extending decades future management responsible establishing estimates used actuaries major estimates include • expected percentage annual salary increases • annual inflation percentage • discount rate used present value future obligations • expected longterm rate return plan assets • selection actuarial mortality tables management utilizes business judgment establishing estimates seeks guidance actuaries accounting firms trade publications information published publicly traded firms estimates vary significantly actual results management cannot provide assurance estimates used calculate pension liabilities included herein approximate actual results volatility assumptions actual results significant example performance global equity markets past three years significantly worse estimated returns company’s pension plan assets united states 2000 2002 less estimates approximately 100000 reduction us interest rate serving basis discount rate assumptions three years accounted approximate 40000 increase company’s calculated liabilit pension liability calculations normally updated annually beginning year may updated interim periods major plan amendments curtailments occur longlived asset accounting company accounts longlived assets including may consider monetizing assets held used management periodically reviews subsidiaries impairment required sfas 144 using undiscounted cash flow analysis reviews require estimating costs operate maintain facilities extended period could approximate 25 years estimates made regarding costs maintain replace equipment throughout facilities period operating costs production quantities revenues ability clients financially meet obligations formal decision made management sell asset discounted cash flow methodology utilized assessment certain specialpurpose subsidiaries energy group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts fourth quarter 2001 company established valuation allowance 194600 restated primarily domestic deferred tax assets provisions sfas 109 action required due losses domestic operations experienced three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expire 2020 beyond based current tax laws based establishment valuation allowance company anticipate recognizing provision income taxes domestic operations near future performance improvement intervention march 2002 company initiated comprehensive plan enhance cash generation improve profitability operating performance portion plan concentrates quality quantity backlog execution projects order achieve exceed profit cash targets optimization nonproject related cash sources uses connection plan group outside consultants hired purpose carrying performance improvement intervention tactical portion performance improvement intervention concentrates booking current projects executing twentytwo “high leverage projects” generating incremental cash high leverage opportunities overhead reductions procurement accounts receivable systemic portion performance improvement intervention concentrates sales effectiveness estimating bidding project execution procedures details activities date include following procurement march 2002 company began implementing plan reduce internal manhours cycle time required purchase items well targeting cost reductions integral part plan enter global regional procurement agreements thirty agreements targeted initiative nine finalized date representing significant savings opportunities accounts receivable companywide management operating system implemented identify track actions relating collection receivables new policy established requiring actions taken prior receivables becoming due well actions taken collections past due one aspect new policy requires reporting significant past due amounts senior management timely basis accordance industry practices accounting longterm contracts provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance trade accounts notes receivable december 27 2002 december 28 2001 599500 726600 respectively 2002 operating revenues increased 203900 compared 2001 overhead reductions management progressed evaluation domestic overhead staffing levels corporate headquarters north american operations reduced 214 individuals since overhead reduction program began mid 2002 annualized salaries benefits nonessential expenses reduced approximately 33000 technical nontechnical positions eliminated including executive middle management engineering manufacturing administrative support staff overhead personnel staff reductions include early retirements voluntary involuntary terminations full benefits reductions fully realized due time phasing reductions notice period severance payments savings ultimately appear cost operating revenues selling general administrative overheads management continue adjust company’s resources match workload subsequent yearend additional reductions force occurred energy group’s north american operations reflect power market conditions prevailing united states reviews also continue ways increase efficiencies reduce costs us corporate center sales company continues emphasize booking high quality contracts may 2002 company launched initiative improve sales effectiveness north american energy ec groups sales effectiveness initiatives aimed building level sales activities group strengthening selling skills sales personnel sales training completed management operating system implemented north america provides management disciplined system track sales opportunities targets actions needed convert opportunities bookings initial training activities completed updated needed given competitive nature business difficult quantify results sales effectiveness initiatives risk management company’s project risk management group established second quarter 2002 responsible reviewing proposals contracts work projects contracted execution ensure company protected taking unacceptable levels financial risk project risk management group assisted effort deloitte touche company’s internal auditors fourth quarter 2002 161 proposals evaluated 142 formally reviewed 36 projects execution reviewed project risk management group also developed conjunction financial group set corporate policies govern proposals contracting project execution including subcontracting procurement contract accounting highleverage projects company launched major initiative second quarter 2002 focused way company plans executes projects field initiative’s objective build best class foster wheeler project management system activity sought take best practices integrate company wide system original scope initiative 22 company’s projects worldwide initial phase initiative identified best practices project execution revealed many existing corporate policies internal best practices fact best class consistently applied result initiative refocused 12 key projects behavior change necessary ensure compliance corporate policies best practices standardized management tools procedures developed require rigor discipline execution projects daily basis primary result new tools procedures identification potential execution issues earliest possible date goal increase ability company mitigate execution issues prevent profit erosion projects internal audits developed based corporate policies best practices audits allow management measure individual projects best class basis complement policies procedures providing project teams specific actions necessary best class audits associated change order management critical component project execution take place monthly basis drive improvements ensure compliance actions necessary best class initiative completed january 2003 updated systems procedures implemented consistent basis internal control review company initiated detailed review internal controls third fourth quarters 2002 review included evaluation company’s contracting policies procedures relating bidding estimating practices among things reviews included evaluation company’s reserving practices bad debts uncollectible accounts receivables warranty costs change orders claims management audit committee approval enhancing policies established formalized higher level approvals setting releasing project contingencies reserves establishing claims change orders requires claims recorded excess 500 reviewed approved advance corporate chief financial officer management strengthened company’s financial controls supplemented financial expertise 2002 included expanding scope audit function internally externally company outsourced internal audit function deloitte touche llp fourth quarter 2002 outsourcing internal audit allows access worldclass organization skilled professionals latest information technology audit resources key objectives revised internal audit function include • focusing resources improving operational financial performance areas highest risk • reviewing strengthening existing internal controls • mitigating risk internal control failures • ensuring best practices implemented across business units company formed disclosure committee first quarter 2003 purpose committee evaluate review modify necessary disclosure controls procedures designed ensure information required disclosed company’s periodic reports recorded processed summarized reported accurately material respects within time periods required sec’s rules forms code ethics company maintains code ethics employees including executive management exceptions waivers made code ethics 2002 accounting developments june 2002 financial accounting standards board “fasb” issued sfas 145 “rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections” sfas 145 rescinds previous statements regarding extinguishment debt amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar sale leaseback transactions provisions sfas 145 relating extinguishment debt applied fiscal years beginning may 15 2002 provisions sfas 145 related amendment sfas 13 effective transactions occurring may 15 2002 company currently assessing impact adoption new standard june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 requires liabilities associated exit disposal activity recognized fair value liability incurred contrasts existing accounting requirements liabilities exit disposal activities recognized date entity’s commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 although early adoption permitted company implemented sfas 146 fourth quarter 2002 connection company’s exit dansville ny manufacturing facility company recognized 5300 charge earnings accordance standard december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure” sfas 148 amends sfas 123 “accounting stockbased compensation” provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation also amends disclosure requirements sfas 123 require prominent disclosures interim annual financial statements effects reported net income entity’s accounting policy decisions respect stockbased employee compensation provisions sfas 148 effective fiscal years ending december 15 2002 provisions standard relating fair value measurements affect company accounts stockbased employee compensation provisions accounting principles board opinion 25 “accounting stock sued employees” permitted sfas 123 company 2002 financial statements implemented disclosure requirements standard november 2002 fasb issued fasb interpretation “fin” 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 financial statements implemented disclosure requirements interpretation safe harbor statement management’s discussion analysis financial condition results operations sections report form 10k reports oral statements made representatives company time may contain forwardlooking statements based management’s assumptions expectations projections company various industries within company operates include statements regarding company’s expectation regarding revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited factors described item 1 “businessrisk factors business” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries • changes financial condition customers • changes regulatory environment • changes project design schedules • contract cancellations • changes estimates made company costs complete projects • changes trade monetary fiscal policies worldwide • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • outcomes pending future litigation including litigation regarding company’s liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • monetization certain power system facilities • recoverability claims customers • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control company reader consider areas risk described connection forwardlooking statements may made company undertakes obligation publicly update forwardlooking statements whether result new information future events otherwise reader advised however consult additional disclosures company makes proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except per share amounts management’s discussion analysis financial condition results operations sections report form 10k contain forwardlooking statements based management’s assumptions expectations projections various industries within company operates forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited following could cause business conditions results differ materially contained forwardlooking statements changes rate worldwide economic growth major international economies changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries changes financial condition customers changes regulatory environment changes project design schedules contract cancellations changes trade monetary fiscal policies worldwide currency fluctuations war terrorist attacks facilities either owned equipment services may provided outcomes pending future litigation including litigation regarding company’s liability damages insurance coverage asbestos exposure protection validity patents intellectual property rights increasing competition foreign domestic companies monetization certain facilities recoverability claims customers additional information see item 1 “business risk factors business” following discussion read conjunction consolidated financial statements notes thereto overview accompanying consolidated financial statements management’s discussion analysis herein prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern see “liquidity capital resources” note 1 consolidated financial statements additional going concern information company operates two main business groups engineering construction group “e c” energy group “energy” corporate center certain legacy liabilities eg corporate debt included corporate finance group “c f” global markets company operates largely dependent overall economic growth continue highly competitive consolidated new orders backlog declined recent years performance existing contracts company’s european operations continues profitable see energy group engineering construction group discussions additional details many company’s contracts contain lumpsum prices management expects number lumpsum contracts number countries projects executed increase future lumpsum contracts inherently risky company agrees selling price time enters contracts costs execution schedule based estimates management assumes substantially risks associated completing project well postcompletion warranty obligations year 2003 net charges approximately 30800 recorded primarily lumpsum contracts mainly associated projects retained sale environmental assets year 2002 charges approximately 216700 primarily lumpsum contracts recorded company established project risk management group “prmg” second quarter 2002 responsible reviewing proposals work contracted ensure company protected unacceptable levels financial risk charges noted incurred projects whose contracts signed prior formation prmg see “performance improvement intervention” information management’s view 2003 transitional year contained number positive developments also included challenges adversely impacted financial results one significant developments financial improvement energy group’s north american operations returned profitability depressed domestic power market management believes turnaround resulted part changes unit’s management team well benefits obtained 2002 initiatives focused cost reductions way company plans executes projects field european operations e c energy groups continued perform well 2003 remained profitable company successfully divested several nonstrategic assets 2003 including majority assets domestic environmental business investment wastetoenergy facility state new york interest corporate office building new jersey company also settled number domestic contract disputes resulted net cash proceeds company approximately 39000 successfully negotiated several settlement agreements insurance carriers provide coverage asbestos claims finally company reduced benefits several employee benefit plans including freezing us pension plan closing uk defined benefit pension plan new participants changes benefit plans well improved performance global equity markets positively impacted company’s shareholder’s deficit improved company’s cost competitiveness negative developments 2003 included three projects retained environmental sale one project e c’s north american operating unit generated losses totaling excess 55000 2003 additionally backlog unfilled orders declined 2003 amount revenues earned projects exceeded new bookings time complete restructuring company’s balance sheet continues take longer originally expected resulted significant costs company’s c f group management believes negative impact certain client perceptions towards company increasing level new bookings remains one management’s priorities 2004 year 2003 company reported net loss 157000 reduction loss 525200 period 2002 net loss included charge 150500 cumulative effect change accounting principle goodwill included 2003 loss 15100 pretax charge relating expected sale office building corporate headquarters new jersey 68100 pretax charge increased asbestos provision pretax costs 59500 relating continuing restructuring efforts severance 16700 pretax gain sale substantially assets environmental 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 see results operations additional details cash shortterm investments restricted cash totaled 430200 december 26 2003 reflects increase 800 year company continues carry high levels debt united states total us operations include corporate center cash flow negative expected continue cash flow negative company’s foreign operations generate positive cash flow expected continue generate positive cash flow company normally repatriates cash foreign operations expects continue need repatriate cash foreign operations future maintaining adequate domestic liquidity remains one management’s priorities us liquidity forecasts updated weekly basis forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriated nonus subsidiaries asset sales collections receivables claims recoveries working capital needs commercial operations retained environmental contract commenced january 2004 company funded construction project processes spent nuclear waste us department energy capital recovery operating revenues generated plant processes waste materials project expected generate excess 40000 net domestic cash flow 2004 represents material component company’s domestic cash flow forecast although assurance cash amounts realized andor timing cash flows match company’s forecast management currently forecasts sufficient cash available fund company’s us foreign working capital needs throughout 2004 see “liquidity capital resources” additional details part debt restructuring plan company certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 s4 expected amended filed form 10k filed february 5 2004 company announced support restructuring activities number institutional investors committed provide 120000 new financing company replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally company discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 company offering mix equity well debt longer maturities exchange securities company anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance company complete exchange offer acceptable terms company may able complete restructuring plan acceptable terms could material adverse impact company’s operations three years ended december 26 2003 results operations financial results years ended december 26 2003 december 27 2002 december 28 2001 contain net pretax charges 151700 545900 254300 respectively details charges identified provide comprehensive understanding financial results 1 company’s implementation sfas 142 2002 resulted impairment goodwill e c group environmental 48700 energy group camden wastetoenergy facility 24800 north american power operations 77000 total 101800 refer note 2 consolidated financial statements discussion requirements sfas 142 2 2003 company recorded 15100 impairment loss deductions anticipated sale domestic corporate office building also 2003 company sold certain assets wholly owned subsidiary environmental resulting net gain 16700 energy group gain 4300 sale hudson falls new york wastetoenergy plant recorded income 2002 charge 19000 recorded deductions anticipated sale charleston south carolina wastetoenergy facility sale facility completed fourth quarter 2002 also 2002 loss 35500 recognized deductions anticipated sale hudson falls wastetoenergy facility sold october 2003 2001 energy group recorded 40300 losses deductions related sale two hydrogen plants located venezuela chile 5000 may 2001 mt carmel cogeneration facility 35300 completed december 2001 amounts recorded deductions 3 2003 e c group net charge 2100 settlement claims retained sale assets environmental net gain 1200 overall charge 900 energy group recovery north american contract 2400 2002 2001 company reduced estimates claim recoveries reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company charges reflected cost operating revenues 136200 2002 32000 2001 deductions 5000 2001 charges include claims writedowns establishment provision probable liquidated damages 4 2003 e c group recorded reserves relating environmental contracts retained amount 32900 three contracts resulting net writedown 100 energy group net gain 700 six contracts 2002 2001 charge groups totals 80500 123600 respectively amounts reflected cost operating revenue 2001 charge 123600 consists 84400 related heat recovery steam generators “hrsgs” 2000 early 2001 company extremely successful marketing products however determined company underestimated cost seven contracts cost underestimates primarily related construction subcontracted fabrication corrective action taken projects resulting 84400 charge product line part energy group warranty rework issues one project resulted cost 11100 ec group cost related technical production issue refinery unit additional charges fourth quarter 2001 relating doubtful receivables made establish reserves 28100 approximately 20 receivable balances largest indonesian customer amount 4000 5 company recorded charges related increases valuation allowance insurance claims receivable 68100 26200 0 years ended 2003 2002 2001 respectively charges recorded deductions consolidated statement operations 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 2002 charge recorded due allocation future costs insurer became insolvent 6 2002 provision impairment recorded cost operating revenues 13400 relating writedown fixed assets deductions 5300 dansville new york manufacturing facility provisions sfas 144 “accounting impairment disposal longlived assets” cash outflows related mothballing facility approximately 3300 2003 7 cost performance intervention restructuring activities recorded deductions 43600 37100 years 2003 2002 respectively activities fully described performance improvement intervention section report 8 2003 amount primarily represents curtailment charge due changes company’s domestic defined benefit plans increased net periodic pension charges result decrease discount rates used updated actuarial determination amounts 2003 2002 2001 amounts relate increased pension postretirement medical costs 2003 2002 amounts recorded deductions 2001 charge also includes 4100 related restatement postretirement medical benefits accordance sfas 106 9 2003 severance costs recorded cost operating revenues e c 6600 energy groups 6700 selling general administrative expenses c f group 2600 2002 severance charges recorded cost operating revenues 500 selling general administrative expenses 4300 deductions 2900 2001 severance costs 4700 recorded general overhead costs amounts substantially paid close 2002 10 charges 2003 2002 2001 primarily represent accrual legal settlements provisions amounts recorded follows years 2003 2002 2001 respectively e c group cost operating revenue 0 1000 deductions 3900 5000 energy group deductions 3900 8400 c f selling general administrative expenses 0 4900 deductions 2800 4600 33500 2001 charge consisted 20000 related cancellation companyowned life insurance plan decision cancel plan made communicated insurance company fourth quarter 2001 company surrendered policies underlying plan first quarter 2002 remaining 13500 consisted primarily following items company entered agreement sell noncore subsidiary recognized 6000 loss sale company reached agreement settle outstanding issues respect exit robbins facility march 2002 requiring company record charge earnings 6000 primary issues settled dispute title owner property distribution proceeds sale facility management recognizes e c energy groups subject charges due contract disputes previously described order mitigate charges future company undertook following actions 2002 2003 • series management actions taken including leadership changes performance interventions • implemented comprehensive contract accounting policies procedures related training programs companywide basis • established project risk management group provides corporate oversight • strengthened financial controls relating project execution cash management • supplemented financial expertise contract areas • expanded scope internal audit activities • strengthened expertise contract audits outsourcing internal audit function deloitte touche llp company continued actions 2003 reduce operating costs improve efficiencies match internal resources workload requirements staff reductions mothballing dansville new york manufacturing facility total number staff reductions 2003 approximated 2300 occurred primarily north america united kingdom technical nontechnical positions eliminated including executive middle management engineering manufacturing administrative support staff overhead personnel consolidated operating revenues 2003 increase operating revenues resulted execution several large projects company’s european operations including united kingdom continental europe european power 2003 increase noted net 235600 reduction resulting sale substantially environmental assets march 2003 increase 2002 operating revenues resulted primarily e c group’s operations continental europe energy group’s operation finland entities executing several major projects europe see individual group discussions additional details consolidated cost operating revenues noted chart beginning section describing charges cost operating revenues 2003 2002 negatively impacted charges relating revised claims estimates revisions contract estimates receivable reserves phase mothballing dansville new york manufacturing facility consolidated selling general administrative expenses sga decline sga 2003 attributed sale certain assets environmental march 2003 approximately 19600 attributed environmental sale see “performance improvement intervention” plan minimizing sga expenses remain focus management however cost complying us mandated sarbanesoxley requirements anticipated expansion sales marketing efforts likely result increased sga spending 2004 third party costs relating sarbanesoxley compliance initiative forecast exceed 7000 2004 amount excludes costs internal resources costs additional staff likely required worldwide consolidated income increase 2003 relates predominantly gain sale certain assets environmental 16700 gain sale hudson falls new york wastetoenergy plant 4300 decline 2002 income attributable primarily 2001 licensing sales agreement energy group’s north american operation similar transaction occurred 2002 income 2003 includes interest income 10100 versus 12300 2002 equity income investments 20500 versus 15900 2002 consolidated deductions 2003 2002 contain many charges detailed beginning item 7 deductions 2003 include 15100 provision loss anticipated sale domestic corporate office building decrease 2003 due charge 54500 2002 anticipation sale hudson falls charleston wastetoenergy facilities deductions 2003 2002 include charges 68100 26200 respectively potentially uncollectible insolvent insurance companies involved company’s asbestos defense charge incurred 2001 2002 charges relate energy group’s charleston south carolina facility sold october 2002 hudson falls new york wastetoenergy facility sold october 2003 deductions 2003 2002 also include charges performance intervention restructuring totaling 43600 37100 respectively legal settlements charges 2800 2003 versus 23900 2002 deductions 2002 also included 5300 related mothballing dansville new york manufacturing facility management expects deductions continue significant restructuring activities completed consolidated tax provision provisions sfas 109 “accounting income taxes” prohibit company recording domestic certain foreign tax benefits due cumulative losses incurred domestically certain international tax jurisdiction three years ending december 26 2003 accordingly tax provision recorded pretax loss 2003 2002 represents primarily foreign taxes operations located europe generate taxable income cannot used reduce losses incurred tax jurisdictions statutory purposes majority domestic federal tax benefits reserves taken expire 2020 beyond based current tax laws company completes exchange offer discussed registration statement form s4 discussed note 1 consolidated financial statements subject substantial limitations use prechange losses credits offset us federal taxable income postchange year since valuation allowance already reflected offset losses credits limitation result significant writeoff company net lossconsolidated net loss 2003 due pretax charges totaling 151700 detailed chart shown beginning item 7 charges net gain sale certain assets 5900 revisions project claim estimates 1500 revised contract cost estimates related receivable allowances 32300 provision asbestos recoveries 68100 performance intervention restructuring activities 43600 pension curtailmentlegacy 3600 severance 15900 legal charges 2800 net loss 2002 primarily due pretax charges totaling 545900 detailed chart shown beginning item 7 charges relate cumulative effects change accounting principle goodwill 150500 revisions project claim estimates 136200 revised contract costs estimates receivable allowances 80500 losses recognized anticipation sale two energy group operating plants 54500 provision asbestos recoveries 26200 mothballing dansville new york manufacturing facility 18700 performance intervention restructuring activities 37100 severance 7700 pension postretirement charges 10600 legal charges 23900 portions charges incurred 2003 2002 certain foreign operations subject tax benefits major business groups management uses several financial metrics measure performance company’s business segments ebitda discussed defined primary earnings measure used company’s chief decision makers previously gross margin equal operating revenues less cost operating revenues considered primary financial measure cumulative effect change accounting principle goodwillnet 0 tax company subjects reporting units annual step one goodwill impairment test prescribed sfas 142 2003 entity required step two evaluation adjustments made carrying value tested entities 2002 company determined three entities required step two evaluation upon completion evaluations goodwill determined impaired charge 150500 recorded charge 48700 incurred relating environmental operating unit e c group charge 101800 incurred relates two domestic us operating units energy group engineering construction group ebitda supplemental nongaap financial measure ebitda defined earningsloss taxes goodwill charge interest expense depreciation amortization company presented ebitda believes important supplemental measure operating performance ebitda adjusted certain unusual infrequent items specifically excluded terms senior credit facility also used measure certain covenants senior credit facility company believes line item consolidated statement earnings entitled “net earningsloss” directly comparable gaap measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net earningsloss indicator operating performance ebitda company calculates may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure company’s ability fund cash needs ebitda excludes certain financial information compared net earningsloss directly comparable gaap financial measure users financial information consider type events transactions excluded reconciliation ebitda nongaap financial measure net earningsloss gaap measure shown operating revenues impacted sale substantially environmental assets march 2003 operating revenues related environmental 2003 2002 68100 303700 respectively operating revenues 2003 2002 excluding environmental increased 540000 32 105400 67 respectively increase attributable increases 2003 e c group’s continental europe united kingdom operating units partially offset decline us operations european subsidiaries continue execute several major projects europe middle east singapore china decrease charges outlined beginning item 7 account increased ebitda 2003 gain 16700 charges 42800 2003 compare charge 128200 2002 company believes ongoing economic recovery united states boosted prospects growth global trade especially asia 2004 growth global trade expected impact e c industry company operates among things firming demand oil gas management believes help sustain higher energy prices correspondingly drive demand company’s business additionally company believes gas liquids plants may planned construction qatar company anticipates encourage investment oil gas production facilities 2004 many parts world notably middle east russia caspian region company believes liquid natural gas industry increased development potential driven need develop infrastructure import lng united states addition ongoing economic recovery also expected increase demand petrochemical products company anticipates investment new capacity continue heavily concentrated middle east china although latter country’s demand imports may encourage investment parts asia company also anticipates investment may higher 2005 expect improvement 2004 well company previously anticipated appears slowing clean fuels projects refineries europe us work meet current legislative demands company believes increased investment due next series environmental regulations may occur 2006 united states 20072008 europe however several middle east countries begun planning large investment programs upgrade refineries order meet demands clean fuels export markets follows period low refinery investment region pharmaceutical industry continues invest reduced level owing excess production capacity following series mergers general company believes underlying growth demand products result increased investment latter part 2005 2006 significant investment likely spread across us europe singapore war iraq reconstruction date significant impact operations group efforts continue secure portions work projects iraq currently forecasted material impact 2004 financial results refer backlog new orders booked section discussion bookings backlog energy group ebitda supplemental nongaap financial measure ebitda defined earningsloss taxes goodwill charge interest expense depreciation amortization company presented ebitda believes important supplemental measure operating performance ebitda adjusted certain unusual infrequent items specifically excluded terms senior credit facility also used measure certain covenants senior credit facility company believes line item consolidated statement earnings entitled “net earningsloss” directly comparable gaap measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net earningsloss indicator operating performance ebitda company calculates may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure company’s ability fund cash needs ebitda excludes certain financial information compared net earningsloss directly comparable gaap financial measure users financial information consider type events transactions excluded reconciliation ebitda nongaap financial measure net earningsloss gaap measure shown tax benefitsprovision 43400 62900 27400 net earningsloss prior cumulative effect change accounting principle 57800 27500 60700 cumulative effect prior years change accounting principle goodwill 101800 net earningsloss 57800 129300 60700 decrease operating revenues year 2003 primarily reflects company’s north american unit’s execution completion 2002 several major projects replaced 2003 decline recorded north america partially offset performance european operations executing major projects poland germany estonia ireland change ebitda largely impacted 2002 charges outlined beginning item 7 successful completion significant portions work projects poland ireland united states north american power market remains weak however operations northern europe selected markets middle east remain relatively active company’s operations europe received notification significant award circulating fluidized bed boiler utilizing technology however formal notice proceed dependent client obtaining adequate financing notice proceed expected fourth quarter 2004 initial engineering work project nearing completion additionally management believes selective project opportunities exist north america eastern europe coal fired power plants company’s north american operations expect market migrate toward increasing levels service opportunities awaiting return repowering opportunities second half decade eastern europe expected generate significant coal fired project opportunities company 2005 beyond war iraq reconstruction significant impact group’s operations date currently forecast significant impact 2004 financial results refer backlog new orders booked section discussion business outlook company reviewed various methods monetizing selected power systems facilities sold hudson falls new york wastetoenergy facility october 2003 charge 35500 recorded 2002 anticipation sale gain 4300 recorded sale completed based current market conditions management expects continue operate remaining facilities normal course business management reviewed remaining facilities impairment undiscounted cash flow basis determined adjustment carrying amounts required company decided monetize remaining assets possible amounts realized could differ materially balances financial statements financial condition shareholders’ deficit yearend 2003 872400 compared deficit 780900 yearend 2002 summary 2003 2002 changes follows fiscal 2003 2002 2001 investments land buildings equipment 12900 53400 34000 respectively investments primarily related information technology equipment office equipment routine capital expenditures company’s build operate plants 2002 investments also included buyout operating lease financing agreement corporate office building new jersey approximately 33000 approximately 4700 routine capital expenditures company’s build operate plants 15700 capital expenditures worldwide capital expenditures continue directed primarily toward strengthening supporting company’s core businesses limited terms within senior credit facility senior credit facility limits capital expenditures 30000 per year 2004 2005 decrease land buildings equipment 2003 reflects divesture hudson falls wastetoenergy facility writedown office building 2003 company successfully settled several contract disputes resulting net cash proceeds company approximately 39000 settlements resulted reductions accounts receivable contracts process refer note 7 consolidated financial statements information regarding company’s benefit plans note 20 information regarding company’s asbestosrelated assets liabilities corporate debts including senior credit facility follows special purpose project debt consists debt associated build operate special purpose operating subsidiaries operating results companies consolidated within energy group debt company follows adirondack debt associated hudson falls new york wastetoenergy facility sold october 2003 additionally company held following debt close period bank loans reflect repayment maturity june 2003 credit facility europe liquidity capital resources accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well company maintaining credit facilities bonding capacity adequate conduct business company incurred significant losses years threeyear period ended december 26 2003 shareholder deficit 872400 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail company received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum ebitda senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance company able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates company compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts company violate covenants company’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including costs related company’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs company’s current cash flow forecasts indicate sufficient cash available fund company’s us foreign working capital needs throughout 2004 ensuring adequate domestic liquidity remains priority company’s management december 26 2003 company aggregate indebtedness approximately 1000000 breakdown debt provided financial condition section details specific debt instruments also provided later section corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 company cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries company sometimes required cash collateralize bonding certain bank facilities amounts included restricted cash amount restricted cash december 26 2003 52700 48000 relates nonus operations company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs company’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 company repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions company’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit company’s ability continue going concern commercial operations domestic contract retained company environmental asset sale commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” company funded plant’s construction costs operates facility majority invested capital recovered early stages processing waste materials project forecast generate net cash flow capital recovery operations 2004 excess 40000 represents material component domestic cash flow forecast failure generate funds forecast could material adverse impact company’s ability continue going concern february 26 2004 california public utilities commission approved certain changes pacific gas electric’s rates relevant company’s subsidiary’s martinez project e20t rate decreased approximately 15 retroactive january 1 2004 negative effect subsidiary’s 2004 cash flow earnings rate change reflected company’s liquidity forecast assurance cash amounts realized andor timing cash flows match company’s forecast part debt restructuring plan company certain subsidiaries filed amended registration statement sec december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 s4 expected amended filed form 10k filed february 5 2004 company announced support restructuring activities number institutional investors committed provide 120000 new financing company replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally company discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 company offering mix equity well debt longer maturities exchange securities company anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance company complete exchange offer acceptable terms failure company achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect company’s financial condition matters raise substantial doubt company’s ability continue going concern august 2002 company finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts also retains 50 share balance company’s sale environmental net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates company compliance covenants throughout 2004 however assurance actual results match forecasts company violate covenants amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred fourth quarter 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility company agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 company made prepayment principal senior credit facility 100000 march 31 2004 company expects gross amount fee required approximately 14000 accrued included company’s liquidity forecast 2004 holders company’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility company finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility company initial noncancelable period 20 years proceeds saleleaseback sufficient repay balance outstanding previous operating lease arrangement 33000 second corporate office building repayment included 2002 capital expenditures longterm capital lease obligation 44120 december 26 2003 included capital lease obligations accompanying consolidated balance sheet company entered binding agreement first quarter 2004 sell second corporate office building previously noted sale expected close second quarter 2004 company expects cash proceeds sale approximately 17000 expects repay 50 amount senior credit facilities lenders third quarter 2002 company also completed receivables financing arrangement 40000 funding available company dependent amount characteristics domestic receivables amount available company fluctuates daily company estimates approximately 10000 available 2004 financing arrangement expires august 2005 subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding december 26 2003 december 27 2002 company 0 borrowings outstanding facility january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn since january 15 2002 company exercised right defer payments junior subordinated debentures underlying 900 preferred capital trust securities result defer payments securities 175000 aggregate liquidation amount preferred trust securities currently outstanding senior credit facility amended currently requires company defer payment dividends preferred trust securities dividends paid 2003 senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates company compliance debt covenants throughout 2004 however assurance actual results match forecasts company violate covenants company violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 debt covenants potential payment acceleration requirements raise substantial doubts company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty company’s operations used cash approximately 62100 2003 company generated cash flow operations 160400 2002 management previously forecasted much 2002 positive timing flows several major projects reverse 2003 forecasted cash flow 2003 operations negative net cash use operations 2003 primarily due working capital requirements approximately 42000 amounts spent restructuring approximately 53000 offset cash generated operations 2002 sources cash include effects positive timing flows several major projects us europe results management’s comprehensive cash management activities cash flow operations 2001 negative largely costs associated project claims trade receivables excess 180 days collection receivables one primary focuses company’s comprehensive plan enhance cash generation improve profitability benefits intervention began accrue 2002 changes policies procedures expected improve company’s future operations company’s working capital varies period depending mix stage completion commercial terms conditions company’s contracts working capital needs increased prior years result company’s satisfying requests customers favorable payment terms contracts requests generally include reduced advance payments less favorable payment schedules company restricted cash december 26 2003 consists approximately 4000 held primarily special purpose entities restricted debt service payments approximately 44900 required collateralize letters credit bank guarantees approximately 3800 client escrow funds domestic restricted cash totals approximately 4700 relates funds held primarily special purpose entities restricted debt service payments client escrow funds foreign restricted cash totals approximately 48000 comprised cash collateralized letters credit bank guarantees client escrow funds march 7 2003 company sold certain assets wholly owned subsidiary environmental sales proceeds approximating 72000 company also retained approximately 8000 environmental’s cash hand time asset sale sales proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter company buyer agreed final net worth calculation resulted company returning 4500 sales proceeds buyer six month time period total 3000 returned yearend 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed noted company expects receive net cash excess 40000 2004 us government contract retained environmental project reserves approximately 24300 recorded project 2003 including charge 2000 fourth quarter failure facility operate expected would delay recovery capital costs would increase project’s operating costs delay occurs could material adverse impact company’s financial condition results operations cash flow information see “risk factors foster wheeler’s current lumpsum fixed price contracts shared risk contracts may result significant losses costs greater anticipated” project reserve approximately 8600 established 2003 reflect diminished likelihood full cost recovery another contract retained environmental contract previously terminated convenience ultimate client matter settled 2004 additional charge taken company also retained longterm contract government agency completed four phases first phase design permitting licensing spent fuel facility phase completed price 66700 first phase project profitable close phase resulted increased costs 11900 charge recorded 2003 remaining cash outlay 4000 expended 2004 company process submitting requests equitable adjustment related contract december 26 2003 december 27 2002 company’s financial statements reflect anticipated collection 0 9000 respectively requests equitable adjustment second phase contract billed cost plus fee basis expected conclude june 2004 phase company must respond questions regarding initial design included phase one phase three construction startup testing facility fixed price 114000 subject escalation scheduled commence 2004 phase begin purchase long lead items followed 2005 construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency evaluating restructuring contract commenced discussions possible restructuring withdrawal contract project proceed company intends seek third party financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot obtain third party financing required surety bond company’s participation would uncertain could material adverse effect company’s financial condition results operations cash flow 2003 company successfully settled several domestic contract disputes settled offensive defensive nature generated approximately 39000 net proceeds 2003 additional payments associated settlements require company pay net 4100 2004 settlements resulted net pretax gain 3000 july 2003 several subsidiaries company liberty mutual insurance company one insurers entered settlement release agreement resolves coverage litigation subsidiaries liberty mutual state courts new york new jersey agreement provides buyback insurance policies settlement disputes subsidiaries liberty mutual respect asbestosrelated claims agreement requires liberty mutual make payments nineteenyear period subject annual caps payments decline time special account established pay subsidiaries’ indemnity defense costs asbestos claims payments however would available fund subsidiaries’ required contributions national settlement trust may established future federal legislation subsidiaries received july initial payment agreement approximately 6000 used pay asbestosrelated defense indemnity costs september 2003 company’s subsidiaries entered settlement release agreement resolves coverage litigation certain london market north river insurers agreement provides cash payment 5900 received subsidiaries additional amounts deposited trust use subsidiaries defense indemnity asbestos claims pending litigation negotiations insurers continuing january 2004 company’s subsidiaries entered settlement release agreement resolves coverage litigation hartford accident indemnity company certain affiliates agreement provides cash payment 5000 received subsidiaries additional amount deposited trust use subsidiaries amount deposited trust 2005 refer note 20 accompanying consolidated financial statements information regarding company’s asbestos liabilities customary industries company operates provide letters credit bank guarantees performance bonds favor clients secure obligations contracts company traditionally obtained letters credit bank guarantees banks performance bonds surety unsecured basis due company’s financial condition current credit ratings well changes bank surety markets company required certain circumstances provide security banks surety obtain new letters credit bank guarantees performance bonds refer note 2 “restricted cash” company unable provide sufficient collateral secure letters credit bank guarantees performance bonds ability enter new contracts could materially limited providing collateral increases working capital needs limits ability repatriate funds operating subsidiaries april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following us pension plan frozen may 31 2003 means participants able increase amount earned terms plan number employees eligible postretirement medical plan reduced plan enhanced increase level employer matching contribution net effect changes expected positively impact financial condition company reduced costs reduced cash outflow company anticipates savings expenses would paid plans amended approximately 10000 per year savings begin 2004 company froze supplemental employee retirement plan “serp” april 2003 issued accreting letters credit certain employees december 26 2003 letters credit totalling 2250 outstanding serp curtailment company paid 500 cash select serp eligible employees third quarter company maintains several defined benefit pension plans north american united kingdom south african canadian operations funding requirements plans dependent part performance global equity markets discount rates used calculate present value liability poor performance global equity markets recent years low interest rates expected significantly increase funding requirements plans 2004 2005 nonus plans funded local operating cash flows funding us plans included within us working capital requirements previously noted us pension plans frozen united kingdom’s plan closed new entrants south african canadian plans relatively immaterial liability interest rate used calculate us funding requirement established us government us congress previously passed legislation temporarily increased liability interest rate thereby reduced present value liability corresponding funding requirements increased liability interest rate expired end 2003 us congress considering several proposals amend funding requirements current rate extended funding requirement us plans approximate 37000 2004 34000 2005 versus 13800 2003 current liability rate increased 100 basis points 2004 2005 funding requirements reduced approximately 5000 12000 respectively funding amounts incorporate savings achieved modification company’s domestic pension plans discussed subject change performance plans’ investments liability interest rates fluctuate company’s workforce demographics change next update occur later first quarter 2004 november 14 2003 new york stock exchange “nyse” delisted company’s common stock well related security 900 fw preferred capital trust based company’s inability meet nyse’s minimum shareholders’ equity requirement positive 50000 common stock 900 fw preferred capital trust securities quoted overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler relied exemption rule provided nyselisted companies due company’s delisting exemption longer available address issue company obtained consent bma transfers nonresidents long company’s shares continue quoted pink sheets otcbb company believes consent continue available board directors company discontinued common stock dividend july 2001 company currently prohibited paying dividends senior credit facility amended accordingly company paid dividends common shares 2003 expect pay dividends common shares foreseeable future contractual obligations company contractual obligations comprised bank loans corporate debt special purpose project debt subordinated robbins facility exit funding obligations convertible subordinated notes preferred trust securities capital lease obligations company also obligated noncancelable operating lease obligations purchase commitments aggregate maturities december 26 2003 contractual obligations follows additionally company expects contribute total approximately 64700 foreign domestic pension plans 2004 certain instances normal course business company provided security contract performance consisting standby letters credit bank guarantees surety bonds december 26 2003 commitments period expiration follows company may experience difficulty obtaining surety bonds bank guaranteesletters credit unsecured basis future due changing view toward risk loss current market company’s creditrating may impact company’s ability secure new business see note 14 accompanying consolidated financial statements discussion guarantees backlog new orders elapsed time award contract completion performance may four years dollar amount backlog necessarily indicative future earnings company related performance work backlog unfilled orders includes amounts based signed contracts well agreed letters intent management determined likely performed although backlog represents business considered firm cancellations scope adjustments may occur due factors outside company’s control changes project schedules project cancellations company cannot predict certainty portion backlog performed given year backlog adjusted reflect project cancellations deferrals sale subsidiaries revised project scope cost reduction backlog primarily attributable e c group’s uk european operations balance reflects decline energy group e c group’s north american operations approximately 52 2003 yearend backlog fixed price contracts compared 35 2002 45 2001 due primarily decline projects significant flowthrough costs environmental divestiture march 2003 total 72 2003 new orders us dollar terms projects awarded company’s subsidiaries located outside united states compared 62 2002 55 2001 approximately 73 62 55 new orders 2003 2002 2001 respectively projects located outside north america approximately 36 2003 new orders fixed price contracts compared 44 2002 48 2001 key geographic regions contributing new orders awarded fiscal 2003 europe united states asia middle east additional information included group discussions reduced booking levels operating concern management believes financial condition company increasingly negative impact clients result company established new formalized internal reporting requirements second quarter 2003 closely monitors e c manhours backlog new metric foster wheeler scope foster wheeler scope defined dollar value backlog excluding costs incurred foster wheeler agent principal reimbursable basis ie flowthrough costs foster wheeler scope measures component backlog markup corresponds foster wheeler services plus fees reimbursable contracts total selling price lump sum contracts useful compare operating units different composition contract portfolio reimbursable lump sum projects decline e c manhours attributable primarily european operations lesser extent uk operations decline foster wheeler scope attributable primarily energy group lesser extent e c group’s european operations since december 2002 foster wheeler scope declined 828000 40 due primarily european operations energy group e c group additional information included group discussions engineering construction group e c backlog new orders reduced reflect divestiture environmental march 2003 environmental’s backlog december 27 2002 approximately 1800000 addition impact environmental divestiture decline backlog attributed operations uk united states two major engineering procurement construction projects awarded oil refineries uk united states 2001 significant portions contracts executed 2002 projects include large quantities flowthrough costs similar sized projects us dollar terms awarded 2002 thereby decreasing backlog 2003 decline new orders us dollar terms relates two major engineering procurement construction projects noted reduced bookings associated environmental contracts divested march 2003 overall level bookings us dollar terms less group’s recent history approximately 70 yearend backlog 79 2003 bookings cost reimbursable plus fee contracts compares 89 87 2002 73 71 2001 reflects decline projects significant flowthrough costs environmental divestiture approximately 86 2003 backlog 96 new orders projects located outside north america compares 51 78 2002 50 64 2001 addition impact environmental divestiture decline e c manhours attributable primarily european operations lesser extent uk due reduction new orders absence replacing aforementioned large oil refinery awards decline foster wheeler scope 328000 44 less percentage terms 67 decrease backlog reflects aforementioned decline flowthrough costs environmental divestiture march 2003 results 2003 reflected world economic growth weak investment many market sectors served e c group depressed oil refining margins discouraged investment although company continued win business spending clean fuels production refinery market active united states europe however refinery owners middle east awarding contracts second half year company believes ongoing economic recovery united states boosted prospects growth global trade especially asia 2004 growth global trade expected impact e c industry company operates among things firming demand oil gas management believes help sustain higher energy prices correspondingly drive demand company’s business additionally company believes gas liquids plants may planned construction qatar company anticipates encourage investment oil gas production facilities 2004 many parts world notably middle east russia caspian region company believes liquid natural gas industry increased development potential driven need develop infrastructure import lng united states addition ongoing economic recovery also expected increase demand petrochemical products company anticipates investment new capacity continue heavily concentrated middle east china although latter country’s demand imports may encourage investment parts asia company also anticipates investment may higher 2005 expect improvement 2004 well company previously anticipated appears slowing clean fuels projects refineries europe us work meet current legislative demands however several middle east countries begun planning large investment programs upgrade refineries order meet demands clean fuels export markets follows period low refinery investment region pharmaceutical industry continues invest reduced level owing excess production capacity following series mergers general company believes underlying growth demand products result increased investment latter part 2005 2006 significant investment likely spread across us europe singapore company presently expects growth new orders resulting improved economic conditions realized 2005 rather 2004 energy group energy group’s backlog decreased 490000 end 2003 representing 34 decrease 2002 39 decrease 2001 several large heat recovery steam generators selective catalytic reduction contracts replaced 2002 thereby decreasing backlog 2003 addition major new contract anticipated awarded 2003 finnish operation delayed anticipated fourth quarter 2004 decline new orders 2003 523000 37 primarily result finnish north american operations approximately 80 2003 yearend backlog 57 new orders fixedprice projects compared 93 72 2002 88 78 2001 approximately 60 2003 backlog 38 new orders projects located outside north america compared 66 40 2002 62 37 2001 decrease relative percentage business outside north america reflects slow worldwide economy power sector company’s financial condition foster wheeler scope declined 500000 37 compared yearend 2002 slightly percentage terms 34 decrease backlog reflects small increase cost reimbursable plus fee versus lump sum contracts results 2003 reflected north american power market continues suffer relatively slow economic growth capacity financial difficulties independent power producers 2004 maintenance service contracts continue growth opportunities north american power market supply opportunities new equipment associated solid fuel boiler contracts expected limited short term except growth opportunities circulating fluidized bed boilers expected continue certain european asian markets selected opportunities environmental retrofits expected continue matters ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation processes ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment design plant construction based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result charges materially excess amounts provided accounts inflation effect inflation company’s revenues earnings minimal although majority company’s revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete future periods addition contracts provide price adjustments escalation clauses application critical accounting estimates company’s consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies management considers significant understanding operations company’s business well key estimates used implementing policies revenue recognition revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits cost reimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” percentageofcompletion method preferable method revenue recognition set forth american institute certified public accountants “aicpa” statement position 811 “accounting performance constructiontype certain productiontype contracts” company thousands projects reporting segments various stages completion contracts require estimates determine appropriate final estimated cost “fec” profits revenue recognition percentage complete determining fec company uses significant estimates forecast quantities expended ie manhours materials equipment costs quantities including exchange rate fluctuations schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues company must estimate percentage complete likelihood client paying work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances significant judgment exercised management establishing estimates possible risks cannot specifically quantified 2003 2002 company recorded charges revaluations project cost estimates provisions uncollectible receivables 32300 80500 respectively recent financial results resultant intervention actions initiated management evidence fact estimates significantly different actual results project estimates made individual project basis revised additional information becomes available throughout life cycle contracts fec complete longterm contracts indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentage complete project life cycle including warranty commitments six years duration extremely difficult calculate sensitivities estimates given thousands individual contracts exist point time estimates projectspecific rather broadbased percentages claims recognition claims amounts excess agreed contract price amounts included original contract price contractor seeks collect clients others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 aicpa statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied management’s determination existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred amounts recorded material disclosed notes financial statements costs attributable claims treated costs contract performance incurred 2002 company revised estimates claim revenues reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company result pretax charges approximating 136200 recorded 2002 claims settled differences claim specific amounts reflected financial statements settlements recorded gains losses company continues actively pursue claims 2003 recoveries 1500 recognized income collected december 26 2003 company claims requests equitable adjustment recorded company policy requires new claims excess 500 formally reviewed approved corporate chief financial officer prior recorded financial results asbestos company recorded assets 555400 relating probable insurance recoveries approximately 60000 recorded accounts notes receivables 495400 recorded longterm total liability recorded comprised estimated liability relating open outstanding claims approximately 372200 estimated liability relating future unasserted claims approximately 214000 total 60000 recorded accrued expenses 526200 recorded asbestos related liability consolidated balance sheet liability estimate future asbestosrelated defense costs indemnity payments based upon assumed average claim resolution costs applied currently pending estimated future claims asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending litigation certain insurers defense costs indemnity payments expected incurred next fifteen years december 26 2003 approximately 257700 contested company’s subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries various insurers subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurers would immaterial based nature litigation opinions received outside counsel company believes possibility recovering full amount asset remote management company considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believes except insurers become may become insolvent reserve provided insurers guarantors continue adequately fund claims defense costs relating asbestos litigation average cost per closed claims since 1993 18 company recorded charges related increases valuation allowance insurance claims receivable 68100 26200 0 years ended 2003 2002 2001 respectively charges recorded deductions consolidated statement operations 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 2002 charge recorded due allocation future costs insurer became insolvent noted estimates assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies currently involved litigation company’s subsidiaries’ ability recover insurers uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future exceeds company’s estimate likely costs defense indemnity similarly exceed company’s estimates factors beyond company’s control could material adverse effect company’s financial condition results operations cash flows company’s subsidiaries effective managing asbestos litigation part 1 company’s subsidiaries access historical project documents business records going back 50 years allowing defend determining present location cause alleged asbestos claim timing extent presence 2 company’s subsidiaries maintain good records insurance policies identified policies issued since 1952 3 company’s subsidiaries consistently vigorously defended claims resulted dismissal claims without merit settlement claims amounts considered reasonable pension details company’s pension plans included note 7 calculations pension liability annual service cost cash contributions required rely heavily estimates future events often extending decades future management responsible establishing estimates used major estimates include • expected percentage annual salary increases • annual inflation percentage • discount rate used present value future obligations • expected longterm rate return plan assets • selection actuarial mortality tables management utilizes business judgment establishing estimates vary significantly actual results management cannot provide assurance estimates used calculate pension liabilities included herein approximate actual results volatility assumptions actual results significant example performance global equity markets 20002002 significantly worse estimated equity markets 2003 better expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weighted average expected longterm rate return plan assets declined 93 79 past three years returns company’s pension plan assets united states 2000 2002 less estimates approximately 100000 reduction us interest rate serving basis discount rate assumptions three years accounted approximate 40000 increase company’s calculated liability pension liability calculations normally updated annually year end may updated interim periods major plan amendments curtailments occur company’s liability calculation reflected financial statements herein longlived asset accounting company accounts longlived assets including may consider monetizing assets held used management periodically reviews subsidiaries impairment required sfas 144 using undiscounted cash flow analysis reviews require estimating costs operate maintain facilities extended period could approximate 25 years estimates made regarding costs maintain replace equipment throughout facilities period operating costs production quantities revenues ability clients financially meet obligations formal decision made management sell asset discounted cash flow methodology utilized assessment certain specialpurpose subsidiaries energy group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts fourth quarter 2001 company established valuation allowance 194600 primarily domestic deferred tax assets provisions sfas 109 action required due losses domestic operations experienced three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expire 2020 beyond based current tax laws based establishment valuation allowance company anticipate recognizing provision federal income taxes domestic operations time subsequent successful completion proposed restructuring company completes exchange offer discussed note 1 consolidated financial statements subject substantial limitations use prechange losses credits offset us federal taxable income postchange year since valuation allowance already reflected offset losses credits limitation result significant writeoff company performance improvement intervention march 2002 company initiated comprehensive plan enhance cash generation improve profitability operating performance portion plan concentrated quality quantity backlog execution projects order achieve exceed profit cash targets optimization nonproject related cash sources uses including cost reductions connection plan group outside consultants hired purpose carrying performance improvement intervention tactical portion performance improvement intervention concentrates booking current projects generating incremental cash high leverage opportunities overhead reductions procurement accounts receivable systemic portion performance improvement intervention concentrates sales effectiveness estimating bidding project execution procedures management believes turnaround energy group’s north american operating unit large part result intervention activities specific details activities date include following procurement company concluded implementation procurement initiative focused reducing internal manhours cycle times well engaging strategic agreements key suppliers accounts receivable companywide management operating system implemented identify track actions relating collection receivables policy established requiring actions taken prior receivables becoming due well actions taken collections past due trade accounts notes receivable december 26 2003 december 27 2002 451000 543100 respectively time operating revenues increased 204600 compared 2002 showing improvement collection cost reductions management continues evaluate staffing levels relation current expected workload staff levels reduced approximately 2300 2003 reductions included technical nontechnical positions including executive middle management levels engineering manufacturing administrative support staff overhead personnel office expenses staff reductions include early retirements voluntary involuntary terminations management continue adjust company’s resources match workload continues explore ways increase efficiencies reduce costs management expects increase use low cost engineering center india 2004 sales company continues emphasize booking high quality contracts may 2002 company launched initiative improve sales effectiveness north american energy e c groups 2003 reorganized added resources e c sales force risk management company’s project risk management group “prmg” established second quarter 2002 responsible reviewing proposals contracts execution ensure company protected taking unacceptable levels financial risk second quarter 2003 outside consulting firm engaged supplement internal resources prmg continues assisted efforts deloitte touche llp company’s internal auditors project risk management group also issued conjunction financial group set corporate policies govern proposals contracting project execution including subcontracting procurement contract accounting highleverage projects company launched major initiative second quarter 2002 focused way company plans executes projects field initiative’s objective build best class foster wheeler project management system activity took best practices integrated company wide system initiative completed january 2003 determined best class practices existed consistently applied updated systems procedures subsequently implemented applied new projects code ethics company maintains code ethics employees including executive management exceptions waivers made code ethics 2003 see “code ethics” item 10 part iii report accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 form 10k implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements management however believe subsidiary trust issued mandatory redeemable preferred securities need deconsolidated 2004 interpretation impact company’s consolidated debt intercompany debt subsidiary trust become third party debt upon deconsolidation april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employer’s disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans january 12 2004 fasb issued fasb staff position “fsp” 1061 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp permits employers sponsor postretirement benefit plans provide prescription drug benefits retirees make onetime election defer accounting effects medicare prescription drug improvement modernization act 2003 “act” without fsp plan sponsors would required sfas 106 “employers’ accounting postretirement benefits pensions” account effects act fiscal period includes december 8 2003 date president bush signed act law deferral elected deferral must remain effect earlier issuance guidance fasb account federal subsidy provided plan sponsors act b remeasurement plan assets obligations subsequent january 31 2004 accordance fsp company reflected impact act measures accumulated postretirement benefit obligation net periodic postretirement benefit cost consolidated financial statements accompanying notes specific authoritative guidance accounting federal subsidy pending guidance issued could require company change previously reported information company currently assessing impact act whether postretirement plan amended consideration new legislation safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives company time may contain forwardlooking statements based management’s assumptions expectations projections company various industries within company operates include statements regarding company’s expectation regarding revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing insurance recoveries forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited factors described item 1 “businessrisk factors business” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries • changes financial condition customers • changes regulatory environment • changes project design schedules • contract cancellations • changes estimates made company costs complete projects • changes trade monetary fiscal policies worldwide • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • outcomes pending future litigation including litigation regarding company’s liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • monetization certain power system facilities • implementation restructuring plan • recoverability claims customers • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control company reader consider areas risk described connection forwardlooking statements may made company undertakes obligation publicly update forwardlooking statements whether result new information future events otherwise reader advised however consult additional disclosures company makes proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except per share amounts management’s discussion analysis financial condition results operations sections report form 10k contain forwardlooking statements based management’s assumptions expectations projections various industries within company operates forwardlooking statements nature involve degree risk uncertainty see item 1 “businessrisk factors business” additional risk information following discussion read conjunction consolidated financial statements notes thereto overview accompanying consolidated financial statements management’s discussion analysis herein prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern see note 1 consolidated financial statements “liquidity capital resources” additional going concern information company operates two reportable business segmentsthe engineering construction “ec” group global power “global power” group addition company’s corporate center restructuring expenses certain legacy liabilities eg asbestos corporate debt reported independently corporate finance “cf” group 2004 results september 2004 company consummated equityfordebt exchange significantly strengthened balance sheet equityfordebt exchange reduced debt 437000 reduced shareholders’ deficit 448100 expected reduce annual interest expense approximately 28000 combined proceeds new notes issued concurrently equityfordebt exchange used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 pretax charge 175100 recorded part exchange relating primarily conversion expense convertible subordinated notes required statement financial accounting standards “sfas” 84 “induced conversions convertible debt” addition fourth quarter 2004 company’s shareholders approved onefortwenty reverse stock split par value reduction see note 7 consolidated financial statements additional details exchange note 12 consolidated financial statements additional details reverse stock split par value reduction company reported net loss 285300 2004 included loss 175100 pretax charge described 163900 noncash relating equityfordebt exchange 60600 net charge relating carrying value company’s asbestos insurance assets company continued strategy settling asbestos insurance carriers monetizing policies arranging coverage place agreements net pretax gain 15200 resulting asbestos insurance settlements 2004 offset 75800 charge recorded company revalued asbestos insurance asset new york court ruled new york law rather new jersey law applied litigation among company asbestos insurance carriers net charges recorded cf group operations ec group’s continental europe global power group’s north america business units strong 2004 resulting incentive bonuses profits earned successful completion several large projects original cost estimates ahead schedule strong safety records operations global power group’s european unit unacceptable three large lumpsum turnkey “lstk” power plant contracts 74800 profits reversed losses recorded significant cost overruns completion delays previously announced global power’s european power business execute engineering procurement construction contracts full power plants lstk basis without partnering one ec business units thirdparty company’s retained foster wheeler environmental corporation project processes spent nuclear waste us department energy oak ridge tennessee commenced commercial operations processing initial waste stream january 2004 project generated 53300 cash flows recovery capital funded company construction phase project capital recovery operating revenues generated plant processes several streams waste materials company expects recover remainder capital funded construction phase 2005 however level cash flow expected decline significantly year capital recovered company continue receive revenues project course operations facility modified process second waste stream expected commence operation third quarter 2005 challenges drivers 2005 company’s primary focus 2005 obtaining new contract awards building backlog global markets company operates largely dependent overall economic growth continue highly competitive consolidated new orders backlog declined recent years however ec markets served company including chemical petrochemical oil refining liquefied natural gas upstream oil gas industries strong 2004 management expects capital investments clients markets strong 2005 company currently working early stages four major chemical petrochemical facilities middle east could result significant follow awards 2005 solid fuel fired power markets served global power group soft 2004 management expects 2005 capital investment domestic us power market focused service type projects limited investment new power generating facilities client investments solid fuel fired electric power generation europe expected increase 2004 emission standards europe clarified number countries company believes wellpositioned address markets existing network operating companies expects increase amount new orders compared amounts recorded 2004 markets remain highly competitive many contracts awarded competitive bid basis company cannot provide assurance increases achieved company expects continue execute portion engineering procurement construction contracts lstk basis 2005 lstk contracts inherently risky company agrees selling prices time enters contracts consequently costs execution schedules based estimates company assumes substantially risks associated completing project well postcompletion warranty obligations within estimates majority company’s existing lstk contracts current sales prospects power plants located domestic markets ec european businesses order control risks involved lstk contracts company’s project risk management group “prmg” reviews proposals contracts evaluate levels risk acceptable company date project recorded losses prmg reviewed approved proposal prior submission client controlling risks remains priority company proposed asbestos trust fund legislation discussed washington dc enacted form currently discussion would material adverse impact company’s cash flow results operations without legislation management continues forecast prior impact potential asbestos trust fund legislation company required fund asbestos liability payments working capital 2010 although may required fund portion liabilities cash thereafter assumes company able successfully resolve certain outstanding insurance coverage issues management believes proposed legislation form currently discussion detrimental company would material adverse impact company part consortium companies actively monitoring proposed legislation one foster wheeler’s subsidiaries party contract construct spent fuel processing facility us government agency require company obtain thirdparty project financing excess 100000 performance bond excess 100000 contract restructured terminated company completed first phase contract currently executing second phase technical specification detailed guidance us government agency regarding us government agencydirected changes project scope remain outstanding resolution outstanding issues required second phase contract completed third phase would begin purchase longlead time items expected last two years contract requires company fund construction cost project third phase cost estimated excess 100000 contract also requires company provide surety bond full amount cost management currently pursuing alternatives respect project engaged discussions government restructuring termination alternatives company cannot successfully restructure contract company cannot obtain thirdparty financing required surety bond company’s ability perform obligations contract unlikely company fails perform obligations contract result government agency terminates contract thereafter government rebids contract exact terms resulting cost greater would existing terms company government may seek hold company liable difference could result claim company amounts could materially adverse company’s financial condition results operations cash flow stage claims raised government company believe claim probable additionally company believes variety potential legal defenses government agency decide pursue action 2005 liquidity maintaining adequate domestic liquidity continues management priority 2005 company normally repatriates cash foreign operations expects continue need repatriate cash foreign operations future addition first quarter 2005 company entered new 5year senior credit agreement replaces prior senior credit facility new facility available issue letters credit 250000 provides revolving line credit 75000 sum letters credit issued facility utilization revolving line credit cannot exceed 250000 management forecasts sufficient cash available fund company’s us foreign working capital needssee “liquidity capital resources” additional details forecast assurance cash amounts realized andor timing cash flows match company’s forecast results operations financial results years ended december 31 2004 december 26 2003 december 27 2002 contain net pretax charges 184700 152500 511400 respectively details charges identified provide comprehensive understanding financial results 1 company’s implementation sfas 142 “goodwill intangible assets” 2002 resulted impairment goodwill ec group foster wheeler environmental corporation 48700 global power group camden wastetoenergy facility 24800 north american power operations 77000 total 101800 refer note 2 consolidated financial statements discussion requirements sfas 142 2 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 ec group recorded income addition company entered agreement sell 10 equity interest wastetoenergy project italy 2004 company recorded loss sale 3300 ec group income 2003 company recorded 15100 impairment loss cf group deductions anticipated sale domestic corporate office building sold 2004 also 2003 company sold certain assets wholly owned subsidiary foster wheeler environmental corporation resulting net gain 16700 recorded ec group income global power group recorded gain 4300 sale hudson falls new york wastetoenergy plant also recorded income 2002 charge 19000 recorded global power group deductions anticipated sale charleston south carolina wastetoenergy facility sale facility completed fourth quarter 2002 also 2002 loss 35500 recognized global power group deductions anticipated sale hudson falls wastetoenergy facility sold october 2003 3 2003 ec group recorded net charge 2100 settlement claims retained sale assets foster wheeler environmental corporation net gain sales 1200 resulting net charge 900 global power group recovery north american contract 2400 2003 2002 company reduced estimates claim recoveries reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company charges reflected cost operating revenues 86800 ec group 40800 global power group 8600 cf group charges include claims writedowns establishment provision probable liquidated damages 4 2004 ec businesses experienced positive changes contract cost estimates 98700 due primarily project performance 2004 global power group’s north american power businesses earned several project incentive bonuses experienced better estimated execution two large domestic projects successfully negotiated elimination warranty risk another major project north american power business contracts experienced positive change contract profit estimates 30800 european power business driven primarily problems three lumpsum turnkey power projects europe experienced net negative change contract profit estimates 71500 2003 ec group recorded contingencies relating foster wheeler environmental corporation contracts retained amount 32900 three contracts resulting net writedown 100 global power group net gain 700 six contracts 2002 charges revisions project cost estimates related receivable reserves totaled 34850 ec group 45650 global power group amounts reflected cost operating revenue 5 2004 company recorded charge 75800 revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation discussed risk factor entitled “the amount timing insurance recoveries company’s asbestosrelated costs united states uncertain failure obtain insurance recoveries would cause material adverse effect company’s financial condition” charge recorded cf group deductions addition 2004 company entered settlement release agreements resolve coverage litigation certain asbestos insurance carriers company recorded aggregate gain settlements 15200 2004 cf group gain settlements recorded deductions company recorded charges related increases valuation allowance insurance claims receivable 68100 26200 fiscal years 2003 2002 respectively cf group charges recorded deductions 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 2002 charge recorded due allocation future costs insurer became insolvent 6 2002 provision impairment recorded cost operating revenues 13400 relating writedown fixed assets deductions 5300 dansville new york manufacturing facility provisions sfas 144 “accounting impairment disposal longlived assets” charges recorded global power group cash outflows related ultimate mothballing facility approximately 3300 2003 7 cost restructuring activities credit agreement costs recorded deductions 17200 43600 37100 fiscal years 2004 2003 2002 respectively costs recorded cf group except 1000 costs recorded ec group 2003 8 company recorded net charge 175100 consummation equityfordebt exchange 2004 described note 7 consolidated financial statements charge recorded cf group 9 2004 severance costs recorded cost operating revenues ec group 2900 global power group 1900 selling general administrative expenses cf group 900 2003 severance costs recorded cost operating revenues ec group 6600 global power group 6700 selling general administrative expenses cf group 2600 2002 severance costs recorded cost operating revenues ec group 500 selling general administrative expenses global power group 4300 deductions cf group 2900 consolidated operating revenues 2004 decline reflects reduced revenues ec group 610500 global power group 447500 see note 20 consolidated financial statements reflects general reduced volumes new orders received last three years revenues 2003 included approximately 400000 ec reimbursable flowthrough costs result profit loss company uk power project us refinery project sulfur reduction project spain repeated 2004 decline global power occurred north american european power operations several large power projects substantially completed 2003 early 2004 type projects replaced 2004 march 2003 substantially assets foster wheeler environmental corporation sold thirdparty two legacy projects remained company sale resulted reduced consolidated operating revenues operating revenues entity 2004 2003 2002 22800 68100 303700 respectively see individual group discussions additional details operating revenues consolidated cost operating revenues 2004 decline reflects lower cost operating revenues ec 687900 global power 361500 relates primarily reduced volumes contract activity resulted reduced volumes new orders received 2003 2004 2003 cost operating revenues included approximately 400000 ec flowthrough costs uk power project us refinery project sulfur reduction project spain repeated 2004 decline global power occurred north american european power operations several large power projects substantially completed 2003 replaced 2004 amount includes profit reversals losses totaling 74800 three large european power lstk contracts consolidated selling general administrative sga expenses 2004 increase primarily reflects 8500 increased sales pursuit costs proposal sales expenses thirdparty costs associated implementing auditing company’s sarbanesoxley initiatives 8200 employee retention program global power’s north america unit cf’s corporate staff employee retention program payable march 31 2005 decline 2003 largely reflects sale certain assets foster wheeler environmental corporation march 2003 decline also reflects impact cost reduction initiatives implemented performance improvement intervention plan consolidated income 2004 income consists primarily 8800 interest income 34200 pretax equity earnings generated investments primarily minority ownership interests build operate projects italy chile 15900 net gains sales minority equity interests specialpurpose companies established develop power plant projects europe minority interest wastetoenergy project italy 8600 gain recognized camden new jersey wastetoenergy facility due state new jersey’s payment project’s debt 1400 investment income earned company’s captive insurance company 4500 gains dispute settlements 2003 income consists primarily 10100 interest income 29400 pretax equity earnings generated investments primarily minority ownership interests build operate projects italy chile 20900 gains sale majority assets domestic environmental business hudson falls new york wastetoenergy project 2300 investment income earned company’s captive insurance company 3900 gain recognized camden new jersey wastetoenergy facility due state new jersey’s payment project’s debt 2002 income consists primarily 12300 interest income 24400 pretax equity earnings generated investments primarily minority ownership interests build operate projects italy chile 4200 investment income earned company’s captive insurance company 6400 exchange gains 3300 gain sale investments consolidated deductions dominated asbestosrelated charges professional fees incurred part company’s restructuring activities associated equityfordebt exchange offer domestic credit agreements 2004 amount consists primarily net charge 60600 related reduction asbestosrelated insurance receivable 17200 professional fees expenses restructuring activities domestic us credit agreements asbestos charge nets reduction asbestos insurance receivable 75800 recorded fourth quarter 2004 resulted new york state court ruled new york law rather new jersey law apply litigation among company several asbestos insurance carriers 15200 gains increased asbestos insurance receivables recorded throughout year settlements insurance companies operating unit related expenses include 3700 amortization intangible assets 2600 relating new governmentmandated postretirement benefits france deductions 2003 included 68100 reduction asbestosrelated insurance receivable potentially uncollectible insolvent insurance companies 31900 professional services rendered relation equityfordebt exchange offer domestic credit agreement 11700 professional services rendered part company’s performance intervention activities 15100 provision loss anticipated sale domestic corporate office building sold 2004 3700 amortization expense intangible assets 5300 exchange losses 4900 european legal expenses associated contract disputes 5900 allowance doubtful accounts 1000 fees expenses associated credit facility company’s uk operating unit deductions 2002 included 26200 reduction asbestosrelated insurance receivable potentially uncollectible insolvent insurance companies 54500 loss anticipation sales charleston south carolina hudson falls new york wastetoenergy facilities sold 2002 2003 respectively 5300 charge relating closure mothballing dansville new york manufacturing facility 19300 professional fees expenses associated equityfordebt exchange offer 17800 professional services relating company’s performance intervention activities 18000 legal fees commercial dispute settlements 8400 increased pension postretirement benefit costs 10400 allowance doubtful accounts 3500 amortization expense intangible assets 6500 bank fees consolidated interest expense 2004 interest expense reflects increased interest costs amortization fees associated previous senior credit facility offset reduction outstanding debt resulting completion equityfordebt exchange end third quarter 2004 increase interest expense 2003 reflects increased borrowing costs associated previous senior credit facility amortization fees associated agreement subsequent amendments consolidated minority interest minority interest reflects thirdparty ownership interests global power’s martinez california gasfired cogeneration facility manufacturing facilities poland people’s republic china consolidated loss equityfordebt exchange loss equityfordebt exchange results conversion expense 202600 recorded subordinated convertible notes transaction fees 11200 writeoff unamortized issuance costs 9600 partially offset net gain 48300 exchange 2005 senior notes trust preferred securities robbins bonds consolidated tax provision consolidated tax provision results fact certain company’s operating units europe asia profitable liable local income taxes additionally taxes may due countries company’s operating units execute project related works pretax earnings international operations cannot offset entities generating losses united states certain international jurisdictions provisions sfas 109 “accounting income taxes” prohibit company recording domestic certain foreign tax benefits due cumulative losses incurred domestically certain international tax jurisdictions three years ended december 31 2004 accordingly tax provision represents primarily taxes profits generated europe asia cannot used reduce losses incurred tax jurisdictions statutory purposes majority domestic federal tax benefits reserves taken expire 2024 beyond based current tax laws result recently consummated exchange offer discussed note 7 consolidated financial statements company subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period company significantly reduced deferred tax assets corresponding valuation allowance give effect limitation end 2004 company 25800 remaining domestic deferred tax assets full valuation allowance tax credits related preexchange period 13200 postexchange net operating loss carryforwards full valuation allowance reflected consolidated financial statements net impact adjustments current year financial statements material cumulative effect change accounting principle goodwillnet 0 tax year company subsidiaries evaluate goodwill potential impairment prescribed sfas 142 company tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year company evaluates goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” 2004 2003 evaluation indicated adjustment carrying value goodwill required 2002 completion goodwill impairment test charge 150500 recorded ec group recorded 48700 charge related foster wheeler environmental corporation global power group recorded 77000 charge related north american power operations 24800 charge related camden wastetoenergy facility consolidated net loss pre tax losses 2004 comprised primarily four items 175100 charge relating equityfordebt exchange offer completed end third quarter ii 60600 net charge revaluation company’s asbestos insurance assets iii profit reversals losses totaling 74800 three major lstk power generation projects located europe iv 17200 professional fees expenses relating equityfordebt restructuring performance intervention efforts additional details net loss included chart appearing beginning item 7 ec global power discussions net loss 2003 2002 due primarily pretax charges detailed chart appearing beginning item 7 consolidated ebitda decrease 2004 ebitda reflects 175100 charge equityfordebt exchange offer see note 7 consolidated financial statements additional details partially offset reduction deductions described asbestosrelated charges included 2004 2003 2002 ebitda 60600 68100 26200 respectively ebitda supplemental nongenerally accepted accounting principle “gaap” financial measure ebitda defined earningsloss taxes goodwill charges interest expense depreciation amortization company presented ebitda believes important supplemental measure operating performance ebitda also used measure adjustment unusual infrequent items specifically excluded terms previous senior credit facility used certain covenants new senior credit agreement company believes line item consolidated statement operations comprehensive loss entitled “net loss” directly comparable gaap measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net loss indicator operating performance ebitda company calculates may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure company’s ability fund cash needs ebitda excludes certain financial information compared net loss directly comparable gaap financial measure users financial information consider type events transactions excluded company’s nongaap performance measure ebitda certain material limitations follows • include interest expense company borrowed substantial amounts money finance operations interest necessary ongoing part company’s costs assisted company generating revenue therefore measure excludes interest material limitations • include taxes payment taxes necessary ongoing part company’s operations measure excludes taxes material limitations • include depreciation company must utilize substantial property plant equipment order generate revenues operations depreciation necessary ongoing part company’s costs therefore measure excludes depreciation material limitations reconciliation ebitda nongaap financial measure net loss gaap measure shown additional segment information detailed note 20 consolidated financial statements reportable segments management uses several financial metrics measure performance company’s business segments ebitda discussed defined primary earnings measure used company’s chief decision makers engineering construction group results 2004 decrease operating revenues includes 400000 reduced volumes reimbursable flowthrough costs associated large power project uk refinery project united states sulfur reduction project spain repeated 2004 decline also reflects reduced levels manhour bookings 2003 early 2004 translate approximately 75000 reduced billings operating revenues impacted sale substantially foster wheeler environmental corporation assets march 2003 operating revenues related foster wheeler environmental corporation 2004 2003 2002 22800 68100 303700 respectively operating revenues 2003 excluding foster wheeler environmental corporation increased 532200 attributable group’s continental europe united kingdom operating units partially offset decline us operations group’s subsidiaries executed several major projects europe middle east asiapacific increase 2004 ebitda reflects primarily strong performance ec group’s european asian operations two major power projects environmental project completed europe costs budget additionally aggregate pretax gain 15900 recorded sales minority equity interests specialpurpose companies established develop power plant projects europe portion minority equity interest existing wastetoenergy project italy addition decrease charges outlined beginning item 7 also accounts increase ebitda 2004 overview segment global economic growth strong 2004 although slowing peak expected remain positive 2005 led strong growth demand oil gas petrochemicals refined products turn stimulating increase investment new expanded plants oil gas prices high levels prolonged period expected lead higher levels investment oil gas production facilities 2005 company anticipates spending likely increase regions particularly west africa middle east russia caspian states rising demand natural gas europe us combined shortfall indigenous production acting stimulant lng business company expects investment continue 2005 liquefaction plants receiving terminals least one new gastoliquids plant expected proceed qatar 2005 company believes cycle investment us european refineries meet demands clean fuels legislation wound however refineries middle east asia embarking similar programs addition ongoing market shift towards transportation fuels combined current wide price differential heavier highersulphur crudes lighter sweeter crudes expected lead refinery investment upgrading projects europe us authorized 2005 investment petrochemical plants rose sharply 2004 response strong economic growth expected sustained 2005 company believes continue centered middle east upturn likely south east asia although pharmaceutical industry continues grow rapidly investment new production facilities expected slow 2005 industry deals issues cost pressure increased regulation investment expected focused plant upgrading improvement projects rather major new production facilities overall result market factors described market engineering construction companies looks positive 2005 global power group results decrease operating revenues 2004 primarily reflects company’s north american european units’ execution completion several major projects replaced 2004 decline 2004 ebitda driven 74800 profit reversals losses three lumpsum turnkey contracts complete power plants ireland estonia germany poor performance european power offset strong performance north america incentive bonuses cost underruns three large projects drove earnings execution phase three european power projects substantially complete however projects remain subject final closeout completion respective warranty periods impact charges contracts others relating change ebitda outlined beginning item 7 project ireland number claims substantiated settled financial statements reflect management’s best estimate settlement costs currently known claims costs complete project cover warranty period however close project costs may change management estimates could range 5000 improvement 15000 deterioration overview segment management anticipates several general global market forces positive influence power business expected key market drivers include worldwide economic growth rising natural gas pricing aging world boiler fleet tightening environmental regulations company expects coal take increasing share new power growth united states germany japan australia management believes moderate strong economic growth natural gas supply concerns high historic coal dependency tightening environmental regulations translate increased demand new clean coal boilers utility power sector high growth developing countries china india south korea taiwan indonesia high coal dependencies low coal qualities increasing awareness environmental concerns expected drive demand cfb boilers region company expects china lead demand new coal power 15 20 gigawatts electricity “gwe” per year countries poland czech republic russia company expects combination low moderate economic growth high coal dependency antiquated boiler fleets drive demand cfb boiler repowerings due region’s low coal quality increasing environmental awareness industrial sector company expects manufacturers producers seek alternative lower cost methods meeting power needs regions rising gas prices forecast eg united states western europe company believes cfb technology well positioned offer substantial value market due ability convert wide array opportunity industrial fuels power steam expected translate additional two four gwe per year cfb demand united states western europe company believes china also represents significant industrial market however centered mainly growing petrochemical industry could demand exceeding five gwe per year finally environmental policies across world regions leads company expect continued growth biomass energy another growing market best served company’s cfb technology company believes major markets boiler service business countries largest installed boiler fleets experiencing economic growth need upgrade units today’s environmental reliability standards markets include united states china germany japan australia poland management estimates united states boiler service market 20000002500000 per year boiler maintenance construction activities could grow 8000000 per year anticipated environmental upgrades occur driven pending regulation service business largely allocated among original equipment manufacturers future largely driven able utilize cost efficient manufacturing engineering networks liquidity capital resources management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability company’s cash flow forecasts continue indicate sufficient cash available fund company’s working capital needs throughout 2005 december 31 2004 company cash equivalents hand shortterm investments restricted cash totaling 390200 compared 430200 december 26 2003 390200 total december 31 2004 approximately 319600 held foreign subsidiaries see note 2 consolidated financial statements additional details cash restricted cash balances company’s operations used cash 30900 2004 compared 62100 2003 decrease cash used operations due primarily cash generated domestic us environmental project italian operations ec group partially offset costs associated three lumpsum turnkey power projects global power group’s operations europe cf group’s costs associated equityfordebt exchange company’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related company’s indebtedness obligations fund us pension plans corporate overhead expenses consequently company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt company’s 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 company repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur timely basis nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained company connection sales assets foster wheeler environmental corporation described note 21 consolidated financial statements commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” company funded plant’s construction costs operates facility majority company’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 company’s working capital varies period depending mix stage completion commercial terms conditions company’s contracts working capital ec group tends rise workload increases working capital tends decrease global power workload increases 2004 ec group’s italian business unit sold minority equity interests specialpurpose companies established develop power plant projects europe company’s share proceeds sales prior repaying borrowings required per previous senior credit facility approximated 19200 2004 sales minority equity interests recorded onetime gains 2004 business italy historically developed sold project rights continuing actively develop project rights could offered sale future one sales executed joint venture company immediate access funds management forecasts part sales proceeds distributed joint venture owners first half 2005 2004 company settled several domestic contract disputes required pay portions settlements finalized 2003 net settlement proceeds 8400 collected company 2004 2003 company collected approximately 39000 net proceeds domestic contract dispute settlements throughout 2003 2004 company’s subsidiaries entered several settlement release agreements resolved coverage litigation certain asbestos insurance companies majority proceeds settlements deposited trusts use subsidiaries future asbestos defense indemnity costs company projects required fund asbestos liabilities cash flow 2010 although may required fund portion liabilities cash thereafter addition company continues evaluate whether decision new york trial court apply new york rather new jersey law insurance coverage litigation brought additional impact calculation insurance asset cash flow requirements forecast assumes company able successfully resolve certain outstanding insurance coverage issues forecast also assumes proposed asbestos trust fund legislation currently discussed washington dc become law see risk factor entitled “proposed national asbestos trust fund legislation could require company pay amounts excess current estimates net asbestos liability would adversely affect company’s liquidity financial condition” information capital expenditures 2004 2003 2002 9600 12900 53400 respectively investments primarily related information technology equipment office equipment 2002 investments also included buyout operating lease financing agreement corporate office building new jersey approximately 33000 approximately 4700 routine capital expenditures company’s build operate plants 15700 capital expenditures worldwide company retained longterm contract government agency connection foster wheeler environmental corporation sale contract scheduled completed four phases first phase initial design permitting licensing spent fuel facility first phase project profitable second phase contract currently executed billed costplusfee basis expected conclude 2004 phase company must license facility nrc respond questions regarding initial design included phase one complete final design technical specification detailed guidance government agency regarding government agencydirected changes project scope remain outstanding resolution outstanding issues required second phase contract completed phase three construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility received november 30 2004 delay also result substantial additional facility costs third phase would begin purchase longlead items followed construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency engaged discussions possibly restructuring terminating subsequent phases contract project proceed company intends seek thirdparty financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot successfully restructure contract cannot obtain thirdparty financing required surety bond company’s ability perform obligations contract unlikely could material adverse effect company’s financial condition results operations cash flow claims raised government agency company ultimate potential liability company would arise event government agency terminates contract example due company’s inability continue contract rebids contract exact terms resulting cost government agency greater would existing terms company believe claim probable unable estimate possible loss could occur result claims additionally company believes variety potential legal defenses government agency decide pursue action customary industries company operates provide letters credit bank guarantees performance bonds favor clients secure obligations contracts company subsidiaries traditionally obtained letters credit bank guarantees banks performance bonds surety unsecured basis due company’s financial condition current credit ratings well changes bank surety markets company subsidiaries required certain circumstances provide security banks surety obtain new letters credit bank guarantees performance bonds certain company’s european subsidiaries required cash collateralize bonding requirements refer note 2 consolidated financial statements company unable provide sufficient collateral secure letters credit bank guarantees performance bonds ability enter new contracts could materially limited providing collateral increases working capital needs limits ability repatriate funds operating subsidiaries company maintains several defined benefit pension plans north american united kingdom south african canadian operations funding requirements plans dependent part performance global equity markets discount rates used calculate present value liability poor performance global equity markets recent years low interest rates significantly increased funding requirements plans nonus plans funded local operating cash flows funding us plans included within us working capital requirements us pension plans frozen united kingdom’s plan closed new entrants south african canadian plans immaterial size funding requirement us plans approximate 20400 2005 projected decline zero 2010 see note 9 consolidated financial statements additional information pensions board directors company discontinued common stock dividend july 2001 company prohibited paying dividends prior senior credit facility therefore company paid dividends common shares 2004 additionally company currently prohibited paying dividends new senior credit agreement accordingly expect pay dividends common shares foreseeable future september 2004 company consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new senior notes due 2011 exchange certain outstanding debt trust securities exchange offer reduced company’s existing debt excluding reduction deferred accrued interest 31100 437000 improved company’s shareholders’ deficit 448100 expected reduce annual interest expense approximately 28000 completing exchange company outstanding debt obligations approximately 570100 december 31 2004 company’s annual cash interest expense reflecting exchange offer approximates 49300 refer notes 7 8 consolidated financial statements details exchange information regarding company’s indebtedness connection equityfordebt exchange company prepaid term loan amounts outstanding revolving credit portion senior credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90000 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8200 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement company finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement company leases facility initial noncancelable period 20 years longterm capital lease obligation 45300 december 31 2004 included capital lease obligations accompanying consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates company compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance company comply covenants company violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463600 december 31 2004 company would able repay amounts borrowed payment dates accelerated holders company’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit company’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture january 26 2004 subsidiaries uk entered twoyear 45000 revolving credit facility saberasu japan investments ii bv netherlands december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice voluntarily canceling revolving credit facility effective january 24 2005 global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent approximately 24500 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent approximately 10000 none drawn result operating losses foreign subsidiary 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected company’s liquidity forecasts since january 15 2002 company exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71200 completing equityfordebt exchange previous senior credit facility required company defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23500 company intends continue defer payment dividends trust preferred securities january 15 2007the full term allowed underlying agreement deferred dividend obligation satisfied company right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements contractual obligations company contractual obligations comprised longterm debt deferred accrued interest subordinated deferrable interest debenture capital lease commitments pension funding requirements company also obligated noncancelable operating lease commitments purchase commitments aggregate maturities december 31 2004 contractual obligations follows 1 funding requirements domestic plans conclude 2009 funding requirements foreign plans extend beyond 2009 however data contribution requirements subsequent 2009 yet available certain instances normal course business company provided security contract performance consisting standby letters credit bank guarantees surety bonds december 31 2004 commitments period expiration follows company may experience difficulty obtaining surety bonds bank guaranteesletters credit unsecured basis future due changing view toward risk loss current market company’s creditrating may impact company’s ability secure new business see note 10 accompanying consolidated financial statements discussion guarantees backlog new orders backlog unfilled orders includes amounts based signed contracts well agreed letters intent management determined legally binding likely performed although backlog represents business considered firm cancellations scope adjustments may occur elapsed time award contract completion performance may four years dollar amount backlog necessarily indicative future earnings company related performance work due factors outside company’s control changes project schedules project cancellations company cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals sale subsidiaries revised project scope cost 1 excludes build operate projects decline backlog yearend 2004 compared prior yearend attributable primarily reductions global power group offset increases ec group decline global power group backlog due primarily reduced new bookings resulting continued weakness domestic us power market uncertainty existed regarding european emission standards ratification kyoto agreement management believes company’s financial condition prior restructuring increase ec group backlog due primarily increased contract awards resulting strong chemical oil gas refining markets well booking major lumpsum turnkey power project italy major reimbursable mineral processing facility pacific region consolidated new orders 2004 increased 13 compared prior year increase due significant growth ec group partially offset reduction new orders global power group growth ec new orders occurred following industry segments power 216000 primarily lumpsum turnkey project italy chemicals 148000 pharmaceutical 133000 partially offset decline global power new orders 184000 increase ec manhours backlog corresponds bookings previously discussed backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred foster wheeler reimbursable basis agent principal ie flowthrough costs foster wheeler scope measures component backlog markup corresponds foster wheeler services plus fees reimbursable contracts total selling price lumpsum contracts consolidated foster wheeler scope yearend 2004 increased 92300 7 compared yearend 2003 attributable ec operations uk continental europe offset declines european north america power operations since december 2002 foster wheeler scope declined 854000 38 due primarily european north american operations global power group backlog measured terms future revenues broken contract type follows majority lumpsum turnkey contracts backlog power projects located domestic markets ec group’s european operations previously announced global power operating unit undertake future engineering procurement construction full power plant lumpsum turnkey basis approximately 8000 lstk backlog december 31 2004 relates three troubled european power projects significant profit reversals losses incurred 2004 preponderance company’s workload projects located outside north america backlog new orders location expressed future revenues follows increase workload outside north america reflects strength ec group’s foreign operations europe middle east asia backlog new orders north america declined ec global power groups reflects competitive nature domestic ec market oversupply electric power capacity united states additional segment information included group discussions note 20 consolidated financial statements engineering construction group ec decline backlog new orders foster wheeler scope reflect part divestiture foster wheeler environmental corporation march 2003 foster wheeler environmental corporation’s backlog december 26 2002 approximately 1800000 new orders booked 2002 288000 ec backlog yearend 2004 increased 74600 6 compared yearend 2003 due primarily increased new orders middle east asiapacific ec new orders 2004 increased 468700 37 compared prior year reflecting broadbased growth markets company presently serves due primarily booking major lumpsum turnkey power project european operations several major costplus reimbursable projects uk asiapacific operations market growth due part overall improvement world economy high oil prices increased demand energy products although new orders increased 2004 overall level bookings us dollar terms less ec group’s recent history ec manhours 2004 increased 1270 33 compared 2003 due primarily several major contracts including engineering procurement construction “epc” phase exxonmobil’s sulfurfree motor gasoline “mogas” project fawley uk one complex refineries europe project undertaken meet european union legislation reducing sulfur gasoline major wins included engineering onshore procurement project construction management “epcm” services contract indorama petrochem ltd worldscale purified terephthalic acid “pta” plant thailand lumpsum turnkey contract epc 400 mwe grassroots combinedcycle power plant built teverola italy set srl project company whose majority shareholder rätia energie ag swiss utility company minority shareholder company belonging merloni group ec foster wheeler scope increased 403000 84 compared yearend 2003 due primarily projects noted major petrochemical wins middle east lstk refinery contracts italy lithuania backlog contract type listed decrease fixedprice backlog due primarily completion several similar contracts european operations 2003 replaced 2004 backlog reimbursable contracts yearend 2004 decreased compared yearend 2003 due primarily lower bookings european operations predominately flowthrough costs increase percentage backlog new orders outside north america reflect sale foster wheeler environmental corporation march 2003 reduced level bookings north america international oil chemical markets much stronger recent years provided increased bookings international operations company successful securing projects growth areas asiapacific middle east contract awarded company goro nickel sa provide services related engineering procurement construction management nickelcobalt project addition company’s market share domestic refinery market declined past three years due decline refinery opportunities likely client perception toward company’s financial condition prior completing equity debt exchange global power group global power group’s backlog decreased 311700 33 yearend 2004 compared yearend 2003 due reduced levels new orders full release major contract anticipated 2004 finnish operation delayed client financing issues anticipated 2006 decline new orders 2004 184000 21 due primarily finnish north american operations result overall weakness power sector delay full release major contract anticipated 2004 management believes successful completion equityfordebt exchange positive effect clients concerns financial condition company assist company’s sales efforts future foster wheeler scope declined 310700 37 compared yearend 2003 line 33 decrease backlog new orders foster wheeler scope declined 2004 compared 2003 global power group significant wins 2004 including contract design supply two large shopassembled package boilers first phase long lake project athabasca oil sands region northern alberta canada opti canada inc engineering supply two 100 mw nonreheat compact circulating fluidizedbed steam generators xinhui china petrochemical international company sinopec’s maoming petrochemical company approximately 1 2004 yearend global power backlog lumpsum turnkey contracts decline lumpsum turnkey projects due completion multiple similar contracts finnish operations 2003 replaced 2004 continued overall weakness worldwide power sector lstk backlog december 31 2004 relates three european power projects significant profit reversals losses incurred 2004 yearend backlog fixedprice backlog increased due primarily increased services projects yearend backlog reimbursable contracts decreased due primarily continued overall weakness worldwide power sector resulting decline new orders approximately 53 yearend 2004 backlog 50 2004 new orders projects located outside north america percentage decrease 2004 yearend backlog projects located outside north america compared 2003 due decline new orders european operations decline 2004 new orders located outside north america reflects softness power sector major new contract anticipated awarded 2004 finnish operation delayed anticipated 2006 results 2004 north american european power markets continue suffer relatively slow economic growth capacity financial difficulties independent power producers 2005 maintenance service contracts continue growth opportunities north american power market supply opportunities new equipment associated solid fuel boiler contracts expected limited short term except growth opportunities circulating fluidizedbed boilers expected continue certain european asian markets selected opportunities environmental retrofits expected continue inflation effect inflation company’s revenues earnings minimal although majority company’s revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete future periods addition contracts provide price adjustments escalation clauses application critical accounting estimates company’s consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies management considers significant understanding operations company’s business well key estimates used implementing policies revenue recognition revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method company thousands projects reporting segments various stages completion contracts require estimates determine appropriate final estimated cost “fec” profits revenue recognition percentage complete determining fec company uses significant estimates forecast quantities expended ie manhours materials equipment costs quantities including exchange rate fluctuations schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues company must estimate percentage complete likelihood client paying work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances significant judgment exercised management establishing estimates possible risks cannot specifically quantified percentageofcompletion method requires adjustments revaluations estimated project revenues costs including estimated claim recoveries recognized cumulative basis changes estimates identified revisions project estimates made additional information becomes available fec complete longterm contracts indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentage complete project life cycle including warranty commitments six years duration project actual results significantly different estimated results adjustments identified near end project full impact change estimate would recognized change margin contract period result material impact company’s results single reporting period accordance accounting disclosure recommendations american institute certified public accountants “aicpa” statement position 811 “sop 811” “accounting performance constructiontype certain productiontype contracts” accounting principles board opinion 20 “accounting changes” company reviews contracts monthly result process 2004 54 individual projects final estimated profit revisions positive negative exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecast incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted 37600 asbestos company’s us uk subsidiaries codefendants numerous asbestosrelated lawsuits administrative claims pending united states united kingdom calculation asbestosrelated assets liabilities involves use estimates discussed united states december 31 2004 company recorded total liabilities 480000 comprised estimated liability relating open outstanding claims 257000 estimated liability relating future unasserted claims 223000 total 75000 recorded accrued expenses 405000 recorded asbestosrelated liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type ie mesothelioma vs nonmesothelioma breakdown known future claims disease type ie mesothelioma vs nonmesothelioma total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments estimated incurred year 2019 period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2019 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2019 historically defense costs represented approximately 21 total defense indemnity costs december 31 2004 total indemnity costs paid prior insurance recoveries approximately 443700 total defense costs paid approximately 119900 december 31 2004 company recorded assets 385500 relating actual probable insurance recoveries approximately 95000 recorded accounts notes receivables 290500 recorded longterm asset includes estimate recoveries insurers based upon assumptions relating cost allocation resolution pending legal proceedings certain insurers well recoveries settlements insurers december 31 2004 approximately 165200 contested company’s subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurers would immaterial management company considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believes except insurers become may become insolvent reserve provided insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation average cost per closed claims since 1993 20 company plans update forecasts periodically take consideration future experience considerations update estimate future costs expected insurance recoveries however noted estimates assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies currently involved litigation company’s subsidiaries’ ability recover insurers uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future exceeds company’s estimate likely costs defense indemnity similarly exceed company’s estimates factors beyond company’s control could material adverse effect company’s financial condition results operations cash flows following chart reflects sensitivities 2004 consolidated financial statements associated change certain estimates used relation domestic asbestosrelated liabilities impact change assumption expense dependent upon available insurance recoveries company’s subsidiaries effective managing asbestos litigation part 1 company’s subsidiaries access historical project documents business records going back 50 years allowing defend determining present location cause alleged asbestos claim timing extent presence 2 company’s subsidiaries maintain good records insurance policies identified policies issued since 1952 3 company’s subsidiaries consistently vigorously defended claims resulted dismissal claims without merit settlement claims amounts considered reasonable united kingdom subsidiaries company uk also received claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 total 1900 recorded accrued expenses 42400 recorded asbestosrelated liability consolidated balance sheet estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 asset equal amount recorded expected uk asbestosrelated insurance recoveries 1900 recorded accounts notes receivable 42400 recorded asbestosrelated insurance recovery receivable consolidated balance sheet pension details company’s pension plans included note 9 consolidated financial statements calculations pension liability annual service cost cash contributions required rely heavily estimates future events often extending decades future management responsible establishing assumptions used estimates include • discount rate used present value future obligations • expected longterm rate return plan assets • expected percentage annual salary increases • selection actuarial mortality tables • annual inflation percentage expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 82 75 past three years management utilizes business judgment establishing estimates used calculations pension liability annual service cost cash contributions estimates vary significantly actual results management cannot provide assurance estimates used calculate pension liabilities included herein approximate actual results volatility assumptions actual results significant following chart reflects sensitivities 2004 consolidated financial statements associated change certain estimates used relation domestic pension plans sensitivities reflects evaluation change based solely change particular estimate onepercentage point decrease current liability interest rate used calculating future funding requirements 2009 would increase cumulative contributions domestic plan 28900 increase onepercentage point would decrease cumulative contributions 23700 domestic plan onetenth percentage point decrease discount rate used uk pension plan would increase pension liability 10200 decrease 2005 benefit cost 200 pension liability calculations normally updated annually yearend may updated interim periods major plan amendments curtailments occur company’s liability calculation reflected financial statements herein income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment statutory purposes majority deferred tax assets valuation allowance provided december 31 2004 begin expire 2024 beyond based current tax laws result recently consummated exchange offer discussed note 7 consolidated financial statements company subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period since valuation allowance already reflected offset losses credits limitation result significant writeoff company significantly reduced deferred tax assets corresponding valuation allowance give effect limitation end 2004 company 25800 remaining domestic deferred tax assets full valuation allowance tax credits related preexchange period 13200 postexchange net operating loss carryforwards full valuation allowance reflected consolidated financial statements net impact adjustments current year financial statements material code ethics company adopted code business conduct ethics applies directors officers employees including chief executive officer chief financial officer senior finance organization employees code business conduct ethics publicly available company’s website wwwfwccomcorpgov waiver code business conduct ethics executive officers directors may made board directors committee board directors promptly disclosed shareholders company makes substantive amendments code business conduct ethics grants waiver including implicit waiver provision code chief executive officer chief financial officer controller person performing similar functions company disclose nature amendment waiver website report form 8k required law rules exchange company’s securities publicly traded copy code business conduct ethics obtained upon request without charge writing office secretary foster wheeler ltd perryville corporate park clinton new jersey 088094000 accounting developments december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company management’s discussion analysis financial condition results operations fw preferred capital trust amounts thousands dollars fw preferred capital trust “the capital trust” 100 indirectlyowned finance subsidiary company issued 175000 trust preferred securities “trust securities” 1999 capital trust invested proceeds trust securities equal principal amount 90 junior subordinated deferrable interest debentures “debentures” foster wheeler llc prior december 27 2003 capital trust consolidated financial statements company trust securities reported consolidated financial statements mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures accumulated undistributed quarterly distributions reported deferred accrued mandatorily redeemable preferred security distributions subsidiary trust distributions expense trust securities reported interest expense consolidated statement operations comprehensive loss 2004 company adopted fin 46 “consolidation variable interest entities” variable interest entities formed prior february 1 2003 accordance provisions fin 46 company determined capital trust variable interest entity ii company primary beneficiary accordingly company deconsolidated capital trust december 27 2003 company’s consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures reported interest expense consolidated statement operations comprehensive loss following management’s discussion analysis certain significant factors affected financial condition results operations capital trust periods indicated management’s discussion analysis sections report form 10k contain forwardlooking statements based management’s assumptions expectations projections capital trust forwardlooking statements nature involve degree risk uncertainty overview capital trust financial condition results operations capital trust dependent financial condition results operations foster wheeler ltd foster wheeler llc since capital trust’s assets debentures capital trust’s source income cash interest income debentures essentially terms trust securities therefore capital trust make payments trust securities foster wheeler llc first makes payments debentures since january 15 2002 foster wheeler llc exercised right defer payments debentures foster wheeler ltd’s previous senior credit facility amended required payment dividends trust securities continue deferred accordingly dividends paid threeyear period ending december 31 2004 company’s new senior credit agreement requires approval lenders make payments trust securities extent payments contractually required underlying trust securities agreements 2004 foster wheeler ltd foster wheeler llc completed equityfordebt exchange offer foster wheeler ltd issued common shares preferred shares warrants purchase common exchange trust securities conjunction exchange capital trust recorded 103800 reduction trust securities 31100 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding reduction debentures accrued interest receivable results operationsthe capital trust valuation allowance investment subordinated deferrable interest debentures related interest income receivable established based financial condition foster wheeler llc foster wheeler ltd foster wheeler llc’s decision exercise right defer payments subordinated deferrable interest debentures since january 15 2002 capital trust recorded gain exchange mandatorily redeemable preferred trust securities 39400 2004 difference gain recognized capital trust 39400 gain recorded foster wheeler llc 66400 due 1 34700 loss recognized capital trust settlement 593 subordinated deferrable interest debentures corresponding accrued interest 2 transaction fees 4200 writeoff unamortized issuance costs 3500 borne solely foster wheeler llc change valuation allowance 2004 2003 resulted increase market price trust securities deemed proxy fair value subordinated deferrable interest debentures market price per security trust securities 2705 december 31 2004 300 december 26 2003 135 december 27 2002 preferred security distributions expense represents accrual cash distributions due trust securities distributions accrue annual rate 9 outstanding liquidation amount trust securities compounded quarterly additionally deferred distributions accrue interest annual rate 9 compounded quarterly well decrease preferred security distributions expense 2004 results primarily reduction amount trust securities outstanding period result equityfordebt exchange increase preferred security distributions expense 2003 resulted accrual undistributed preferred security distributions noted previously capital trust deferred distributions trust securities conjunction foster wheeler llc’s decision defer interest payments debentures since january 15 2002 financial conditionthe capital trust investment subordinated deferrable interest debentures foster wheeler llc increased 50200 2004 result decrease valuation allowance change required valuation allowance resulted increase market price trust securities deemed proxy fair value subordinated deferrable interest debentures decrease deferred accrued mandatorily redeemable preferred security distributions payable 2004 results primarily impact equityfordebt exchange partially offset continued deferral distributions trust securities deferral period distributions trust securities continue accrue annual rate 9 compounded quarterly additionally deferred distributions accrue interest annual rate 9 also compounded quarterly preferred securities holders’ deficit december 31 2004 decreased 174400 due primarily decrease valuation allowance result increase market price trust securities lesser extent impact equityfordebt exchange liquidity capital resourcesthe capital trust capital trust’s ability continue going concern dependent foster wheeler ltd’s foster wheeler llc’s ability continue going concern capital trust’s asset debentures foster wheeler llc indirect wholly owned subsidiary company essentially holding company owns stock various subsidiary companies included consolidated financial statements company previously discussed foster wheeler ltd may able continue going concern refer previous discussion foster wheeler ltd’s liquidity capital resources safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives company time may contain forwardlooking statements based management’s assumptions expectations projections company various industries within company operates include statements regarding company’s expectation regarding revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing insurance recoveries forwardlooking statements nature involve degree risk uncertainty company cautions variety factors including limited factors described item 1 “businessrisk factors business” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment power oil gas pharmaceutical chemicalpetrochemical environmental industries • changes financial condition customers • changes regulatory environment • changes project design schedules • contract cancellations • changes estimates made company costs complete projects • changes trade monetary fiscal policies worldwide • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • outcomes pending future litigation including litigation regarding company’s liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • monetization certain power system facilities • implementation restructuring plan • recoverability claims customers • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control company reader consider areas risk described connection forwardlooking statements may made company undertakes obligation publicly update forwardlooking statements whether result new information future events otherwise reader advised however consult additional disclosures company makes proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler various industries within operate include statements regarding expectation revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • changes rate economic growth united states major international economies • changes investment oil gas oil refining chemicalpetrochemical power industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war andor terrorist attacks facilities either owned equipment services may provided • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing competition foreign domestic companies • compliance debt covenants • recoverability claims customers others us claims thirdparties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed securities exchange commission overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses related certain legacy liabilities asbestos corporate finance group refer cf group since 2007 exploring strategic acquisitions within engineering construction industry complement expand technical capabilities access new market segments may also decide explore small size acquisitions within power industry complement product offering however assurance consummate acquisitions fiscal year 2007 results earned record net income fiscal year 2007 driven primarily strong operating performance global ec group global power group net income fiscal year 2007 393900 included following aftertax amounts gains 13500 settlement coverage litigation certain asbestos insurance carriers net charge 7400 reflecting revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate highlights fiscal year 2007 included following • consolidated operating revenues increased 461 5107200 compared fiscal year 2006 reflecting greater business activity global ec group global power group • consolidated new orders measured terms future revenues increased 816 8882800 compared fiscal year 2006 • consolidated backlog unfilled orders measured future revenues december 28 2007 increased 734 9420400 compared december 29 2006 • consolidated backlog measured terms foster wheeler scope defined december 28 2007 increased 303 3294600 compared december 29 2006 • generated net cash operations 425200 ended year record total cash restricted cash shortterm investments 1069500 • ec manhours backlog thousands december 28 2007 13400 compared 11600 december 29 2006 challenges drivers primary operating focus continues booking quality new business executing contracts well global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products markets continued strong 2007 turn continued stimulate investment new expanded plants clients expect sustained market demand 2008 therefore attracting retaining qualified technical personnel execute existing backlog unfilled orders future bookings continue management priority global ec group’s new orders increased 860 6874600 fiscal year 2007 compared fiscal year 2006 expect capital investments markets served global ec group including chemical petrochemical oil refining liquefied natural gas refer lng upstream oil gas industries remain strong 2008 result also expect demand services equipment supplied engineering construction contractors us remain strong 2008 global power group’s new orders increased 678 2008200 fiscal year 2007 compared fiscal year 2006 believe global power markets strengthened significant growth opportunities 2008 power markets serve solid fuelfired boilers boiler services boiler environmental products boilerrelated construction services believe well positioned compete global ec group global power group markets 2008 challenges drivers global ec group global power group discussed detail section entitled “business segments” within item 7 results operations operating revenues increase operating revenues fiscal year 2007 compared fiscal year 2006 reflects success meeting strong market demand global ec group global power group please refer section entitled “business segments” within item 7 note 17 consolidated financial statements included annual report form 10k information however 848300 fiscal year 2007 increase results increase versus fiscal year 2006 flowthrough revenues costs projects executed global ec group flowthrough revenues costs result performing engineering construction contract purchase materials equipment subcontractor services behalf customer reimbursable basis profit added cost materials equipment subcontractor services flowthrough revenues costs impact contract profit net earnings increased amounts flowthrough revenues effect reducing reported profit margins percent operating revenues operating revenues increased fiscal year 2006 versus fiscal year 2005 driven ability address strong market activity global ec group global power group included increase fiscal year 2006 operating revenues compared fiscal year 2005 flowthrough revenues 289400 global ec group contract profit contract profit computed operating revenues less cost operating revenues increase contract profit fiscal year 2007 compared fiscal year 2006 primarily reflects significant increase volume revenues excluding flowthrough revenues described increased margins earned global ec group global power group partially offset 30000 charge global power group legacy project increase contract profit fiscal year 2006 compared fiscal year 2005 primarily reflects significant increase volume revenues described global ec group global power group increased margins earned global ec group partially offset certain project writedowns global power group please refer section entitled “business segments” within item 7 information selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs increase sga expenses fiscal year 2007 compared fiscal year 2006 results primarily increases sales pursuit costs 10300 general overhead costs 7400 research development costs 3200 increases result primarily increased volume business fiscal year 2007 drove increase number technical personnel well nontechnical support staff related costs increase sga expenses fiscal year 2006 compared fiscal year 2005 results primarily increases general overhead costs 23800 research development costs 100 partially offset decrease sales pursuit costs 15300 increase general overhead results primarily 3200 severance costs fiscal year 2006 domestic european global power group businesses 7600 additional noncash equitybased compensation expense fiscal year 2006 resulting primarily adoption statement financial accounting standard sfas 123r “sharebased payment” 6200 increase personnel costs including increase related shortterm incentive expense 2800 costs associated wind canadian operations decline sales pursuit costs reflects part reduction number major lumpsum turnkey proposals fiscal year 2006 income fiscal year 2007 consists primarily 37300 equity method earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 6600 gain real estate investment 9400 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1500 investment income fiscal year 2006 consists primarily 29300 equity method earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 1000 gain sale previously closed manufacturing facility dansville new york 9200 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 600 investment income third quarter 2006 majority owners certain italian projects sold interests another thirdparty prior sale equity net earnings projects reported pretax basis income associated taxes reported provision income taxes partners elected passthrough taxation treatment projects local law direct result ownership change arising sale subject entities precluded electing passthrough taxation treatment result commencing fiscal year 2006 equity aftertax earnings projects reported income change reduced income provision taxes 8600 fiscal year 2006 income fiscal year 2005 consists primarily 30600 equity method earnings generated investments primarily minority ownership interests build operate projects italy chile described note 5 consolidated financial statements annual report form 10k 1500 gain recognized united kingdom sale investment 9000 gain recognized camden new jersey wastetoenergy facility state new jersey’s payment project’s debt 1300 investment income deductions fiscal year 2007 consists primarily 3600 bank fees 20500 legal fees 800 consulting fees 2600 foreign exchange losses 1500 tax penalties accrued penalties unrecognized tax benefits 10100 provision dispute resolution environmental remediation costs deductions fiscal year 2006 consists primarily 7200 bank fees 17300 legal fees 4800 consulting fees 1700 foreign exchange losses 6400 provision dispute resolution environmental remediation costs 4100 charge tax penalties partially offset 1300 bad debt recovery deductions fiscal year 2005 consists primarily 8800 bank fees 3500 associated prior senior credit facility 12800 legal fees 2700 foreign exchange losses 4200 environmental costs 1400 charges related common share purchase warrants offers commenced december 2005 partially offset 6700 bad debt recovery interest income increase interest income fiscal year 2007 compared fiscal year 2006 resulted primarily higher average cash equivalents balance additional benefits higher interest rates investment yields increase interest income fiscal year 2006 compared fiscal year 2005 resulted primarily higher average cash equivalents balance interest expense decrease interest expense fiscal year 2007 compared fiscal year 2006 reflects benefits debt reduction initiatives completed second quarter 2006 decrease interest expense fiscal year 2006 compared fiscal year 2005 reflects benefits debt reduction initiatives completed second quarter 2006 latter half fiscal year 2005 please refer note 6 consolidated financial statements annual report form 10k information minority interest income consolidated affiliates minority interest income consolidated affiliates reflects thirdparty ownership interests results global power group’s martinez california gasfired cogeneration facility manufacturing facilities poland people’s republic china change minority interest income consolidated affiliates based upon changes underlying earnings subsidiaries increase minority interest income consolidated affiliates 2007 primarily reflects higher plant availability 2007 martinez facility shut two repair outages 2006 net asbestosrelated gainsprovision nm meaningful fiscal year 2007 net asbestosrelated gain results gains 13500 settlement coverage litigation certain asbestos insurance carriers partially offset net charge 7400 revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate net asbestosrelated gain fiscal year 2006 results primarily asbestosrelated insurance settlement gains 96200 gain 19500 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers partially reduced charge 15600 reflecting revaluation asbestos liability related asset resulting increased asbestos defense costs projected yearend 2021 addition another year rolling 15year asbestos liability estimate net asbestosrelated provision fiscal year 2005 results revaluation estimated asbestos indemnity defense costs liability estimated asbestos insurance receivable please refer note 19 consolidated financial statements annual report form 10k information prior domestic senior credit agreement fees expenses nm meaningful prior domestic senior credit agreement fees expenses resulted voluntary replacement prior domestic senior credit agreement new domestic senior credit agreement october 2006 required pay prepayment fee 5000 result early termination prior agreement along 500 termination fees expenses early termination also resulted impairment 9500 unamortized fees expenses paid 2005 associated agreement total recorded charge 15000 fiscal year 2006 connection termination prior domestic senior credit agreement loss debt reduction initiatives loss debt reduction initiatives fiscal year 2006 results debt reduction activities completed second quarter 2006 charge income reflects loss 8200 exchange transaction 2011 senior notes resulting primarily difference fair market value common shares issued carrying value 2011 senior notes exchanged loss 3900 redemption 2011 senior notes resulting primarily makewhole premium payment loss 200 redemptions trust preferred securities convertible notes resulting primarily writeoff deferred charges loss debt reduction initiatives fiscal 2006 offset improvement shareholders’ equitydeficit 58800 resulting issuance common shares loss debt reduction initiatives fiscal year 2005 results trust preferred securities exchange offer consummated august 2005 2011 senior notes exchange offer consummated november 2005 resulted charges income 41500 16800 respectively charges offset aggregate improvement shareholders’ equitydeficit 297000 charges substantially noncash reflect differences carrying values debt market prices common shares closing dates exchanges please refer note 6 consolidated financial statements annual report form 10k information provision income taxes effective tax rate fluctuate significantly period may differ significantly us federal statutory rate result fact operating units profitable recording provision nonus national andor local income taxes others unprofitable unable recognize tax benefit losses sfas 109 “accounting income taxes” requires us reduce deferred tax benefits valuation allowance based upon available evidence likely tax benefit losses deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate effective tax rate therefore dependent location amount taxable earnings effects changes valuation allowances compared us statutory rate 35 effective tax rate fiscal year 2007 lower nonus earnings taxed rates lower us statutory rate earnings jurisdictions previously recorded full valuation allowance variances partially offset losses certain jurisdictions benefit recognized valuation allowance established permanent differences compared us statutory rate 35 effective tax rate fiscal year 2006 lower nonus earnings taxed rates lower us statutory rate earnings jurisdictions previously recorded full valuation allowance primarily united states variances partially offset losses certain nonus jurisdictions benefit recognized valuation allowance established permanent differences monitor valuation allowances deferred tax assets jurisdictions valuation allowances established previous years currently positive earnings jurisdictions evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire fiscal year 2024 beyond based current tax laws described “application critical accounting estimates” within item 7 adopted provisions financial accounting standards board fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109 accounting income taxes” december 30 2006 first day fiscal year 2007 ebitda fiscal year 2007 reflects increased volumes business sustained margins overall strong operating performances global ec group global power group along 14400 income related favorable resolution project claims gains 13500 settlement coverage litigation certain asbestos insurance carriers partially offset 30000 charge global power group legacy project net charge 7400 reflecting revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate ebitda fiscal year 2006 includes impact increased margins volume work executed global ec group net asbestos gains 100100 described partially offset 25000 charge aforementioned global power group legacy project impact debt reduction initiatives costs associated voluntary replacement prior domestic senior credit agreement ebitda fiscal year 2005 includes charges related asbestos completed equityfordebt exchange offers strong operating performance global ec group partially offset 50200 writedowns global power group projects europe north america please refer section entitled “business segments” within item 7 information ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance ebitda adjustment certain unusual infrequent items specifically excluded terms current prior senior credit agreements used certain covenants current prior senior credit agreements believe line item consolidated statements operations comprehensive incomeloss entitled “net incomeloss” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net incomeloss indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net incomeloss users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net incomeloss shown 1 includes general corporate income expense captive insurance operation eliminations 2 includes fiscal year 2007 increaseddecreased contract profit 35100 regular reevaluation contract profit estimates 54500 global ec group 19400 global power group charge 7400 cf group reflecting revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate gains 13500 settlement coverage litigation certain asbestos insurance carriers recorded cf group 3 includes fiscal year 2006 decreasedincreased contract profit 5700 regular reevaluation contract profit estimates 14700 global ec group 20400 global power group charge 15600 cf group reflecting revaluation asbestos liability related asset net asbestosrelated gains 115700 recorded cf group primarily settlement coverage litigation certain asbestos insurance carriers aggregate charge 15000 recorded cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12500 recorded cf group conjunction debt reduction initiatives completed april may 2006 4 includes fiscal year 2005 increased contract profit 99600 regular reevaluation contract profit estimates 66300 global ec group 33300 global power group charge 113700 cf group revaluation estimated asbestos liability asbestos insurance receivable credit agreement costs cf group associated prior senior credit facility 3500 aggregate charge 58300 cf group recorded conjunction exchange offers trust preferred securities 2011 senior notes business segments use several financial metrics measure performance business segments ebitda discussed defined primary earnings measure used chief operating decision maker global ec group results increase operating revenues fiscal year 2007 compared fiscal year 2006 reflects increased volumes work global ec group operating units major projects north america south america asia australasia europe middle east oil gas refining chemicalpetrochemical lng industries led increase activities increase ebitda fiscal year 2007 compared fiscal year 2006 results primarily increased volumes work global ec group operating units sustained margins excluding impact flowthrough revenues increased direct technical manpower includes agency workforce 21 fiscal year 2007 primarily asian north american united kingdom offices continue address growing market opportunities plan continue expand operational capacity 2008 combination organic growth selective acquisitions increase operating revenues fiscal year 2006 compared fiscal year 2005 reflects increased volumes work global ec group operating units major projects australasia europe middle east south america oil gas refining chemicalpetrochemical industries led increase activities increase ebitda fiscal year 2006 results primarily increased volumes work improved margins global ec operations increased direct technical manpower includes agency workforce 47 fiscal year 2006 primarily asian north american united kingdom offices help capture market growth overview segment expect sustained demand oil gas petrochemicals refined products stimulated investment new expanded plants last 12 24 months continue 2008 business impacted date us credit crunch resulting subprime mortgage crisis full impact us global economy yet fully established therefore possibility remains credit conditions well slowdown recession economic growth could adversely affect industries clients operate result business however overall proportion us terms global gross domestic product reduced time emergence china india increasingly significant contributors global gross domestic product global gross domestic product growth expected decrease 2008 relative 2007 emerging markets continue show signs growth impact recent financial economic volatility believe downside risks may mitigated whole part forecast continued strong economic growth emerging markets china india anticipate historically high oil prices continued strong demand oil sustain high levels client investment upstream oil gas facilities currently witnessing regions particularly west africa middle east russia caspian states believe rising demand natural gas europe asia united states combined shortfall indigenous production continue act stimulant lng business although lng demand continues grow strongly pace new liquefaction train construction projects received approval proceed slowed last two three years believe indicates significant additional liquefaction capacity approved projects need developed believe global refining system currently running high utilization rates global demand transportation fuels sustained especially jet fuelkerosene middle distillates primarily diesel additionally price differential heavier highersulfur crude oil lighter sweeter crudes remains higher historic average factors continuing stimulate refinery investment particularly enable refiners process highersulfur crudes upgrade lowervalue refinery residue highervalue transportation fuels expect see continued investment projects considerable experience expertise area including proprietary delayed coking technology enables refineries upgrade lower quality crude oil refinery residue high value refined products transportation fuels currently executing significant number delayed coking projects including feasibility studies frontend engineering design feed contracts delayed coking technology license agreements engineering procurement construction supervision contracts full engineering procurement construction contracts projects located north america south america asia europe middle east subsequent phases projects offer us opportunities believe majority new investment coking take place regions asia investment residue upgrading previously prime focus refiners believe refining capacity continue added development grassroots refineries notably middle east india china significant upgrades expansions continue planned underway existing refineries many regions clean fuel programs also implemented meet new fuel specifications refiners’ production domestic andor export markets currently working refining projects americas europe asia middle east order add value refinery streams therefore improve margins believe refiners also investing refinerypetrochemical integration working number integrated projects asia middle east investment petrochemical plants began rise sharply 2004 response strong growth demand majority investment centered asia middle east seeing continued strong demand supporting new investment regions expect continue throughout 2008 also seeing investment specialty chemicals particularly middle east stimulated governmental desire diversify economies lessen dependence crude oil exports provide sustained employment growing young populations continue execute several major petrochemical contracts expect secure new petrochemicals business throughout 2008 outlook oil gas refining petrochemicals 2008 remains positive seeing demand cost engineering construction services materials equipment commodities continues rise companies electing commit partial staged investments reduce scope investments postpone cancel investments market slows work clients early study frontend design phases projects helping develop revised project meets investment parameters develop staged investment plan revise scope configuration original project able obtain approval proceed investment addition discussed believe full impact us credit crunch resulting subprime mortgage crisis yet fully realized number substantial downside risks global economic growth forecasts 2008 investment new pharmaceutical production facilities slowed since 2003 believe attributable range factors including industry cost pressure investment focused plant rationalization upgrading improvement projects rather major new greenfield production facilities biotechnology facilities indications renewed interest significant plant investment key pharmaceutical investment hubs singapore us ireland puerto rico global power group results increase operating revenues fiscal year 2007 compared fiscal year 2006 results volume business operations north america europe china global power group experienced higher levels ebitda fiscal year 2007 compared fiscal year 2006 result increased volumes business increased margins experienced contracts executed north america europe china addition ebitda fiscal year 2007 included 14400 related favorable resolution project claims 14400 impacted contract profit 9600 interest income 4000 reduced deductions 800 ebitda also adversely impacted 30000 contingency taken fiscal year 2007 legacy engineering procurement construction project europe 30000 contingency addition 25000 contingency established fourth quarter 2006 writedowns profit reversals 2004 project bid 2001 awarded 2002 prior implementation current system risk management controls project risk management group two plants involved project completed operating experienced series technical issues largely involve corrosion frontend plant believe caused client’s use fuel within contract specifications well backend corrosion subcontractorprovided emissions control equipment induction fans cause backend corrosion discovered second quarter 2007 extensive previously determined investigation identified technical solution ameliorate corrosive effects outofspecification fuel client process evaluating proposed solution frontend corrosion disavowing responsibility fuel specification client refused pay cost corrective work reserved rights us contract could include repairing rejecting plants recovering consequential damages event determined grossly negligent advised client responsible cost corrective work address corrosion resulting outofspecification fuel anticipate discussions client near future regarding claim information please see note 19 consolidated financial statements annual report form 10k increase operating revenues fiscal year 2006 fiscal year 2005 results execution increased bookings occurred largely latter half 2005 early part 2006 operations europe north america global power group experienced lower levels ebitda fiscal year 2006 compared fiscal year 2005 global power group’s ebitda adversely impacted poor performance eight contracts resulting approximately 54200 charges lost profit opportunity europe north america fiscal year 2006 net gains approximately 2600 contract dispute settlements clients north america occurred fiscal year 2005 repeated fiscal year 2006 charge approximately 7100 fiscal year 2006 associated wind canadian operations reduced margins projects currently executed europe north america versus several high margin contracts executed asia fiscal year 2005 included 54200 charges lost profit opportunity aforementioned contingency 25000 overview segment although solid fuelfired boiler market remains highly competitive believe several continuing global market forces positively impact global power group next two three years believe continued worldwide economic growth driving power demand growth world regions addition continued tight global natural gas oil supplies driven gas oil prices upwards historically high levels expect natural gas fuel price volatility remain high next two three years due declining domestic supplies europe united states due tightening environmental regulations including development growing acceptance global greenhouse gas regulation expect continued growth demand products services area environmental retrofitting selective noncatalytic catalytic nox reduction systems overfire air systems coalair balancing systems coal mill upgrade equipment believe combined effect factors positive impact demand products services new utility industrial solid fuel boilers boiler services boiler environmental products boilerrelated construction services global power group impacted date us credit crunch resulting subprime mortgage crisis full impact us global economy yet fully established therefore possibility remains credit conditions well slowdown recession economic growth could adversely affect industries clients operate result business global power group dependant us market us clients represent significant portion global power group business addition although believe global power group wellpositioned offer clients solutions supercritical pc boilers cfb boilers capable utilizing biomass recycled fuels help address increasing greenhouse gas regulations regulation area still developing several geographies clients operate regulations could negatively impact client investments capital projects could negatively impact market manufactured products certain services also could negatively affect operations profitability electric power plants could materially adversely affect business financial conditions results operations cash flows north america north america believe declining generating capacity reserves across region coupled persistent historically high oil natural gas pricing spurring market growth large coal utility boilers however also seeing escalating plant costs concern greenhouse gas emissions growing impact market believe plant price escalation driven historically high demand utility steam power plants globally result strained supply key components needed build new plants steel cement labor markets believe price dampening smoothing effect swings market capitalize business opportunity global power group actively marketing largescale supercritical boiler technology key geographic markets part utility boiler product portfolio successful securing two projects based supercritical technology project awarded 2006 planned commercially operational 2009 poland supplying world’s first supercritical circulating fluidizedbed cfb boiler utilize siemens advanced benson vertical tube supercritical steam technology ii project awarded 2007 planned commercially operational 2010 design supply ds supercritical oncethrough pulverizedcoal pc steam boiler coalfired generating facility located west virginia ds project first application siemens advanced benson vertical tube supercritical steam technology pc boiler believe leverage key wins grow position supercritical utility boiler market pc cfb boilers anticipation future greenhouse gas regulation actively involved developing oxycombustion boiler technology designed provide practical solution producing concentrated stream carbondioxide co2 coal power plant co2 stream could transported storage location cost effective manner support development commercialization new technology entered two separate alliance agreements one large industrial gas company allows us copursue develop specific key demonstration projects together believe form strong technology team successful development technology addition entered alliance agreement another organization support development oxycombustion pilot testing facility built spain industrial sector seeing growth solid fuel industrial boiler market driven historically high oil natural gas pricing boilers offer industrial clients attractive economic solution supply energy needs utilizing low cost biomass solid opportunity fuels many fuels also carry governmental tax credits financial incentives encourage use renewable fuels making attractive industrial utility power sectors believe leading cfb technology well positioned serve market segment due ability burn “difficulttoburn” fuels outstanding fuel flexibility excellent environmental performance compared solid fuel united states’ environmental protection agency’s epa’s clean air interstate rule became effective 2005 well continued settlements earlier new source review lawsuits brought number utilities epa continue drive strong retrofit pollution control market including addon pollution control systems low nox combustion systems selective catalytic reduction systems flue gas desulphurization systems believe market trend benefit sales environmental products also believe due reducing capacity margins represent amount unused available electric generating capacity percentage total electric capacity coalfired power plants independent power producers utilities operating greater capacity produce electricity turn spurring maintenance investment owners also see evidence owners making larger capital investments plants extend useful lives believe factors helping maintain strong boiler service market benefit boiler service business europe believe many market forces discussed resulting similar beneficial market trends global power group business europe believe declining power capacity reserves across region coupled persistent historically high oil natural gas pricing spurring market growth large utility coal boilers greater 500 megawattelectric unit size similar market north america also seeing escalating plant costs concern greenhouse gas emissions growing impact restraining market due europe’s historical preference high efficiency coalfired power plants active greenhouse gas regulation power plants europe’s emissions trading scheme became effective 2005 believe supercritical boiler technology continue preference european utility boiler market sector believe supercritical cfb pc boiler projects described well positioned pursue market sector offering pc cfbtype supercritical boilers historically pc boiler technology combustion technology choice supercritical utility boiler market segment globally however believe supercritical cfb boiler technology potential penetrate supercritical utility boiler market shift portion market away pc cfbtype boilers especially nonpremium solid fuels lignite brown coals waste coals since expect first boiler supplier operational supercritical cfb reference plant expected commissioned 2009 believe well positioned pursue market opportunity industrial sector driven increasing power prices historically high oil natural gas pricing seeing growth solid fuel industrial power market benefiting sales industrial boilers european union eu established regulation incentive programs encourage use biomass waste fuels believe spurring growth industrial utility sectors cfb boilers market eu’s landfill waste recycling directives became effective 2004 opened new market cfb boilers firing refusederived fuels eu’s large combustion plant directive lcpd governed emission regulation utility power plants europe last five years continues revised enforce even tighter emission standards expected drive growth retrofit pollution control market benefit environmental products business due lcpd’s relatively mild first step reduction goals expect see significant growth 2008 second phase program calls tighter emission limits finally coal power plants independent power producers utilities europe operating greater capacity produce electricity spurring maintenance life extension investment owners similar united states reduced capacity margins driving market positive effect volume boiler service sales asia believe high economic growth continues drive strong power demand growth demand new power capacity believe region’s historically high coal use coupled historically high world oil natural gas pricing likely continue drive growth coalfueled utility industrial boilers region contains world’s largest utility industrial boiler markets china india offering opportunities global power group businesses historically difficult foreign companies penetrate markets due national trade policies client preference local companies maximize opportunities continuing licensing strategy allows us gain access closed markets also expanding capacity resources licensees allowing us expand global market place due region’s growing environmental awareness including co2 link global warming see opportunities entire new boiler line small industrial boilers large utility supercritical boilers well environmental retrofit products low nox combustion systems coal pulverizers finally reduced spare capacity margins also resulting coal power plants independent power producers utilities operating higher operating rates produce electricity turn spurs maintenance life extension investment owners offering opportunity boiler services liquidity capital resources fiscal year 2007 activities december 28 2007 record amount cash equivalents shortterm investments restricted cash totaling 1069500 compared 630000 december 29 2006 increase results cash provided operations 425200 cash provided financing activities 38200 favorable exchange rate changes cash equivalents 20200 partially offset cash used investing activities 46000 1069500 total december 28 2007 819400 held foreign subsidiaries 20900 represented restricted cash please refer note 1 consolidated financial statements annual report form 10k additional details cash restricted cash balances cash provided operations 425200 fiscal year 2007 compared 263700 50800 cash provided operations fiscal years 2006 2005 respectively cash provided operations fiscal year 2007 attributable primarily strong operating performance partially offset making 45000 mandatory discretionary contributions domestic pension plan funding 19000 asbestos liability indemnity payments defense costs cash provided operations fiscal years 2006 2005 resulted increased margins volumes business international operations global ec group working capital varies period depending mix stage completion commercial terms conditions contracts working capital global ec group tends rise workload reimbursable contracts increases since services rendered prior billing clients working capital tends decrease global power group workload increases cash tends received prior ordering materials equipment cash used investing activities 46000 fiscal year 2007 compared 25600 cash used investing activities fiscal year 2006 63600 cash provided investing activities fiscal year 2005 cash used investing activities fiscal year 2007 attributable primarily capital expenditures 51300 includes 13800 expenditures fw power srl continue construction electric power generating wind farm project italy 1500 purchase finnish company owns patented coal flow measuring technology 4800 september 2007 related final payment 2006 purchase remaining 51 interest fw power srl partially offset 6300 distribution unconsolidated affiliates proceeds sale assets 7600 cash used investing activities fiscal year 2006 attributable primarily capital expenditures 30300 6600 increase investments advances unconsolidated affiliates partially offset decrease cash subject restrictions 8900 1900 proceeds asset sales cash provided investing activities fiscal year 2005 attributable primarily decrease cash subject restrictions 46200 decrease shortterm investments 24400 4900 proceeds asset sales partially offset capital expenditures 10800 capital expenditures related primarily project construction see noted fw power srl electric power generating wind farm projects italy leasehold improvements information technology equipment office equipment expenditures reflect increased spending project construction increased volumes business fiscal years 2007 2006 increase capital expenditures three year period driven primarily global ec group particular increases driven operations asia continental europe united kingdom global power group capital expenditure increase driven china operations expansion manufacturing facility office relocation information capital expenditures segment please see note 17 consolidated financial statements annual report form 10k cash provided financing activities 38200 fiscal year 2007 compared 500 cash provided financing activities fiscal year 2006 41500 cash used financing activities fiscal year 2005 cash provided financing activities fiscal year 2007 reflects primarily stock option warrant proceeds issuance specialpurpose limited recourse project debt fw power srl partially offset repayment debt capital lease obligations cash provided financing activities fiscal year 2006 reflects primarily stock option warrant proceeds partially offset reduction debt including 2011 senior notes capital lease obligations payment deferred financing costs conjunction senior credit agreement cash used financing activities fiscal year 2005 reflects primarily reduction debt capital lease obligations payment deferred financing costs conjunction domestic senior credit agreement outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries working capital needs unused credit line availability claims recoveries proceeds asset sales forecasts extend rolling 12month period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months based forecasts primary cash needs fiscal 2008 fund working capital expenditures asbestos liability indemnity defense costs acquisitions majority cash balances invested shortterm interest bearing accounts continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next 12 months domestic operating entities generate sufficient cash flows fund obligations related corporate overhead expenses asbestosrelated liabilities consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years believe repatriate required amount cash foreign subsidiaries continue access revolving credit portion domestic senior credit facility needed funded 19000 asbestos liability indemnity payments defense costs cash flows fiscal year 2007 net cash received insurance settlements expect fund total 25000 asbestos liability indemnity defense costs cash flows fiscal year 2008 net cash expected received existing insurance settlements estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease may 4 2007 executed amendment domestic senior credit agreement increase facility 100000 450000 reduce pricing portion letters credit issued facility restore “accordion” feature permits incremental increases 100000 total availability facility 245800 189000 letters credit outstanding domestic senior credit agreement december 28 2007 december 29 2006 respectively letter credit fees range 150 160 excluding fronting fee 0125 per annum intend borrow domestic senior revolving credit facility 2008 portion letters credit issued domestic senior credit agreement performance pricing decreased increased result improvements reductions credit rating assigned domestic senior credit agreement moody’s investors service andor standard poor’s however performance pricing expected materially impact liquidity capital resources 2008 anticipate spending 42990 approximately 63300 exchange rate december 28 2007 fw power srl fiscal year 2008 continue construction electric power generating wind farm projects italy secured total borrowing capacity fw power credit facilities 75350 approximately 110950 exchange rate december 28 2007 please refer note 7 consolidated financial statements annual report form 10k information regarding debt obligations declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilean project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease commitments pension funding requirements expected cash flows related contractual obligations outstanding december 28 2007 follows 1 funding requirements expected next five years however data contribution requirements beyond five years yet available projections assume make discretionary contributions 2 funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available projections assume make discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2008 expect fund 25000 asbestos liability indemnity defense costs cash flows fiscal year 2008 net cash expected received existing insurance settlements please refer note 19 consolidated financial statements annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated liability beyond 2008 expect pay 3300 relating uncertain tax provisions including interest penalties cash flows fiscal year 2008 total liability including accrued interest penalties 76400 december 28 2007 please refer note 15 consolidated financial statements annual report form 10k information certain instances normal course business provided security contract performance consisting standby letters credit bank guarantees surety bonds december 28 2007 commitments period expiration follows please refer note 9 consolidated financial statements annual report form 10k discussion guarantees backlog new orders backlog unfilled orders includes amounts based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value less 5000 measured using costtocost method revenues profits costreimbursable contracts recorded services rendered based estimated revenue per manhour including incentives assessed probable include flowthrough costs consisting materials equipment subcontractor services revenue costreimbursable contracts responsible engineering specifications procurement services costs numerous contracts various stages completion contracts require estimates determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed securities exchange commission final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period accordance accounting disclosure requirements american institute certified public accountants statement position sop 811 “accounting performance constructiontype certain productiontype contracts” sfas 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” review material contracts monthly revise estimates appropriate estimate revisions include increases decreases estimated profit result events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle 38 29 45 separate projects final estimated profit revisions exceeding 1000 fiscal years 2007 2006 2005 respectively changes final estimated profits resulted net increasedecrease contract profit 35100 5700 99600 fiscal years 2007 2006 2005 respectively asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 28 2007 recorded total liabilities 403300 comprised estimated liability 165100 relating open outstanding claims valued estimated liability 238200 relating future unasserted claims yearend 2022 total 72000 recorded accrued expenses 331300 recorded asbestosrelated liability consolidated balance sheet since yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2007 activity arpc recommended assumptions used estimate future asbestos liability updated yearend 2007 accordingly developed revised estimate aggregate indemnity defense costs yearend 2022 considering advice arpc fourth quarter 2007 increased liability asbestos indemnity defense costs yearend 2022 403300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 7400 fourth quarter 2007 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred yearend 2022 period incidence new claims forecasted decrease year believe likely new claims filed 2022 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2022 historically defense costs represented approximately 28 total defense indemnity costs december 28 2007 cumulative indemnity costs paid prior insurance recoveries approximately 625300 total defense costs paid approximately 248400 december 28 2007 recorded assets 326200 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims yearend 2022 47100 asset recorded within accounts notes receivableother 279100 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated asset recorded within accounts notes receivableother december 28 2007 reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers insurance coverage litigation referred based upon resolution certain insurance coverage issues application certain assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset december 28 2007 utilized analysis determine estimate value unsettled insurance asset december 28 2007 december 28 2007 estimated value unsettled asbestos insurance asset contested subsidiaries’ insurers ongoing litigation new york state court 27600 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time considered asbestos litigation financial viability legal obligations subsidiaries’ insurance carriers believe except insurers become insolvent reserve provided insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation overall historic average combined indemnity defense cost per resolved claim 26 average cost per resolved claim increasing believe continue increase future yearend 2007 plan update forecasts periodically take consideration future experience considerations update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities 2007 consolidated financial statements associated change certain estimates used relation domestic asbestosrelated liabilities based yearend 2007 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 70400 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 28 2007 recorded total liabilities 48500 comprised estimated liability relating open outstanding claims 9000 estimated liability relating future unasserted claims yearend 2022 39500 total 3000 recorded accrued expenses 45500 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 3000 recorded accounts notes receivableother 45500 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation asbestos liability related asset recorded uk would approximately 66100 defined benefit pension postretirement benefit plans defined benefit pension plans united states united kingdom france canada finland postretirement benefit plans health care life insurance benefits united states canada us plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory additionally one subsidiaries united states also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 requires us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet sfas 158 also requires us recognize gains losses recognized component annual service cost component comprehensive incomeloss net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset net charge accumulated comprehensive loss consolidated balance sheet please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate postretirement benefit plans • annual inflation rate utilize business judgment establishing estimates used calculations defined benefit pension postretirement benefit liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate defined benefit pension postretirement benefit liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension plans fiscal years 2007 2006 2005 discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolios expected returns asset class developed considering past performance future considerations following charts reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate december 28 2007 defined benefit pension plans net actuarial losses 347600 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses reflect differences expected actual plan experience changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants foreign plans 11 years uk plans 11 years canadian plan 18 years finnish plan average life expectancy participants us plans approximately 26 years since benefits frozen addition defined benefit pension plans prior service costs 33400 recognized accumulated comprehensive loss consolidated balance sheet december 28 2007 prior service costs amortized schedules established date plan change 11 years uk plans estimated net actuarial loss prior service cost amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 20400 1900 respectively onetenth percentage point decrease increase funding segment rates used calculating future funding requirements us plans 2012 would change respective aggregate contributions next five years due current overfunded status us plans onetenth percentage point decrease funding interest rate used calculating future funding requirements uk plans 2012 would increase aggregate contributions next five years approximately 7300 increase onetenth percentage point would decrease aggregate contributions approximately 5600 following table summarizes estimates used postretirement benefit plans fiscal years 2007 2006 2005 discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates december 28 2007 postretirement benefit plans net actuarial losses 10900 recognized accumulated comprehensive loss consolidated balance sheet net actuarial losses outside corridor amortized average life expectancy inactive participants 11 years benefits frozen addition postretirement benefit plans prior service credits 43500 recognized accumulated comprehensive loss consolidated balance sheet december 28 2007 prior service credits amortized schedules established date plan change 9 years estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 800 4800 respectively sharebased compensation plans sharebased compensation plans include restricted awards stock option awards prior december 31 2005 accounted sharebased employee compensation plans measurement recognition provisions accounting principles board apb opinion 25 “accounting stock issued employees” permitted sfas 123 “accounting stockbased compensation” accordingly used intrinsic value method accounting stock option awards recognize compensation expense stock options granted exercise price equal greater market price common stock date grant result recognition sharebased compensation expense generally limited expense attributed restricted awards accordance sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” provided pro forma net income loss net earnings loss per common share disclosures period prior december 31 2005 applied fair value method measuring compensation expense sharebased compensation plans including stock options effective december 31 2005 first day fiscal 2006 adopted fair value provisions sfas 123r using modified prospective transition method recognize sharebased compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 ii future sharebased payment awards based grant date fair value estimated accordance provisions sfas 123r elected use modified prospective transition method results periods prior fiscal year 2006 restated reflect compensation expense fair value awards vested prior december 31 2005 compensation cost sharebased plans 7100 16500 8900 charged income fiscal years 2007 2006 2005 respectively related income tax benefit recognized consolidated statement operations 200 300 fiscal years 2007 2006 2005 respectively received 18100 17600 1200 cash option exercises sharebased compensation plans fiscal years 2007 2006 2005 respectively december 28 2007 8600 9700 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized weightedaverage period approximately 27 months estimate fair value option award date grant using blackscholes option valuation model incorporates assumptions regarding number complex subjective variables recognize fair value option compensation cost ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term options granted chief executive officer based combination vesting schedules contractual life option past history estimates future exercise behavior patterns grants employees remaining directors estimate expected term using “simplified” method outlined staff accounting bulletin 107 “topic 14 sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application sfas 123r future periods compensation expense record sfas 123r future awards may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense sfas 123r option pricing models developed use estimating value traded options vesting hedging restrictions fully transferable cause dilution sharebased payments characteristics significantly different freely traded options changes subjective input assumptions materially affect estimates fair value existing valuation models may provide reliable measures fair value sharebased compensation consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercise expiration forfeiture sharebased payments future stock options may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments goodwill intangible assets least annually evaluate goodwill potential impairment prescribed sfas 142 “goodwill intangible assets” test impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” goodwill 53300 intangible assets 15600 relate global power group’s european operations experienced number performance related issues performance unit deteriorate future possible amounts could become impaired requiring writedown carrying values 2007 evaluation indicated adjustment carrying value goodwill intangible assets global power group’s european operations required 2007 recorded goodwill impairment charge 2400 based discounted cash flows connection decision wind operations one domestic reporting units income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax bases assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment statutory purposes majority deferred tax assets valuation allowance provided december 28 2007 begin expire 2024 later based current tax laws valuation allowance 294300 recorded december 28 2007 june 2006 fasb issued fin 48 addresses determination whether tax benefits claimed expected claimed tax return recorded financial statements adopted provisions fin 48 december 30 2006 first day fiscal year 2007 fin 48 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement fin 48 also provides guidance derecognition benefit uncertain tax position classification unrecognized tax benefits balance sheet accounting classification interest penalties income tax uncertainties accounting interim periods disclosures subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies various jurisdictions operate number jurisdictions file tax returns given year statute limitations certain jurisdictions may expire without examination within 12month period balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2002 number tax years audit relevant state foreign tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2008 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate impact change time result adoption fin 48 recognized 4400 reduction opening balance shareholders’ equity december 30 2006 resulted changes amount tax benefits recognized related uncertain tax positions accrual interest penalties december 28 2007 52200 unrecognized tax benefits 51800 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions consolidated statement operations recorded 2700 interest expense penalties fiscal year 2007 24200 accrued payment interest penalties december 28 2007 accounting developments september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements february 2008 fasb issued partial oneyear deferral sfas 157 nonfinancial assets liabilities subject fair value measurement nonrecurring basis standard effective financial assets liabilities well assets liabilities required measured fair value recurring basis financial statements financial statements issued fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities choose measure fair value many financial instruments certain assets liabilities currently required measured fair value unrealized gains losses items fair value option elected reported earnings sfas 159 affect existing accounting literature requires certain assets liabilities carried fair value sfas 159 effective fiscal years beginning november 15 2007 expect elect fair value option provided new standard december 2007 fasb issued sfas 141 revised 2007 “business combinations” sfas 141r replaces sfas 141 “business combinations” changes business acquisitions accounted sfas 141r requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed business combination certain provisions standard among things impact determination acquisitiondate fair value consideration paid business combination including contingent consideration exclude transaction costs acquisition accounting change accounting practices acquired contingencies acquisitionrelated restructuring costs inprocess research development indemnification assets tax benefits provisions sfas 141r apply prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 early adoption permitted currently assessing impact sfas 141r may financial position results operations cash flows december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 amends accounting reporting standards noncontrolling interest subsidiary often referred “minority interest” deconsolidation subsidiary sfas 160 noncontrolling interest subsidiary reported equity parent company’s consolidated financial statements sfas 160 also requires parent company’s consolidated statement operations include parent noncontrolling interest share subsidiary’s statement operations formerly noncontrolling interest share shown reduction income parent’s consolidated statement operations sfas 160 effective fiscal years interim periods within fiscal years beginning december 15 2008 sfas 160 applied prospectively beginning fiscal year statement initially applied however presentation disclosure requirements shall applied retrospectively periods presented currently assessing impact sfas 160 may financial position results operations cash flows item 7aitem 7 management’s discussion analysis financial condition results operations amounts thousands dollars except share data per share amounts following management’s discussion analysis certain significant factors affected financial condition results operations periods indicated discussion analysis read conjunction consolidated financial statements notes thereto included annual report form 10k safe harbor statement management’s discussion analysis financial condition results operations sections annual report form 10k reports oral statements made representatives time may contain forwardlooking statements based assumptions expectations projections foster wheeler ag various industries within operate include statements regarding expectations revenues including expressed backlog liquidity outcome litigation legal proceedings recoveries customers claims costs current future asbestos claims amount timing related insurance recoveries forwardlooking statements nature involve degree risk uncertainty caution variety factors including limited factors described item 1a “risk factors” following could cause business conditions results differ materially contained forwardlooking statements • benefits effects results redomestication relocation principal executive offices geneva switzerland • benefits effects results strategic renewal initiative • deterioration global economic conditions • changes investment oil gas oil refining chemicalpetrochemical power generation industries • changes financial condition customers • changes regulatory environments • changes project design schedules • contract cancellations • changes estimates costs complete projects • changes trade monetary fiscal policies worldwide • compliance laws regulations relating global operations • currency fluctuations • war terrorist attacks andor natural disasters affecting facilities either owned us equipment services may provided us • interruptions shipping lanes methods transit • outcomes pending future litigation including litigation regarding liability damages insurance coverage asbestos exposure • protection validity patents intellectual property rights • increasing global competition • compliance debt covenants • recoverability claims customers others us claims third parties us • changes estimates used critical accounting policies factors assumptions identified also involved formation forwardlooking statements failure assumptions realized well factors may also cause actual results differ materially projected factors difficult predict accurately generally beyond control consider areas risk described connection forwardlooking statements may made us addition management’s discussion analysis financial condition results operations contains several statements regarding current future general global economic conditions statements based compilation economic data analyses variety external sources believe statements reasonably accurate global economic conditions difficult analyze predict subject significant uncertainty result statements may prove wrong challenges drivers business segments discussed detail section entitled “ results operationsbusiness segments” within item 7 undertake obligation publicly update forwardlooking statements whether result new information future events otherwise advised however consult additional disclosures make proxy statements quarterly reports form 10q annual reports form 10k current reports form 8k filed furnished securities exchange commission sec overview operate two business groups global engineering construction group refer global ec group global power group addition two business groups also report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos expenses corporate finance group refer cf group exploring intend continue explore acquisitions within engineering construction industry strategically complement expand technical capabilities access new market segments also exploring acquisitions within power generation industry complement products global power group offers 2011 acquired company based germany designs manufactures installs equipment utilizes circulating dry ash flue gas scrubbing technology types steam generators power industrial sectors however assurance consummate acquisitions future summary financial results summary financial results 2011 2010 2009 follows 1 please refer section entitled “ results operations” within item 7 discussion 2 please refer section entitled “ liquidity capital resources” within item 7 discussion net income attributable foster wheeler ag decreased 2011 compared 2010 primarily driven pretax decrease contract profit 57300 included unfavorable impact inclusion curtailment gain settlement fee earned recognized 2010 decline also included unfavorable impact inclusion gain recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt favorable impact inclusion decreased equity earnings 2010 two projects italy recorded impairment charges net income attributable foster wheeler ag decreased 2010 compared 2009 primarily driven pretax decrease contract profit 159900 net favorable impact inclusion curtailment gain settlement fee recognized 2010 decline also included unfavorable impact decreased equity earnings 2010 two projects italy recorded impairment charges increase effective tax rate change net income attributable foster wheeler ag favorably impacted decrease net asbestosrelated provision included benefit gain settlement coverage litigation insurance carriers 2010 increased gain related debt service payments third parties camden new jersey wastetoenergy facility’s project please refer discussion within section entitled “ results operations” within item 7 challenges drivers primary operating focus continues booking quality new business effectively efficiently executing contracts global markets operate largely dependent overall economic growth resultant demand oil gas electric power petrochemicals refined products engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities 2010 2011 saw increased number clients restarting implementation intended capital spending plans following global economic downturn 2008 2009 clients releasing continue release tranches work piecemeal basis conducting analysis deciding proceed investments reevaluating size timing configuration specific planned projects also seeing clients reactivating planned projects previously placed hold developing new projects addition continued see intense competition among engineering construction contractors resulted pricing pressure clients plan investments much longer time horizons believe longterm demand expectations current oil prices supportive continued investments challenges drivers global ec group discussed detail section entitled “ results operationsbusiness segmentsglobal ec groupoverview segment” within item 7 2011 seen increased new proposal activity compared 2010 improvement demand markets products services global power group believe demand continue asia middle east south america primarily driven growing electricity demand industrial production regions however number constraining market factors continue impact markets serve factors include political environmental sensitivity regarding coalfired steam generators well outlook continued lower natural gas pricing next three five years increased attractiveness natural gas relation coal generation electricity factors may continue future challenges drivers global power group discussed detail section entitled “ results operationsbusiness segmentsglobal power groupoverview segment” within item 7 also potential downside risk global economic growth driven primarily sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented us japan risks materialize business groups could impacted new orders backlog unfilled orders tables summarize new orders backlog unfilled orders period defined section entitled “ backlog new orders” within item 7 please refer section entitled “ backlog new orders” within item 7 detail results operations operating revenues operate two business groups global ec group global power group please refer section entitled “ business segments” within item 7 discussion products services business segments composition operating revenues varies period based portfolio contracts execution given period operating revenues dependent upon strength various geographic markets industries serve ability address markets industries operating revenues geographic region based upon projects executed 2011 2010 2009 follows australasia primarily represents australia new zealand pacific islands 2011 vs 2010 operating revenues increased 2011 compared 2010 includes increased flowthrough revenues 186400 described excluding impact change flowthrough revenues currency fluctuations operating revenues increased 6 2011 compared 2010 increase operating revenues excluding flowthrough revenues currency fluctuations 2011 result significantly increased operating revenues global power group partially offset decreased operating revenues global ec group flowthrough revenues costs result purchase materials equipment thirdparty services behalf customer reimbursable basis profit materials equipment thirdparty services overall responsibility contractor engineering specifications procurement services materials equipment thirdparty services included flowthrough costs flowthrough revenues costs impact contract profit net earnings 2010 vs 2009 operating revenues declined 2010 compared 2009 decline primarily result decreased flowthrough revenues 470100 described decreased operating revenues operating groups foreign currency fluctuations minimal impact decline operating revenues operating revenues decreased approximately 16 excluding impact change flowthrough revenues 2010 compared 2009 please refer section entitled “ business segments” within item 7 discussion related operating revenues view market outlook operating groups contract profit contract profit computed operating revenues less cost operating revenues “flowthrough” amounts recorded operating revenues cost operating revenues contract profit contract profit margins computed contract profit divided operating revenues flowthrough revenues reduce con tract profit margin included operating revenues without corresponding impact contract profit result analyze contract profit margins excluding impact flowthrough revenues believe accurate measure operating performance 2011 vs 2010 contract profit declined 2011 compared 2010 decline net result decreased contract profit global ec group unfavorable impact inclusion curtailment gain 20100 related uk pension plan settlement fee earned 11800 recognized global ec group 2010 partially offset increased contract profit global power group 2010 vs 2009 operating groups experienced decreased contract profit 2010 compared 2009 partially offset favorable impact inclusion curtailment gain 20100 2010 related uk pension plan closed future defined benefit accrual settlement fee 11800 global ec group received 2010 please refer section entitled “ business segments” within item 7 information related contract profit operating groups selling general administrative sga expenses sga expenses include costs associated general management sales pursuit including proposal expenses research development costs 2011 vs 2010 sga expenses increased 2011 compared 2010 primarily result increased sales pursuit costs 14700 general overhead costs 4800 partially offset increased expenses 2010 related relocation principal executive offices geneva switzerland 8000 decreased charge severancerelated postemployment benefits 6000 2011 compared 2010 2011 sga expenses included severancerelated postemployment benefits charge 1100 included charges global ec group cf group 600 500 respectively 2010 sga expenses included severancerelated postemployment benefits charge 7100 cf group 2010 vs 2009 increase sga expenses 2010 compared 2009 resulted primarily increased expenses 2010 related relocation principal executive offices geneva switzerland 10300 increased charge severancerelated postemployment benefits 2500 partially offset decreased general overhead costs 3300 sales pursuit research development costs relatively flat 2010 sga expenses included severancerelated postemployment benefits charge 7100 cf group 2009 sga expenses included severancerelated postemployment benefits charge 4600 included charges cf group global ec group 3700 900 respectively income net income net 2011 consisted primarily equity earnings 40100 generated investments primarily ownership interests build operate projects chile italy 2011 equity earnings global power group’s project chile global ec group’s projects italy 30900 9700 respectively additionally recognized 4000 gain 2011 related revaluation contingent consideration liability income net decreased 2011 compared 2010 primarily driven unfavorable impact inclusion 21900 gain recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt described decreased valueadded tax refunds nonincome tax credits 3400 partially offset increased equity earnings global power group’s project chile 10200 increased equity earnings global ec group’s investments 5900 includes favorable impact inclusion decreased equity earnings 2010 13200 related impairment charges recognized two global ec group’s projects italy 4000 gain 2011 related revaluation contingent consideration liability global ec group income net 2010 consisted primarily equity earnings 24000 generated investments primarily ownership interests build operate projects italy chile 21900 gain recognized payment remaining balance camden new jersey wastetoenergy facility’s project debt pollution control finance authority camden county pcfa state new jersey income net increased 2010 compared 2009 net result 12000 increase 2010 related gain recognized debt service payments third parties camden new jersey wastetoenergy facility’s project debt increase equity earnings global power group’s project chile 4600 activities including 2600 valueadded tax refunds nonincome tax credits partially offset decrease equity earnings global ec group’s projects italy 2010 global ec group’s equity earnings decreased 13200 compared 2009 two projects italy recorded impairment charges 2010 information related equity earnings please refer sections within item 7 entitled “ business segmentsglobal power group” global power group’s project chile “ business segmentsglobal ec group” global ec group’s projects italy well note 5 consolidated financial statements annual report form 10k income net 2009 consisted primarily 34500 equity earnings generated investments described 9900 gain recognized payment third parties 2009 debt service obligation camden wastetoenergy facility’s project debt deductions net deductions net includes various items legal fees consulting fees bank fees net penalties unrecognized tax benefits impact net foreign exchange transactions within period net foreign exchange transactions include net amount transaction losses gains arise exchange rate fluctuations transactions denominated currency functional currency subsidiaries net foreign exchange transaction gains losses 2011 2010 2009 primarily driven exchange rate fluctuations cash balances held certain subsidiaries denominated currency functional currency subsidiaries deductions net 2011 consisted primarily legal fees 17800 consulting fees 12000 net penalties unrecognized tax benefits 4000 net previously accrued tax penalties ultimately assessed bank fees 3500 partially offset net foreign exchange transaction gain 1100 deductions net 2010 consisted primarily legal fees 17800 net foreign exchange transaction losses 5800 consulting fees 4700 bank fees 4300 net penalties unrecognized tax benefits 1700 net previously accrued tax penalties ultimately assessed charge unamortized fees expenses related amendment restatement october 2006 us senior secured credit agreement july 2010 1600 deductions net 2009 consisted primarily legal fees 16400 consulting fees 4000 bank fees 3900 net penalties unrecognized tax benefits 2500 net previously accrued tax penalties ultimately assessed interest income 2011 vs 2010 increase interest income 2011 compared 2010 primarily result higher investment yields cash equivalents balances lesser extent higher average cash equivalents balances favorable foreign currency fluctuations 2010 vs 2009 increase interest income 2010 compared 2009 primarily result higher average cash equivalents balances lesser extent favorable impact higher investment yields cash equivalents balances interest expense 2011 vs 2010 interest expense decreased 2011 compared 2010 primarily result favorable impact decreased average borrowings 2010 vs 2009 interest expense increased 2010 compared 2009 primarily resulted increase net interest expense unrecognized tax benefits 3800 partially offset decreased average borrowings accrued interest expense unrecognized tax benefits 2010 2009 net reversal previously accrued interest expense unrecognized tax benefits ultimately assessed 1900 5100 respectively net asbestosrelated provision 2011 vs 2010 net asbestosrelated provision increased 2011 compared 2010 net result decreased gain settlement coverage litigation asbestos insurance carriers 2011 compared 2010 7900 partially offset decreased provision related revaluation asbestos liability 3400 2011 2010 provisions included charges increase asbestos liability increased asbestos defense costs projected 15 year estimate 2010 vs 2009 net asbestosrelated provision decreased 2010 compared 2009 result increased gain settlement coverage litigation asbestos insurance carriers 2010 compared 2009 12800 decreased provision related revaluation asbestos liability 8200 2010 2009 provisions included charges increase asbestos liability increased asbestos defense costs projected 15 year estimate please refer note 16 consolidated financial statements annual report form 10k information provision income taxes although swiss corporation exclusively traded us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets effective tax rate fluctuate significantly period may differ significantly us federal statutory rate result income taxed various nonus jurisdictions rates different us statutory rate result inability recognize tax benefit losses generated certain unprofitable operations result varying mix income earned jurisdictions operate addition deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future periods operating units subject valuation allowance generate pretax earnings corresponding reduction valuation allowance favorably impacts effective tax rate conversely periods operating units subject valuation allowance generate pretax losses corresponding increase valuation allowance unfavorable impact effective tax rate effective tax rate 2011 lower us statutory rate 35 due principally net impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 175percentage point reduction effective tax rate • valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us contributed approximate sixpercentage point increase effective tax rate effective tax rate 2010 lower us statutory rate 35 due principally net impact following • income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 17percentage point reduction effective tax rate • total changes valuation allowance contributed approximate fivepercentage point increase effective tax rate result net impact valuation allowance increase unable recognize tax benefit losses subject valuation allowance certain jurisdictions primarily us reversal valuation allowance deferred tax assets nonus jurisdiction effective tax rate 2009 lower us statutory rate 35 due principally net impact income earned tax jurisdictions tax rates lower us statutory rate contributed approximate 15percentage point reduction effective tax rate 2009 monitor jurisdictions valuation allowances deferred tax assets established previous years evaluate quarterly basis need valuation allowances deferred tax assets jurisdictions evaluation includes review available evidence positive negative determining whether valuation allowance necessary statutory purposes majority us federal tax benefits valuation allowances established expire 2025 beyond based current tax laws net income attributable noncontrolling interests net income attributable noncontrolling interests represents thirdparty ownership interests net income global power group’s martinez california gasfired cogeneration subsidiary manufacturing subsidiaries poland people’s republic china well global ec group’s subsidiaries malaysia south africa change net income attributable noncontrolling interests based upon changes net income subsidiaries andor changes noncontrolling interests’ ownership interest subsidiaries 2011 vs 2010 net income attributable noncontrolling interests decreased 2011 compared 2010 net result decreases net income operations people’s republic china poland south africa partially offset increase net income operations martinez california 2010 vs 2009 increase net income attributable noncontrolling interests 2010 compared 2009 primarily resulted increase net income subsidiary martinez california contributed 3900 increase net income attributable noncontrolling interests changes included increase net income subsidiary south africa substantially offset decreases net income subsidiaries people’s republic china malaysia ebitda discussed defined primary measure operating performance used chief operating decision maker addition two business groups also represent operating segments financial reporting purposes report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group cf group also represents operating segment financial reporting purposes 2011 vs 2010 ebitda decreased 2011 compared 2010 primarily driven decreased contract profit 57300 net result decreased contract profit global ec group partially offset increased contract profit global power group decrease contract profit also included unfavorable impact inclusion curtailment gain settlement fee earned recognized global ec group 2010 decline ebitda also included unfavorable impact inclusion gain recognized global power group 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt favorable impact inclusion decreased equity earnings 2010 two global ec group projects italy recorded impairment charges 2010 vs 2009 ebitda decreased 2010 compared 2009 primarily driven decreased contract profit 159900 result decreased contract profit global ec group global power group decrease contract profit also included favorable impact inclusion curtailment gain settlement fee earned recognized global ec group 2010 decline ebitda also included decreased equity earnings global ec group 2010 compared 2009 two projects italy recorded impairment charges change ebitda favorably impacted decrease net asbestosrelated provision included benefit gain settlement coverage litigation insurance carriers 2010 increased gain recognized global power group related debt service payments third parties camden new jersey wastetoenergy facility’s project debt please refer preceding discussion items within “ results operations” section individual segment explanations ebitda supplemental financial measure defined generally accepted accounting principles gaap define ebitda income attributable foster wheeler ag interest expense income taxes depreciation amortization presented ebitda believe important supplemental measure operating performance certain covenants us senior secured credit agreement use adjusted form ebitda covenant calculations ebitda presented herein adjusted certain unusual infrequent items specifically excluded terms us senior secured credit agreement believe line item consolidated statement operations entitled “net income attributable foster wheeler ag” directly comparable gaap financial measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net income attributable foster wheeler ag indicator operating performance gaap financial measure ebitda calculated us may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure ability fund cash needs ebitda excludes certain financial information included net income attributable foster wheeler ag users financial information consider type events transactions excluded nongaap performance measure ebitda certain material limitations follows • include interest expense borrowed money finance operations interest necessary ongoing part costs assisted us generating revenue therefore measure excludes interest expense material limitations • include taxes payment taxes necessary ongoing part operations measure excludes taxes material limitations • include depreciation amortization must utilize property plant equipment intangible assets order generate revenues operations depreciation amortization necessary ongoing costs operations therefore measure excludes depreciation amortization material limitations reconciliation ebitda net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest ebitda table includes following 1 please refer “revenue recognition longterm contracts” note 1 consolidated financial statements annual report form 10k information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 consolidated financial statements annual report form 10k information regarding revaluation asbestos liability related asset accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group business segments global ec group results global ec group’s operating revenues geographic region based upon projects executed 2011 2010 2009 follows australasia primarily represents australia new zealand pacific islands please refer section entitled “ overview segment” view market outlook global ec group 2011 vs 2010 global ec group experienced increase operating revenues 3 2011 compared 2010 increase primarily driven increased flowthrough revenues 187800 change operating revenues also included unfavorable impact inclusion settlement fee earned 11800 global ec group recognized 2010 noted excluding flowthrough revenues foreign currency fluctuations settlement fee recognized 2010 global ec group’s operating revenues decreased 8 2011 compared 2010 global ec group’s ebitda decreased 2011 compared 2010 primarily driven decreased contract profit 61400 excluding impact curtailment gain settlement fee earned recognized 2010 decrease contract profit primarily resulted decreased contract profit margins decreased volume operating revenues excluding flowthrough revenues ebitda decline also included unfavorable impacts inclusion 20100 curtailment gain related 2010 future benefit accrual closure uk defined benefit pension plan 9800 settlement fee recognized 2010 described ebitda negatively impacted increased sales pursuit costs 2011 compared 2010 10800 driven increased new proposal activity decline ebitda partially offset increased equity earnings global ec group’s investments 5900 2010 equity earnings included impairment charges 13200 recognized two global ec group’s projects italy 2010 vs 2009 global ec group experienced decrease operating revenues 17 2010 compared 2009 decline included net impact decreased flowthrough revenues 468800 partially offset favorable impact settlement fee earned 11800 global ec group received 2010 noted foreign currency fluctuations minimal impact decline operating revenues excluding flowthrough revenues settlement fee noted global ec group’s operating revenues decreased 10 2010 compared 2009 global ec group’s ebitda decreased 2010 compared 2009 primarily driven decreased contract profit 144000 excluding impact curtailment gain settlement fee earned recognized 2010 decrease contract profit primarily resulted decreased contract profit margins lesser extent volume decrease operating revenues excluding flowthrough revenues ebitda decline also included favorable impacts inclusion 20100 curtailment gain related 2010 future benefit accrual closure uk defined benefit pension plan 9800 settlement fee recognized 2010 described well unfavorable impact inclusion decreased equity earnings 13200 2010 two global ec group’s projects italy recorded impairment charges equity interest investment impairment charges 2010 two equity interest investments electric power generation projects italy centro energia teverola spa cet centro energia ferrara spa cef terminated longterm incentivized power offtake agreements place authority energy light termination power offtake agreements respective partners cet cef reviewed economic viability plant result decision made shut cet plant effective january 1 2011 following termination power offtake agreement partner cef decided continue operate cef plant least temporarily merchant basis considered possible future sale plant result foregoing operating decisions cet cef recorded impairment charges fourth quarter 2010 write fixed assets fair value financial statements additionally fourth quarter 2010 investments cet cef reduced equity losses based cet’s cef’s 2010 financial results inclusive respective impairment charges result foregoing carrying value cet cef investments approximated fair value december 31 2010 2011 partner cef concluded would continue operate plant continuing consider longterm economic viability plant potential disposal options equity earnings cet cef investments 2011 insignificant equity loss cet cef investments 2010 totaled 8200 inclusive 2010 impairment charges totaling 13200 please refer note 5 consolidated financial statements annual report form 10k information 2010 settlement fee 2010 received settlement fee 11800 included operating revenues due client’s decision proceed power plant development project related prospective engineering procurement construction contract incurred 2000 costs related project included writeoff capitalized costs project company development costs items contributed net favorable impact ebitda 2010 approximately 9800 overview segment global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • design supply directfired furnaces including fired heaters waste heat recovery generators used range refinery chemical petrochemical oil gas processes including furnaces used proprietary delayed coking hydrogen production technologies global ec group owns one leading technologies sydecsm delayed coking used refinery residue upgrading addition refinery residue upgrading technologies solvent deasphalting visbreaking hydrogen production process used oil refineries petrochemical plants also proprietary sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct additionally global ec group experience able work wide range processes owned others global ec group generates revenues design engineering procurement construction project management activities pursuant contracts spanning approximately four years duration generates equity earnings returns noncontrolling interest investments various power production facilities engineering construction industry expect longterm demand strong end products produced clients believe longterm demand continue stimulate investment clients new expanded upgraded facilities 2010 2011 saw increased number clients restarting implementation intended capital spending plans following global economic downturn 2008 2009 clients releasing continue release tranches work piecemeal basis conducting analysis deciding proceed investments reevaluating size timing configuration specific planned projects also seeing clients reactivating planned projects previously placed hold developing new projects clients plan investments based longterm time horizons believe longterm demand expectations current oil prices supportive continued investments also believe global demand energy chemicals pharmaceuticals continue grow longterm clients continue invest new upgraded capacity meet demand continued see intense competition among engineering construction contractors resulted pricing pressure factor expected continue 2012 also potential downside risk global economic growth driven primarily sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented us japan geopolitical oil supply risks materialize global ec group could impacted continued successful booking contracts varying types sizes key end markets including engineering procurement construction management epcm project waste energy project europe epcm contract propylene oxide unit saudi arabia design material supply delayed coker heaters europe us engineering services offshore facilities gulf mexico engineering delayed coker island europe frontend engineering design project new chemicals facility asia success regard reflection safety performance technical expertise project execution performance longterm relationships clients selective approach pursuit new prospects believe significant differentiators global power group results global power group’s operating revenues geographic region based upon projects executed 2011 2010 2009 follows australasia primarily represents australia new zealand pacific islands nm meaningful please refer section entitled “ overview segment” view market outlook global power group 2011 vs 2010 global power group experienced significant increase operating revenues 2011 compared 2010 increase primarily driven increased volume business additional favorable impact foreign currency fluctuations excluding foreign currency fluctuations global power group’s operating revenues increased 40 2011 compared 2010 global power group’s ebitda increased 2011 compared 2010 primarily driven increased contract profit 35600 increase contract profit primarily resulted increased volume operating revenues partially offset decreased contract profit margins including impact outofperiod correction recorded 2011 reduction final estimated profit approximately 4600 discussed item 7 “ results operationsebitda” ebitda 2011 also benefited increased equity earnings global power group’s project chile 10200 increase ebitda net unfavorable impact inclusion gain 21900 recognized 2010 payment third parties remaining balance camden new jersey wastetoenergy facility’s project debt please see discussion 2010 vs 2009 global power group experienced significant decrease operating revenues 2010 compared 2009 29 foreign currency fluctuations minimal impact decline decrease result significant decrease volume business global power group’s ebitda decreased 2010 compared 2009 primarily driven decreased contract profit 49800 decrease contract profit primarily resulted volume decrease operating revenues partially offset increased contract profit margins change ebitda favorably impacted increased gain 12000 related debt service payments third parties camden new jersey wastetoenergy facility’s project debt decreased sga expenses 2010 9900 primarily result decreased sales pursuit costs general overhead costs increase equity earnings global power group’s project chile 4600 includes recognition insurance recoveries 2010 described equity interest investment impact 2010 chile earthquake february 27 2010 earthquake occurred coast chile caused significant damage global power group’s project chile result damage project’s facility suspended normal operating activities date project included estimated recovery business interruption insurance policy financial statements covered period facility suspended normal operating activities accordance authoritative accounting guidance business interruption insurance project recorded estimated recovery lost profits substantially contingencies related insurance claim resolved third quarter 2010 facility began operating less normal utilization second quarter 2011 achieved normal operating activities third quarter 2011 equity earnings project chile 30900 20700 2011 2010 respectively increase equity earnings 2011 compared 2010 primarily driven increase project’s volume electricity produced 2011 well higher marginal rates 2011 electrical power generation overview segment global power group designs manufactures erects steam generators auxiliary equipment electric power generating stations district heating power plants industrial facilities worldwide competitive differentiation serving markets ability products cleanly efficiently burn wide range fuels singularly combination particular cfb steam generators able burn coals varying quality well petroleum coke lignite municipal waste wood biomass numerous materials among fuel sources coal widely used thus market drivers constraints associated coal strongly affect steam generator market global power group’s business additionally global power group owns wastetoenergy facility controlling interest combinedcycle gas turbine facility operates two cogeneration power facilities steamelectric refineryelectric power generation global power group offers number products services related steam generators including • designing manufacturing installing auxiliary replacement equipment utility power industrial facilities including surface condensers feedwater heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • design supply installation nitrogenoxide nox reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • design supply installation flue gas desulfurization equipment types steam generators industrial equipment • broad range site services including construction erection services maintenance engineering steam generator upgrading life extension plant repowering • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries 2011 seen increased new proposal activity compared 2010 improvement demand markets products services global power group believe demand continue asia middle east south america primarily driven growing electricity demand industrial production regions number constraining market factors continue impact markets serve political environmental sensitivity regarding coalfired steam generators continues cause prospective projects utilizing coal primary fuel postponed cancelled clients experience difficulty obtaining required environmental permits decide wait additional clarity regarding governmental regulations environmental concern especially pronounced us western europe linked view solidfuelfired steam generators contribute global warming discharge greenhouse gas emissions atmosphere outlook continued lower natural gas pricing next three five years driven increasing supply new liquefied natural gas capacity increased attractiveness natural gas relation coal generation electricity addition constraints global credit market may continue impact clients’ investment plans clients affected availability cost financing well financial strategies could include cash conservation factors could negatively impact investment power sector turn could negatively impact global power group’s business longerterm believe world demand electrical energy continue grow solidfuelfired steam generators continue fill significant portion incremental growth new generating capacity see growing need repower older coal plants new efficient cleaner burning coal plants order meet environmental financial reliability goals set policy makers many countries fuel flexibility cfb steam generators enables burn wide variety fuels coal produce carbonneutral electricity fired biomass addition utility steam generators designed incorporate supercritical steam technology believe significantly improves power plant efficiency reduces power plant emissions potential downside risk global economic growth driven primarily sovereign debt bank funding pressures eurozone speed governmental efforts directed spending debt reduction implemented us japan risks materialize global power group could impacted completed engineering supply project pilotscale approximately 30 megawatt thermal equivalent approximately 10 megawatt electrical mwe cfb steam generator incorporates carboncapturing flexiburntm technology cfb steam generator operation testing begun validate design fullscale carboncapturing cfb power plant executing project together parties funded grant agreement european commission ec support technology development commercial scale approximately 300 mwe carbon capture storage ccs demonstration plant featuring flexiburntm cfb technology development work demonstrates project meets specified technology investment goals construction commercial scale demonstration plant could begin 2013 plant could operational 2016 project one six european based ccs projects selected funding ec european energy program recovery selected project utilizing cfb technology ccs application 2011 received award four 550 mwe supercritical cfb steam generators power project south korea indication successful scaleup cfb technology advances cfb supercritical technology verticaltube oncethrough design recently awarded contracts include design supply four 250 mwe clean burning cfb steam generators vietnam four 150 mwe cfb steam generators related technology license india two large concentrated solar power projects southwestern us addition received two limited notices proceed include award design wastetoenergy cfb south korea award two largescale heat recovery steam generators hungary solutions provide based clients’ varied needs believe success winning new awards comes track record developing innovative technology competitively combine reliability efficiency achieve environmental goals liquidity capital resources 2011 activities cash equivalents shortterm investments restricted cash balances nm meaningful total cash equivalents shortterm investments restricted cash held nonus entities december 31 2011 2010 630000 849500 respectively please refer note 1 consolidated financial statements annual report form 10k additional details cash equivalents restricted cash balances 2011 experienced decrease cash equivalents 339100 primarily result cash used repurchase shares pay related commissions share repurchase program 409400 cash used capital expenditures 28100 payments related business acquisitions 29400 unfavorable impact related exchange rate changes cash equivalents 28100 change restricted cash excluding foreign currency translation effects 18600 partially offset cash provided operating activities 185700 cash flows operating activities net cash provided operating activities 2011 primarily resulted cash provided net income 248700 excludes noncash charges 72000 cash provided working capital 10100 partially offset mandatory discretionary contributions pension plans 71000 included discretionary contributions 51300 cash used net asbestosrelated payments 7900 please refer note 16 consolidated financial statements annual report form 10k information net asbestosrelated payments increase net cash provided operating activities 7100 2011 compared 2010 resulted primarily favorable change working capital resulted increase cash 37600 decreased contributions pension plans 27600 driven lower discretionary contributions 25300 partially offset decreased cash provided net income 60700 decrease net cash provided operating activities 111900 2010 compared 2009 resulted primarily decreased cash provided net income 150300 increased pension plan contributions 27200 driven higher discretionary contributions 28300 partially offset decreased cash used fund working capital 92600 decreased cash used asbestosrelated activities 24900 working capital varies period depending mix stage completion commercial terms conditions contracts timing related cash receipts generated cash conversion working capital 2011 cash receipts client billings exceeded cash used services rendered purchases materials equipment 2010 used cash fund working capital increase cash provided working capital 2011 primarily driven conversion working capital cash global ec group global power group used cash fund working capital fully described “ outlook” believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months ability increase maintain cash flows operating activities future periods depend large part demand products services operating performance future please refer sections entitled “ global ec groupoverview segment” “ global power groupoverview segment” view outlook business segments cash flows investing activities net cash used investing activities 2011 attributable primarily payments related business acquisitions 29400 capital expenditures 28100 increase restricted cash 18600 net cash used investing activities 2010 attributable primarily capital expenditures 23300 payments related business acquisitions 4200 partially offset decrease restricted cash 6000 proceeds sale investments assets 5100 return investment unconsolidated affiliates 3200 net cash used investing activities 2009 attributable primarily capital expenditures 45600 included 18100 expenditures fw power srl construction electric power generating wind farm projects italy payments totaling approximately 32600 primarily two business acquisitions specializing upstream oil gas engineering services capital expenditures 2011 2010 2009 related primarily project construction including expenditures related fw power srl wind farm projects 2009 noted leasehold improvements information technology equipment office equipment capital expenditures increased 4800 2011 compared 2010 result increased expenditures global power group capital expenditures global ec group relatively flat information capital expenditures segment please see note 14 consolidated financial statements annual report form 10k cash flows financing activities net cash used financing activities 2011 attributable primarily cash used repurchase shares pay related commissions share repurchase program 409400 please see “ outlook” section details regarding share repurchase program financing activities included cash used repayment debt capital lease obligations 12500 distributions noncontrolling interests 11400 partially offset cash provided exercise stock options 11900 net cash used financing activities 2010 attributable primarily cash used repurchase shares share repurchase program 99200 financing activities included repayment debt capital lease obligations 16700 distributions noncontrolling interests 8000 partially offset cash provided exercise stock options 25700 net cash provided financing activities 2009 attributable primarily proceeds issuance debt 13100 proceeds exercise share purchase warrants 2800 partially offset repayment debt capital lease obligations 12700 distributions noncontrolling interests 2200 outlook liquidity forecasts cover among analyses existing cash balances cash flows operations cash repatriations changes working capital activities unused credit line availability claim recoveries proceeds asset sales forecasts extend rolling 12month period based forecasts believe existing cash balances forecasted net cash provided operating activities sufficient fund operations throughout next 12 months based forecasts primary cash needs working capital expenditures pension contributions net asbestosrelated payments may also use cash acquisitions discretionary pension plan contributions repurchase shares share repurchase program described majority cash balances invested shortterm interest bearing accounts maturities less three months creditworthy financial institutions around world significant deterioration current global economic credit market environment particularly eurozone countries could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions continue consider investing cash longerterm investment opportunities including acquisition entities operations engineering construction industry power industry andor reduction certain liabilities unfunded pension liabilities customary industries operate provide standby letters credit bank guarantees performance bonds favor clients secure obligations contracts believe sufficient letter credit capacity existing facilities throughout next 12 months dependent cash repatriations subsidiaries cover essentially payments expenses holding company principal executive offices switzerland cover cash needs related asbestosrelated liability overhead expenses us discretion acquisition shares share repurchase program described consequently require cash repatriations switzerland us entities located countries normal course operations meet swiss us cash needs successfully repatriated cash many years believe repatriate required amount cash switzerland us additionally continue access revolving credit portion us senior secured credit facility needed net asbestosrelated payments result asbestos liability indemnity defense costs payments excess insurance settlement proceeds 2011 net asbestosrelated cash outflows approximately 7900 2012 expect net cash outflows approximately 7400 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded balance sheet continue decrease july 30 2010 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered fouryear amendment restatement us senior secured credit agreement entered october 2006 amended restated us senior secured credit agreement provides facility 450000 includes provision permits future incremental increases aggregate 225000 total additional availability facility amended restated us senior secured credit agreement permits us issue 450000 letters credit facility letters credit issued amended restated us senior secured credit agreement performance pricing decreased increased result improvements reductions corporate credit rating reported moody’s investors service refer moody’s andor standard poor’s refer sp received corporate credit rating bbb issued sp 2010 amended restated us senior secured credit agreement reduces pricing letters credit issued agreement based current ratings letter credit fees performance financial letters credit issued amended restated us senior secured credit agreement 1000 2000 per annum outstanding amount respectively excluding fronting fees performance pricing expected materially impact liquidity capital resources next 12 months also option use 100000 450000 revolving borrowings rate equal adjusted libor defined agreement plus 2000 subject also performance pricing noted assets andor stock certain us nonus subsidiaries collateralize obligations amended restated us senior secured credit agreement event corporate credit rating issued moody’s least baa3 issued sp least bbb liens securing obligations amended restated us senior secured credit agreement automatically released terminated approximately 225600 310000 letters credit outstanding us senior secured credit agreement effect december 31 2011 2010 respectively funded borrowings us senior secured credit agreement outstanding december 31 2011 2010 based current operating plans cash forecasts intend borrow us senior secured credit facility 2012 please refer note 7 consolidated financial statements annual report form 10k information regarding debt obligations february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s facility chile result damage project’s facility suspended normal operating activities date subsequent date unconsolidated affiliate filed claim insurance carrier preliminary assessment extent damage completed estimate required cost repairs developed based assessment cost estimate well correspondence received insurance carrier expect property damage insurance recovery sufficient cover costs repairing facility insurance carrier also provided preliminary assessment business interruption insurance recovery due unconsolidated affiliate advanced insurance proceeds assessment based assessment expect business interruption insurance recovery substantially compensate unconsolidated affiliate loss profits facility suspended normal operating activities unconsolidated affiliate’s receivable related remaining balance property damage business interruption insurance recovery assessment approximately 66400 december 31 2011 facility began operating less normal utilization second quarter 2011 achieved normal operating activities third quarter 2011 please refer note 5 consolidated financial statements annual report form 10k information equity interest project required make mandatory contributions us pension plans 2012 based minimum statutory funding requirements based minimum statutory funding requirements 2012 expect make mandatory contributions totaling approximately 22400 nonus pension plans 2012 additionally may elect make additional discretionary contributions us andor nonus pension plans 2012 september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 designation repurchased shares cancellation approved shareholders extraordinary general meeting february 24 2011 based aggregate share repurchases program december 31 2011 authorized repurchase additional 91500 outstanding shares repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time repurchases made pursuant share repurchase program funded using cash hand december 31 2011 repurchased 39651649 shares aggregate cost approximately 993500 december 2011 initiated trades repurchase aggregate 564100 additional shares settled january 2012 aggregate cost approximately 10900 cumulatively february 23 2012 repurchased 40215749 shares aggregate cost approximately 1004400 authorized repurchase approximately 80600 additional outstanding shares executed repurchases accordance 10b51 repurchase plans well privately negotiated transactions pursuant share repurchase program 10b51 repurchase plans allow us purchase shares times may otherwise due regulatory internal restrictions purchases 10b51 repurchase plans based parameters set forth plans information please refer part ii item 5 annual report form 10k declared paid cash dividend since july 2001 plans declare pay cash dividends current us senior secured credit agreement contains limitations cash dividend payments well restricted payments offbalance sheet arrangements several noncontrolling equity interests power projects chile italy certain projects thirdparty debt consolidated balance sheet also issued certain guarantees chilebased project please refer note 5 consolidated financial statements annual report form 10k information related projects contractual obligations contractual obligations comprised longterm debt noncancelable operating lease commitments purchase commitments capital lease obligations pension postretirement benefit funding requirements expected cash flows related contractual obligations outstanding december 31 2011 follows funding requirements expected extend beyond five years however data contribution requirements beyond five years yet available depend performance investment portfolio actuarial experience projections assume discretionary contributions table include payments asbestosrelated liabilities cannot reasonably predict timing net cash outflows associated liability beyond 2012 expect fund 7400 asbestos liability indemnity defense costs cash flows 2012 net cash expected received existing insurance settlements please refer note 16 consolidated financial statements annual report form 10k information table include payments relating uncertain tax positions cannot reasonably predict timing net cash outflows associated settlement obligations total liability including accrued interest penalties 79400 december 31 2011 please refer note 13 consolidated financial statements annual report form 10k information contingently liable standby letters credit bank guarantees surety bonds primarily guarantees performance projects currently execution warranty balances include standby letters credit issued us senior secured credit agreement discussion please refer section entitled “ liquidity capital resourcesoutlook” within item 7 facilities worldwide december 31 2011 commitments period expiration follows please refer note 9 consolidated financial statements annual report form 10k discussion guarantees backlog new orders new orders recorded added backlog unfilled orders based signed contracts well agreed letters intent determined legally binding likely proceed although backlog represents business considered likely performed cancellations scope adjustments may occur elapsed time award contract completion performance may approximately four years dollar amount backlog necessarily indicative future earnings related performance work due factors outside control changes project schedules scope adjustments project cancellations cannot predict certainty portion backlog performed given year backlog adjusted quarterly reflect new orders project cancellations deferrals revised project scope cost sales subsidiaries backlog measured foster wheeler scope reflects dollar value backlog excluding thirdparty costs incurred us reimbursable basis agent principal refer flowthrough costs foster wheeler scope measures component backlog profit potential corresponds services plus fees reimbursable contracts total selling price fixedprice lumpsum contracts new orders measured terms future revenues australasia primarily represents australia new zealand pacific islands backlog measured terms future revenues australasia primarily represents australia new zealand pacific islands foreign currency translation impact backlog foster wheeler scope backlog resulted decreases 73000 69900 respectively december 31 2011 compared december 31 2010 inflation effect inflation financial results minimal although majority revenues realized longterm contracts selling prices contracts established deliveries future generally reflect estimated costs complete projects future periods addition many projects reimbursable actual cost plus fee fixedprice contracts provide price adjustments escalation clauses application critical accounting estimates consolidated financial statements presented accordance accounting principles generally accepted united states america management audit committee board directors approve critical accounting policies highlighted accounting policies consider significant understanding operations business well key estimates used implementing policies revenue recognition revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixed price contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition rely extensively estimates forecast quantities labor manhours materials equipment costs quantities including exchange rates schedule execute scope work including allowances weather labor civil unrest many estimates cannot based historical data contracts unique specifically designed facilities determining revenues must estimate percentageofcompletion likelihood client pay work performed cash received net taxes ultimately due withheld country work performed projects reviewed individual basis estimates used tailored specific circumstances establishing estimates exercise significant judgment possible risks cannot specifically quantified percentageofcompletion method requires adjustments reevaluations estimated project revenues costs including estimated claim recoveries recognized projecttodate cumulative basis changes estimates identified revisions project estimates made additional information becomes known including information becomes available subsequent date consolidated financial statements date consolidated financial statements filed sec final estimated profit complete longterm contract indicates loss provision made immediately total loss anticipated profits accrued throughout life project based percentageofcompletion project life cycle including projectspecific warranty commitments approximately six years duration actual project results significantly different estimated results adjustments identified near end project full impact change estimate recognized change profit contract period result material impact results single reporting period review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 43 46 43 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 2011 2010 2009 respectively changes final estimated contract profit resulted net increase 35200 56800 69000 reported contract profit 2011 2010 2009 respectively relating revaluation work performed contracts prior periods changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements changes final estimated contract profit revisions 2009 included 24300 positive settlements two projects global ec group 14800 associated receipt payment long outstanding arbitration award impact contract profit measured beginning year represents incremental contract profit loss would recorded prior periods able recognize periods impact current period changes final estimated profits asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier calculation asbestosrelated liabilities assets involves use estimates discussed believe critical assumptions within asbestos liability estimate number future mesothelioma claims filed us number mesothelioma claims ultimately require payment us insurers indemnity payments required resolve mesothelioma claims united states december 31 2011 recorded total liabilities 294300 comprised estimated liability 56700 relating open outstanding claims valued estimated liability 237600 relating future unasserted claims december 31 2026 total 50900 recorded accrued expenses 243400 recorded asbestosrelated liability consolidated balance sheet since 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years since time recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2011 activity arpc recommended assumptions used estimate future asbestos liability updated december 31 2011 accordingly developed revised estimate aggregate indemnity defense costs december 31 2026 considering advice arpc 2011 revalued liability asbestos indemnity defense costs december 31 2026 294300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 16000 2011 primarily related revaluation asbestos liability includes adjustments actual settlement experience different estimates accrual rolling 15year asbestosrelated liability estimate total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2026 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer non malignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred yearend 2026 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2026 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2026 december 31 2011 total cumulative indemnity costs paid prior insurance recoveries approximately 764900 total cumulative defense costs paid approximately 367300 approximately 32 total defense indemnity costs december 31 2011 recorded assets 174700 represents best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2026 43700 asset recorded within accounts notes receivableother 131000 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2026 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2011 2010 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2011 2010 2009 2011 reached agreement insurer bankruptcy liquidation written receivable prior 2009 asset awarded bankruptcy liquidation insurer 4500 included asbestosrelated assets december 31 2011 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected plan update forecasts periodically take consideration experience update estimate future costs expected insurance recoveries estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amount claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows following chart reflects sensitivities december 31 2011 consolidated financial statements associated change certain estimates used relation us asbestosrelated liabilities based december 31 2011 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 47700 described impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations approximately 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries would decline subsidiaries effective managing asbestos litigation part subsidiaries 1 access historical project documents business records going back 50 years allowing defend determining claimants present location alleged asbestos exposure timing extent presence 2 maintain good records insurance policies identified validated policies issued since 1952 3 consistently vigorously defended claims resulted dismissal claims without merit settlement meritorious claims amounts considered reasonable united kingdom december 31 2011 recorded total liabilities 28800 comprised estimated liability relating open outstanding claims 8000 estimated liability relating future unasserted claims december 31 2026 20800 total 2700 recorded accrued expenses 26100 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 2700 recorded accounts notes receivableother 26100 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability related asset recorded uk would approximately 42000 defined benefit pension postretirement benefit plans defined benefit pension plans us uk canada finland france india south africa postretirement benefit plans opeb plans health care life insurance benefits us canada defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans certain employees us canada may become eligible health care life insurance benefits postretirement benefits qualify commence receipt normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 defined benefit pension opeb plans accounted accordance current accounting guidance requires us recognize funded status defined benefit pension opeb plans consolidated balance sheet guidance also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax please refer note 8 consolidated financial statements annual report form 10k information calculations defined benefit pension opeb plan liabilities annual service cost cash contributions required rely heavily estimates future events often extending decades future responsible establishing assumptions used estimates include • discount rate used calculate present value future obligations • expected longterm rate return plan assets • expected rate annual salary increases • selection actuarial mortality tables • annual healthcare cost trend rate opeb plans • annual inflation rate utilize business judgment establishing estimates used calculations pension opeb plan liabilities annual service cost cash contributions estimates updated annual basis frequently upon occurrence significant events estimates vary significantly actual results cannot provide assurance estimates used calculate pension opeb plan liabilities included herein approximate actual results volatility assumptions actual results significant following table summarizes estimates used defined benefit pension opeb plans 2011 2010 2009 salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable discount rate developed using marketbased approach matches projected benefit payments spot yield curve highquality corporate bonds changes discount rate periodtoperiod generally due changes longterm interest rates expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 68 71 past three years following tables reflect sensitivities consolidated financial statements associated change certain estimates used relation us uk defined benefit pension plans sensitivities reflects evaluation change based solely change particular estimate accumulated net actuarial losses prior service credits pension plans amortized accumulated comprehensive loss net periodic benefit cost next year 16400 1500 respectively estimated amortization net transition obligation next year inconsequential net actuarial losses reflect differences expected actual plan experience including returns plan assets changes actuarial assumptions occurred time net actuarial losses extent offset future actuarial gains result increases future pension costs depending several factors including whether losses exceed corridor losses amortized net actuarial losses outside corridor amortized expected remaining service periods active participants approximately 11 14 18 years canadian south african finnish plans respectively average remaining life expectancy participants closed plans approximately 24 29 years us uk plans respectively since benefits closed onetenth percentage point decrease funding rates used calculating future funding requirements us plan 2016 would increase aggregate contributions next five years approximately 3300 increase onetenth percentage point would decrease aggregate contributions approximately 2700 onetenth percentage point decrease funding rates used calculating future funding requirements uk plan 2016 would increase aggregate contributions next five years approximately 5100 increase onetenth percentage point would decrease aggregate contributions approximately 5000 accumulated net actuarial losses prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost connection opeb plans next year 500 3500 respectively net actuarial losses outside corridor amortized average life expectancy inactive participants approximately 24 years benefits closed prior service credits amortized schedules established date plan change approximately 7 years please refer note 8 consolidated financial statements annual report form 10k discussion defined benefit pension opeb plans sharebased compensation plans sharebased compensation plans include awards stock options restricted shares restricted stock units performancebased restricted stock units collectively “restricted awards” measure awards fair value grant date recognize compensation cost consolidated statements operations vesting period following table summarizes sharebased compensation expense related income tax benefit december 31 2011 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price grant date using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period certain executives awarded performancebased restricted share units awards number restricted share units ultimately vest depend share price performance specified performance goals defined performancebased award agreements estimate grant date fair value performancebased restricted share unit award using monte carlo valuation model recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest factors change employ different assumptions application current accounting guidance compensation expense record awards future periods may differ significantly recorded current period high degree subjectivity involved selecting option pricing model assumptions used estimate sharebased compensation expense consequently risk estimates fair value sharebased compensation awards grant dates may bear little resemblance actual value realized upon exercisevesting expiration forfeiture sharebased payments future stock options performancebased restricted share units may expire worthless otherwise result zero intrinsic value compared fair value originally estimated grant date expense reported consolidated financial statements alternatively value may realized instruments significantly excess fair value originally estimated grant date expense reported consolidated financial statements significant differences among valuation models may result lack comparability companies use different models methods assumptions also possibility adopt different valuation models future may result lack consistency future periods may materially affect fair value estimate sharebased payments please refer note 11 consolidated financial statements annual report form 10k discussion sharebased compensation plans goodwill intangible assets least annually evaluate goodwill potential impairment test goodwill impairment reporting unit level defined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists three reporting units one within global power group business segment two within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed perform impairment test reporting units determined morelikelythannot fair value reporting unit less carrying amount first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist determined income market valuation approaches provide inputs estimate fair value reporting units would considered market participants income valuation approach employ discounted cash flow model estimate fair value reporting unit model requires use significant estimates assumptions regarding future revenues costs margins capital expenditures changes working capital terminal year growth rate cost capital cash flow models based forecasted results applicable reporting units models also assume 3 growth rate terminal year actual results could differ projections market valuation approach employ guideline publicly traded company method indicates fair value equity reporting unit comparing publicly traded companies similar lines business identifying selecting guideline companies analyze business financial profiles relative similarity factors size growth risk profitability analyzed compared reporting units 2011 annual evaluation noted indicated fair value carrying value reporting unit goodwill 22300 related one global ec group’s reporting units estimate fair value reporting unit 2011 impairment test sufficiently excess carrying value even conducting various sensitivity analyses key assumptions adjustment carrying value goodwill required however performance unit deteriorate future could result decline estimated fair value carrying value could exceed fair value future periods could lead impairment goodwill income taxes deferred tax assets liabilities established tax attributes credits loss carryforwards temporary differences book tax basis assets liabilities deferred tax assets liabilities adjusted effects changes tax laws rates based date enactment within jurisdiction taxpaying component current deferred tax assets liabilities noncurrent deferred tax assets liabilities combined presented net amount deferred tax assets reduced valuation allowance based upon available evidence likely tax benefit loss carryforwards deferred tax assets realized future evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions statutory purposes majority deferred tax assets valuation allowance provided december 31 2011 begin expire 2025 later based current tax laws valuation allowance 399000 recorded december 31 2011 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years 2007 number tax years audit tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including 2012 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time december 31 2011 53700 unrecognized tax benefits would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense please refer note 13 consolidated financial statements annual report form 10k discussion income taxes accounting developments june 2011 financial accounting standards board “fasb” issued accounting standards update “asu” 201105 “comprehensive income” asu 201105 amends existing guidance order increase prominence items reported comprehensive income eliminates option present components comprehensive income part statement changes equity presentation format currently employ asu 201105 nonowner changes equity required presented either single continuous statement comprehensive income two separate consecutive statements public companies asu 201105 effective fiscal years interim periods within fiscal years beginning december 15 2011 although yet determined manner presentation select adoption standard beginning consolidated financial statements included quarterly report form 10q quarter ending march 31 2012 material impact results operation financial position item 7a item 7a quantitative qualitative disclosures market risk thousands dollars managements strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency exchange contracts hedge exposure contracts operating units functional currency company utilizes financial instruments solely hedging company policy prohibits speculative use instruments company exposed credit loss event nonperformance counterparties financial instruments minimize risk company enters financial instruments financial institutions primarily rated better standard poors a2 better moodys management believes geographical diversity companys operations mitigates effects currency translation exposure significant unhedged assets liabilities maintained outside functional currency operating subsidiaries accordingly translation exposure hedged interest rate risk company exposed changes interest rates primarily result borrowings revolving credit agreement bank loans variable rate project debt market rates average 1 2002 2001 companys interest expense would increase income tax would decrease approximately 1700 amount determined considering impact hypothetical interest rates companys variablerate balances december 28 2001 event significant change interest rates management would likely take action mitigate exposure change however due uncertainty specific actions would taken possible effects sensitivity analysis assumes changes companys financial structure foreign currency risk company significant overseas operations generally significant activities overseas affiliates recorded functional currency generally currency country domicile affiliate results mitigation potential impact earnings fluctuations result changes foreign exchange rates addition order mitigate risks associated foreign currency fluctuations longterm contracts negotiated affiliates functional currency affiliates company enter foreign currency exchange contracts hedge exposed contract value back functional currency december 28 2001 companys primary foreign currency exposures contracts set forth fair value contracts december 28 2001 5900 fair value contracts determined based published market prices difference fair value december 28 2001 fair value contract inception 0 forward buy sell contracts resulted net tax gain 3834 recorded comprehensive income december 28 2001 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts mature 2002 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currency currencies payment obligations third parties company enter foreign currency contracts speculative purposes see note 10 financial statements information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency forward exchange contracts hedge exposure contracts operating unit’s functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments counterparties financial instruments expose us credit loss event nonperformance minimize risk enter financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies interest rate risk exposed changes interest rates primarily result borrowings senior credit agreement borrowings december 30 2005 variable rate project debt market rates average 1 2006 2005 interest expense next twelve months would increase income tax would decrease approximately 100 amount determined considering impact hypothetical interest rates variablerate balances december 30 2005 foreign currency risk operate worldwide basis substantial operations europe subject us translation risk euro british pound sterling significant activities nonus affiliates recorded functional currency typically country domicile affiliate mitigates potential impact earnings fluctuations result changes foreign currency exchange rates affiliates enter transactions normal course operations currencies functional currency seek minimize resulting exposure foreign currency fluctuations matching revenues expenses currency longterm contracts mitigate foreign currency exposures use foreign currency forward exchange contracts hedge exposed item anticipated purchases revenues back functional currency december 30 2005 primary foreign currency forward exchange contracts set forth notional amount provides one measure transaction volume outstanding yearend represent amount exposure market loss amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market conditions remaining life instruments contracts mature 2006 2009 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations third parties see note 16 consolidated financial statements form 10k information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency forward exchange contracts hedge exposure contracts operating unit’s functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments counterparties financial instruments expose us credit loss event nonperformance minimize risk enter financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies interest rate risk exposed changes interest rates need borrow senior credit agreement borrowings december 29 2006 none expected 2007 limited extent variable rate project debt extent entered interest rate swap agreements yield fixed interest rate market rates average 1 next twelve months interest expense period time would increase income taxes would decrease approximately 100 amount determined considering impact hypothetical interest rates variable rate borrowings december 29 2006 foreign currency risk operate worldwide basis substantial operations europe subject us translation risk euro british pound sterling significant activities nonus affiliates recorded functional currency typically country domicile affiliate mitigates potential impact earnings fluctuations result changes foreign currency exchange rates affiliates enter transactions normal course operations currencies functional currency seek minimize resulting exposure foreign currency fluctuations matching revenues expenses currency longterm contracts mitigate foreign currency exposures use foreign currency forward exchange contracts hedge exposed item anticipated purchases revenues back functional currency december 29 2006 primary foreign currency forward exchange contracts set forth notional amount provides one measure transaction volume outstanding yearend amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market conditions remaining life instruments contracts mature 2007 2009 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations third parties please refer note 16 consolidated financial statements annual report form 10k information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow domestic senior credit agreement borrowings december 26 2008 based current operating plans cash flow forecasts none expected fiscal year 2009 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next twelve months interest expense period time would increase income taxes would decrease approximately 400 amount determined considering impact hypothetical interest rates variable rate borrowings december 26 2008 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us translation risk euro british pound part policies hedge translation risk exposure significant activities nonus affiliates recorded functional currency typically country domicile affiliate mitigates potential impact earnings fluctuations result changes foreign currency exchange rates affiliates enter transactions normal course operations currencies functional currency seek minimize resulting exposure foreign currency fluctuations matching revenues expenses currency longterm contracts mitigate foreign currency exposures use foreign currency forward exchange contracts hedge exposed item anticipated purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges please refer note 16 consolidated financial statements annual report form 10k information counterparties contracts fail perform settlement terms financial instruments could subject foreign currency exposure minimize risk enter financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 26 2008 primary foreign currency forward exchange contracts set forth notional amount provides one measure transaction volume outstanding yearend amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature fiscal years 2009 2011 increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations thirdparties please refer note 16 consolidated financial statements annual report form 10k information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow us senior credit agreement borrowings december 31 2009 based current operating plans cash flow forecasts none expected fiscal year 2010 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next twelve months interest expense period time would increase income taxes would decrease approximately 200 amount determined considering impact hypothetical interest rates variable rate borrowings december 31 2009 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us translation risk british pound euro polish zloty part policies hedge foreign currency translation exposure activities operating subsidiaries recorded respective functional currencies cases local currency country domicile subsidiary mitigates potential impact earnings fluctuations result changes foreign currency exchange rates affiliates enter transactions normal course operations currencies functional currency seek minimize resulting exposure foreign currency fluctuations attempting match currency revenues expenses longterm contracts mitigate foreign currency exposures use foreign currency forward exchange contracts hedge exposed item anticipated purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges please refer note 9 consolidated financial statements annual report form 10k information counterparties contracts fail perform settlement terms financial instruments could subject foreign currency exposure minimize risk enter financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2009 primary foreign currency forward exchange contracts follows notional amount provides one measure transaction volume outstanding balance sheet date amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature fiscal years 2010 2011 please refer note 9 consolidated financial statements annual report form 10k information primary foreign currency forward exchange contracts item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow senior unsecured credit agreement borrowings december 31 2012 based current operating plans cash flow forecasts none expected 2013 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next 12 months interest expense period time would increase income taxes would decrease approximately 100 amount determined considering impact hypothetical interest rates variable rate borrowings december 31 2012 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us foreign currency exchange rate risk mainly relative british pound euro polish zloty risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge foreign currency exposure anticipated foreign currency purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2012 total gross notional amount measured us dollar equivalent approximately 514800 related foreign currency forward contracts primary currencies hedged british pound chinese yuan euro us dollar amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2013 2014 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies significant deterioration current global economic credit market environment particularly eurozone countries could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions please refer note 10 consolidated financial statements included annual report form 10k information primary foreign currency forward exchange contracts item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate riskwe exposed changes interest rates need borrow senior unsecured credit agreement borrowings december 31 2013 based current operating plans cash flow forecasts none expected 2014 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next 12 months interest expense period time would increase income taxes would decrease approximately 100 amount determined considering impact hypothetical interest rates variable rate borrowings december 31 2013 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency riskwe operate worldwide basis operations subject us foreign currency exchange rate risk mainly relative british pound chinese yuan euro us dollar december 31 2013 risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge foreign currency exposure anticipated foreign currency purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2013 total gross notional amount measured us dollar equivalent approximately 399800 related foreign currency forward contracts primary currencies hedged british pound chinese yuan euro us dollar amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2014 2016 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies significant deterioration current global economic credit market environment could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions please refer note 10 consolidated financial statements included annual report form 10k information primary foreign currency forward exchange contracts item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow us senior secured credit agreement borrowings december 31 2010 based current operating plans cash flow forecasts none expected fiscal year 2011 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next twelve months interest expense period time would increase income taxes would decrease approximately 200 amount determined considering impact hypothetical interest rates variable rate borrowings december 31 2010 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us dollar translation risk british pound euro polish zloty accordance company policy hedge translation risk exposure activities nonus affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge exposed item anticipated purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2010 total gross notional amount approximately 215700 related foreign currency forward contracts primary currencies movements hedged british pound euro us dollar amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature fiscal years 2011 2013 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies please refer note 10 consolidated financial statements annual report form 10k information primary foreign currency forward exchange contracts item 8item 7a quantitative qualitative disclosures market risk thousands dollars management’s strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency exchange contracts hedge exposure contracts operating unit’s functional currency company utilizes financial instruments solely hedging company policy prohibits speculative use instruments company exposed credit loss event nonperformance counterparties financial instruments minimize risk company enters financial instruments financial institutions primarily rated better standard poor’s a2 better moody’s management believes geographical diversity company’s operations mitigates effects currency translation exposure significant unhedged assets liabilities maintained outside f unctional currencies operating subsidiaries accordingly translation exposure hedged interest rate risk company exposed changes interest rates primarily result borrowings revolving credit agreement bank loans variable rate specialpurpose project debt market rates average 1 2003 2002 company’s interest expense would increase income tax would decrease approximately 1800 amount determined considering impact hypothetical interest rates company’s variablerate balances december 27 2002 event significant change interest rates management would likely attempt take action mitigate exposure change however due uncertainty specific actions would taken possible effects sensitivity analysis assumes changes company’s financial structure foreign currency risk company significant overseas operations generally significant activities overseas subsidiaries recorded functional currency generally currency country domicile subsidiary results mitigation potential impact earnings fluctuations result changes foreign exchange rates addition order mitigate risks associated foreign currency fluctuations longterm contracts negotiated subsidiary’s functional currency subsidiaries enter foreign currency exchange contracts hedge exposed contract value back functional currency december 27 2002 company’s primary foreign currency exposures contracts set forth notional principal amount provides one measure transaction volume outstanding year end represent amount exposure market loss amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures depend actual market conditions remaining life instruments contracts mature 2003 2004 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts established various international subsidiaries sell variety currencies either receive respective functional currency currencies payment obligations third parties see note 10 financial statements information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars management’s strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency exchange contracts hedge exposure contracts operating unit’s functional currency company utilizes financial instruments solely hedging company policy prohibits speculative use instruments company exposed credit loss event nonperformance counterparties financial instruments minimize risk company enters financial instruments financial institutions primarily rated “a” better standard poor’s “a2” better moody’s management believes geographical diversity company’s operations mitigates effects currency translation exposure however company maintains substantial operations europe subject translation risk euro pound sterling significant unhedged assets liabilities maintained outside functional currencies operating subsidiaries accordingly translation exposure hedged interest rate risk company exposed changes interest rates primarily result borrowings revolving credit agreement bank loans variable rate specialpurpose project debt market rates average 1 2004 2003 company’s interest expense would increase income tax would decrease approximately 1500 amount determined considering impact hypothetical interest rates company’s variablerate balances december 26 2003 event significant change interest rates management would likely attempt take action mitigate exposure change however due company’s financial situation unlikely hedging facility would available foreign currency risk company significant overseas operations generally significant activities overseas subsidiaries recorded functional currency generally currency country domicile subsidiary results mitigation potential impact earnings fluctuations result changes foreign exchange rates addition order mitigate risks associated foreign currency fluctuations longterm contracts negotiated subsidiary’s functional currency subsidiaries enter foreign currency exchange contracts hedge exposed contract value back functional currency december 26 2003 company’s primary foreign currency exposures contracts set forth notional principal amount provides one measure transaction volume outstanding year end represent amount exposure market loss amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures depend actual market conditions remaining life instruments contracts mature 2004 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations third parties see note 10 consolidated financial statements information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars management’s strategy managing transaction risks associated currency fluctuations operating unit enter derivative transactions foreign currency exchange contracts hedge exposure contracts operating unit’s functional currency company utilizes financial instruments solely hedging company policy prohibits speculative use instruments company exposed credit loss event nonperformance counterparties financial instruments minimize risk company enters financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies management believes geographical diversity company’s operations mitigates effects currency translation exposure however company maintains substantial operations europe subject translation risk euro pound sterling significant unhedged assets liabilities maintained outside functional currencies operating subsidiaries accordingly translation exposure hedged interest rate risk company exposed changes interest rates result future borrowings revolving credit agreement 5400 bank loans 15300 variablerate specialpurpose project debt market rates average 1 2005 2004 company’s interest expense would increase income tax would decrease approximately 100 amount determined considering impact hypothetical interest rates company’s variablerate balances december 31 2004 event significant change interest rates management would likely attempt take action mitigate exposure change however due company’s financial situation unlikely hedging facility would available foreign currency risk company significant overseas operations generally significant activities overseas subsidiaries recorded functional currency generally currency country domicile subsidiary results mitigation potential impact earnings fluctuations result changes foreign exchange rates addition order mitigate risks associated foreign currency fluctuations longterm contracts negotiated subsidiary’s functional currency subsidiaries enter foreign currency exchange contracts possible hedge exposed contract value back functional currency december 31 2004 company’s primary foreign currency forward contracts set forth notional principal amount provides one measure transaction volume outstanding year end represent amount exposure market loss amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures depend actual market conditions remaining life instruments contracts mature 2005 increases fair value forward sell contracts result losses fair value increases forward buy contracts result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations third parties see note 19 consolidated financial statements information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow domestic senior credit agreement borrowings december 28 2007 based current operating plans cash flow forecasts none expected 2008 limited extent variable rate project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next twelve months interest expense period time would increase income taxes would decrease approximately 100 amount determined considering impact hypothetical interest rates variable rate borrowings december 28 2007 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us translation risk euro british pound part policies hedge translation risk exposure significant activities nonus affiliates recorded functional currency typically country domicile affiliate mitigates potential impact earnings fluctuations result changes foreign currency exchange rates affiliates enter transactions normal course operations currencies functional currency seek minimize resulting exposure foreign currency fluctuations matching revenues expenses currency longterm contracts mitigate foreign currency exposures use foreign currency forward exchange contracts hedge exposed item anticipated purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges please refer note 16 consolidated financial statements annual report form 10k information counterparties contracts fail perform settlement terms financial instruments could subject foreign currency exposure minimize risk enter financial instruments financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 28 2007 primary foreign currency forward exchange contracts set forth notional amount provides one measure transaction volume outstanding yearend amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature 2008 2010 increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains contracts established various international subsidiaries sell variety currencies receive respective functional currency currencies payment obligations thirdparties please refer note 16 consolidated financial statements annual report form 10k information regarding derivative financial instruments item 8item 7a quantitative qualitative disclosures market risk amounts thousands dollars interest rate risk exposed changes interest rates need borrow us senior secured credit agreement borrowings december 31 2011 based current operating plans cash flow forecasts none expected 2012 limited extent variable rate specialpurpose limited recourse project debt portion debt entered fixed rate swap agreement average market rates 100basis points higher next twelve months interest expense period time would increase income taxes would decrease approximately 100 amount determined considering impact hypothetical interest rates variable rate borrowings december 31 2011 reflect impact interest rate changes outstanding debt held certain equity interests since debt consolidated balance sheet foreign currency risk operate worldwide basis substantial operations europe subject us foreign currency exchange rate risk mainly relative british pound euro polish zloty risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge exposed item anticipated purchases revenues back functional currency utilize financial instruments solely hedging company policy prohibits speculative use instruments however financial reporting purposes contracts generally accounted hedges notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2011 total gross notional amount approximately 233500 related foreign currency forward contracts primary currencies movements hedged british pound chinese yuan euro polish zloty us dollar amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2012 2013 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies significant deterioration current global economic credit market environment particularly eurozone countries could challenge efforts maintain welldiversified asset allocation creditworthy financial institutions please refer note 10 consolidated financial statements annual report form 10k information primary foreign currency forward exchange contracts item 8 item 8 financial statements supplementary data report independent accountants board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheet related consolidated statements earnings comprehensive income shareholders equity cash flows present fairly material respects financial position foster wheeler ltd subsidiaries company december 28 2001 december 29 2000 results operations cash flows three years period ended december 28 2001 conformity accounting principles generally accepted united states america financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits financial statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company continue going concern discussed note 1 financial statements company compliance debt covenants december 28 2001 unable finalize amended agreements obtain waivers defaults beyond april 30 2002 matters raise substantial doubt companys ability continue going concern managements plans regard matters also described note 1 financial statements include adjustments might result outcome uncertainty discussed note 10 financial statements effective december 30 2000 company adopted statement financial accounting standard 133 accounting derivative instruments hedging activities pricewaterhousecoopers llp florham park new jersey january 29 2002 except note 1 date april 12 2002 foster wheeler ltd subsidiaries consolidated statement earnings comprehensive income thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders equity thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars see notes financial statements foster wheeler ltd notes financial statements thousands dollars except per share amounts 1 going concern accompanying financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business realization assets satisfaction liabilities normal course business dependent company maintaining credit facilities adequate conduct business company place revolving credit agreement consortium banks company received series waivers required lenders revolving credit agreement certain covenant violations thereunder waivers extend april 30 2002 subject companys ongoing satisfaction certain conditions company negotiations lenders revolving credit agreement replace current revolving credit agreement new amended credit facility new amended senior credit facility completed lenders revolving credit agreement would ability accelerate payment amounts borrowed thereunder 140000 march 29 2002 require company cash collateralize standby letters credit outstanding thereunder 93000 march 29 2002 unlikely company would able repay amounts borrowed cash collateralize standby letters credit issued revolving credit agreement banks exercise right accelerate payment dates failure company repay amounts revolving credit agreement would material adverse effect companys financial condition operations result defaults terms companys following indebtedness senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt would allow debt accelerated unlikely company would able repay indebtedness assurance company receive extensions waiver required lenders revolving credit agreement company able enter new amended credit facility company also place receivables sale arrangement pursuant company sold receivables totaling 50000 bank party financing elected terminate agreement accordance terms notwithstanding election terminate agreement bank provided extensions company negotiates providers replace financing company also lessee operating lease financing agreement relating corporate office building amount 33000 consortium banks lease financing facility matured february 28 2002 banks party agreement provided forbearance april 30 2002 company negotiating another financial institution replace lease financing assurance company able negotiate extensions receivables sale arrangement lease financing forbearance company able enter replacement facilities either receivables sale arrangement lease financing failure company make payments required upon expiration receivables sale arrangement lease financing forbearance would material adverse effect companys financial condition operations factors raise substantial doubts companys ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty company initiated comprehensive plan enhance cash generation improve profitability operating performance portion plan concentrates quality quantity backlog execution projects order achieve exceed profit cash targets optimization nonproject related cash sources uses connection plan group outside consultants hired purpose carrying performance improvement intervention companys current chief executive officer utilized approach several previous occasions significant success tactical portion performance improvement intervention concentrates booking current prospects executing twentytwo high leverage projects generating incremental cash high leverage opportunities overhead reductions procurement accounts receivable systemic portion performance improvement intervention concentrates sales effectiveness estimating bidding project execution procedures assurance funding available execute plan enhance cash generation improve profitability company continuing seek financing support plan ongoing operations date company able obtain sufficient financing support ongoing operations time company initiated liquidity action plan focuses accelerating collection receivables claims recoveries asset sales 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated companys fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations years 2001 2000 included 52 weeks year 1999 included 53 weeks use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others december 28 2001 december 29 2000 costs approximately 135000 175000 respectively included assets primarily receivables contracts process representing amounts expected realized claims customers reduction due settlement claim reassessment collectibility claims based current facts claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 accounting performance constructiontype certain productiontype contracts statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractors performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred amounts recorded material disclosed notes financial statements costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings management believes matters resolved without material effect companys financial position results operations revenue recognition longterm contracts engineering construction group records profits longterm contracts percentageofcompletion basis cost method contracts process valued cost plus accrued profits less earned revenues progress payments uncompleted contracts ec group generally considered substantially complete engineering completed andor field construction completed company includes passthrough revenue costs costplus contracts customerreimbursable materials equipment subcontractor costs company determines responsible engineering specification procurement management cost components behalf customer energy equipment group primarily records profits longterm contracts percentageofcompletion basis determined variation effortsexpended costtocost methods include multiyear contracts require significant engineering efforts multiple delivery units methods periodically subject physical verification actual progress towards completion contracts ee group generally considered substantially complete manufacturing andor field erection completed company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition company history making reasonably dependable estimates extent progress towards completion contract revenues contract costs however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years certain specialpurpose subsidiaries ee group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale fasb statement 115 accounting certain investments debt equity securities realized gains losses sales based specific identification method years ended 2001 2000 1999 unrealized gains losses immaterial proceeds sales shortterm investments 2001 2000 1999 2000 15000 respectively gainloss sales years ended 2001 2000 1999 0 600 250 respectively trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 3 conformity industry practice however full amount accounts receivable including amounts withheld included current assets accounts notes receivable nontrade accounts notes receivable consist primarily insurance claims receivable 105200 2001 75100 2000 foreign refundable valueadded tax 13400 2001 15800 2000 amounts receivable due cancellation companyowned life insurance plan 22000 2001 0 2000 land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings july 2001 fasb issued statement financial accounting standards 143 accounting asset retirement obligations sfas 143 statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 company currently assessing impact adoption new statement october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 accounting impairment longlived assets longlived assets disposed provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years impairment longlived assets reassessed first quarter 2001 upon implementation sfas 144 incorporates probability weighting undiscounted cash flow assumptions company currently assessing impact adoption new statement investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently companys significant investments affiliates recorded using equity method income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized companys tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 336700 december 28 2001 practicable estimate additional tax would incurred amounts repatriated foreign currency translation assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weighted average rates foreign currency transaction gains 2001 2000 1999 approximately 3400 6100 4100 respectively 2200 4000 2700 net taxes company enters foreign exchange contracts management foreign currency exposures changes fair value derivative contracts qualify designated cashflow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes corporate policy prohibits speculative use financial instruments inventories principally materials supplies stated lower cost market determined primarily average cost method intangible assets intangible assets 2001 2000 consist principally excess cost fair value net assets acquired goodwill 200152 208892 trademarks 49594 52158 patents 24797 27085 respectively assets amortized straightline basis periods 12 40 years company periodically evaluates goodwill separate operating unit basis assess recoverability impairments recognized earnings event facts circumstances indicate carrying amount goodwill associated investment impaired company reduces carrying amount representing estimated undiscounted future cash flows interest generated operation june 2001 fasb issued sfas 142 goodwill intangible assets sfas 142 supersedes apb opinion 17 intangible assets sfas 142 addresses intangible assets acquired individually group assets acquired business combination accounted financial statements upon acquisition sfas 142 also addresses goodwill intangible assets accounted initially recognized financial statements sfas 142 stipulates goodwill longer amortized instead subject impairment assessment provisions sfas 142 required applied effective december 29 2001 company intends utilize twostep method described sfas 142 purposes determining amount goodwill impairment onestep method determining impairment indefinitelived intangible assets company anticipates impairment 25000 aftertax relating wastetoenergy facility recorded 2002 additional charges anticipated company still process evaluating impact adoption sfas 142 company also discontinue recording goodwill amortization required approximates 8000 annually earnings per share basic per share data computed based weighted average number shares common stock outstanding diluted per share data computed based basic plus dilution stock options april 26 1999 company adopted directors deferred compensation stock award plan nonemployee director credited annually share units companys common stock addition nonemployee director may elect defer receipt compensation services rendered director deferred amount credited account form share units company makes supplemental contribution equal 15 deferred amount years ended december 28 2001 december 29 2000 december 31 1999 41091 53443 34832 share units respectively credited participants accounts included calculation basic earnings per share shares related convertible notes offering included computation due antidilutive effect 3 research development years 2001 2000 1999 approximately 12300 12000 12500 respectively spent companysponsored research activities periods approximately 39200 27600 27100 respectively spent customersponsored research activities 4 accounts notes receivable following tabulation shows components trade accounts notes receivable third quarter 1998 subsidiary company entered threeyear agreement financial institution whereby subsidiary would sell undivided interest designated pool qualified accounts receivable terms agreement new receivables added pool collections reduce previously sold accounts receivable credit risk uncollectible accounts receivable transferred purchaser company services administers collects receivables behalf purchaser fees payable purchaser agreement equivalent rates afforded high quality commercial paper issuers plus certain administrative expenses included deductions consolidated statement earnings comprehensive income agreement contains certain covenants provides various events termination december 28 2001 december 29 2000 50000 receivables sold agreement therefore reflected accounts receivable trade balance consolidated balance sheet bank party financing elected terminate agreement accordance terms notwithstanding election terminate agreement bank provided extensions company negotiates providers replace financing refer note 1 information regarding companys ability continue going concern including extension receivables sale agreement discussed status bank negotiations 5 contracts process inventories costs contracts process inventories considered determination cost operating revenues shown 2001 2000 inventories materials supplies 10190 10663 finished goods 339 357 10529 11020 following tabulation shows elements included contract process related longterm contracts process 2001 2000 costs plus accrued profits less earned revenues contracts currently process 638238 633178 less progress payments 144639 179869 493599 453309 6 land buildings equipment land buildings equipment stated cost set forth 2001 2000 land improvements 21261 16057 buildings 104869 109099 equipment 598047 728390 construction progress 3835 11803 728012 865349 depreciation expense years 2001 2000 1999 44348 46388 51282 respectively 7 pensions postretirement benefits pension benefits domestic foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 new cash balance program established pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs companys policy fund plans current basis extent deductible existing federal tax regulations contributions made intended provide benefits attributed service date also expected earned future company also nonqualified unfunded supplemental executive retirement plan covers certain employees year ended december 28 2001 company recognized cumulative minimum liability financial statements certain underfunded plan amount 70270 resulting pretax charge comprehensive income minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes domestic subsidiaries company 401k plan salaried employees company years 2001 2000 1999 contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5008 5599 5200 respectively benefits addition providing pension benefits companys domestic subsidiaries provide certain health care life insurance benefits retired employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies following chart contains disclosures pension benefits years 2001 2000 1999 provision sfas 88 accounting settlements curtailments defined benefit pension plans termination benefits provision retirement companys chief executive officer resulted charge 1900 reduction workforce realignment plan early retirement resulted charge 3136 1999 health care cost trend 2001 95 decline 2010 50 assumed health care cost trend rates significant effect amounts reported benefit plans onepercentagepoint change assumed health care cost trend rates would following effects 8 bank loans approximate weighted average interest rates borrowings outstanding primarily foreign end 2001 2000 428 578 respectively unused lines credit shortterm bank borrowings aggregated 59045 yearend 2001 available outside united states canada various currencies interest rates consistent market conditions respective countries interest costs incurred including dividends preferred security 2001 2000 1999 85202 83405 74856 718 151 4643 respectively capitalized 9 corporate debt convertible subordinated notes corporate debt company subsidiary foster wheeler llc 200000 notes senior notes public market bear interest fixed rate 675 per annum payable semiannually mature november 15 2005 senior notes issued indenture company bny midwest trust company notes redeemable prior maturity subject sinking fund requirements senior notes constitute senior unsecured indebtedness company rank parity companys senior unsecured indebtedness senior notes described classified current liabilities due covenant violations companys revolving credit agreement potential debt acceleration agreements refer note 1 information including discussion companys ability continue going concern status bank negotiations company maintains revolving credit agreement revolving credit agreement consisting 270000 multiyear facility dated december 1 1999 expires february 12 2003 2001 company banks party revolving credit agreement consented amend agreement amendments two occasions first amendment provided following provisions associated planned change domicile bermuda ii provisions associated potential monetization previously announced certain build operated assets iii modification certain financial covenants second amendment allows foster wheeler llc make payments foster wheeler ltd amounts sufficient pay amounts due convertible subordinated notes discussed revolving credit agreement restated may 25 2001 reflect amendments revolving credit agreement requires among things company maintain maximum consolidated leverage ratio minimum consolidated fixed charge coverage ratio december 28 2001 company compliance covenants revolving credit agreement result fourth quarter 2001 contract restructuring charges recorded borrowings outstanding revolving credit agreement classified current liabilities due covenant violations described refer note 1 information including discussion companys ability continue going concern status waivers received bank negotiations loans revolving credit agreement bear interest floating rate used general corporate purposes december 28 2001 70000 borrowed revolving credit agreement amount appears consolidated balance sheet caption corporate debt company pays various fees lenders arrangements company also permitted allocate portion available credit revolving credit agreement issuance standby letters credit december 28 2001 130229 standby letters credit outstanding new standby letters credit issued must cash collateralized corporate debt consisted following convertible subordinated notes may june 2001 company issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 notes may converted common shares initial conversion rate 62131 common shares per 1000 principal amount 1605 per common share subject adjustment certain circumstances notes subordinated right payment existing future senior indebtedness company net proceeds approximately 202900 used repay 76300 364day revolving credit facility expired may 30 2001 reduce advances outstanding revolving credit agreement amortization debt issuance costs included component interest expense term notes convertible subordinated notes described classified current liabilities due covenant violations companys revolving credit agreement potential debt acceleration agreements refer note 1 information including discussion companys ability continue going concern status bank negotiations 10 derivative financial instruments effective december 30 2000 company adopted statement financial accounting standard sfas 133 accounting derivative instruments hedging activities amended sfas 137 accounting derivative instruments hedging activities deferral effective date fasb statement 133 amendment fasb statement 133 statement sfas 138 accounting certain derivative instruments certain hedging activities amendment fasb statement 133 statements require derivative instruments reported balance sheet fair value company operates worldwide basis companys activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations earnings cash flows may arise volatility currency exchange rates items designated cash flow hedges company engage currency speculation companys forward exchange contracts subject company significant risk exchange rate movement gains losses contracts offset losses gains respectively transactions hedged company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poors a2 better moodys amount unrealized gains owed company counterparties december 28 2001 15294 included contracts process consolidated balance sheet amount unrealized losses owed company counterparties december 28 2001 9393 included estimated costs complete longterm contracts consolidated balance sheet 3834 net tax gain recorded comprehensive income december 28 2001 company formally documents hedge relationships inception including identification hedging instruments hedged items well risk management objectives strategies undertaking hedge transaction company also formally assesses inception least quarterly thereafter whether derivatives used hedging transactions highly effective offsetting changes fair value hedge items changes fair value derivatives recorded comprehensive income earnings affected hedged forecasted transaction amounts occur included operating revenues cost operating revenues amounts excluded assessment hedge effectiveness material hedge ineffectiveness twelve months ended december 28 2001 amounts reclassified earnings year connection forecasted transactions longer considered probable occurring company recorded 6300 net tax cumulativeeffect adjustment comprehensive income relating fair value hedging instruments december 30 2000 first day new fiscal year december 28 2001 6304 deferred net gains derivative instruments accumulated comprehensive income expected reclassified earnings next twelve months based upon realization forecasted cash flows transactions maximum term company hedging exposure variability cash flows twentysix months reconciliation current period changes net applicable income taxes accumulated comprehensive income relating derivatives qualifying cash flow hedges follows transition adjustment december 30 2000 6300 current period declines fair value 4877 reclassification earnings 2411 balance december 28 2001 3834 11 subordinated robbins facility exit funding obligations foster wheelers subordinated obligations entered connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois exit funding agreement limited funding 1999c bonds 7 14 interest due october 15 2009 15185 october 15 2024 77155 92340 1999d bonds accrued 7 due october 15 2009 18000 total 110340 1999c bonds 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date application trustee funds deposit credit 1999c sinking fund installment subaccount october 15 years principal amounts follows 1999c bonds due 2009 year amount year amount 2002 1475 2006 1940 2003 1580 2007 2080 2004 1690 2008 2225 2005 1810 2009 2385 15185 1999c bonds due 2024 year amount 2023 37230 2024 39925 77155 92340 see note 24 information subordinated robbins facility exit funding obligations described classified current liabilities due covenant violations companys revolving credit agreement potential debt acceleration agreements refer note 1 information including discussion companys ability continue going concern status bank negotiations 12 mandatorily redeemable preferred securities january 13 1999 fw preferred capital trust delaware business trust 100 owned finance subsidiary company issued 175000 preferred trust securities preferred trust securities fully unconditionally guaranteed foster wheeler llc preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company elected defer distribution due january 15 2002 april 15 2002 maturity date january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 preferred trust securities classified current liabilities due covenant violations companys revolving credit agreement potential acceleration securities refer note 1 information including discussion companys ability continue going concern status bank negotiations 13 specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects notes andor bonds collateralized certain assets project companys obligations respect debt limited guaranteeing operating performance projects 1 note payable 33367 represents loan bank credit facility limited partnership whose general partner specialpurpose subsidiary 2 senior secured notes 42075 issued total amount 42500 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner project 3 solid waste disposal resource recovery system revenue bonds totaling 97978 issued total amount 133500 bonds collateralized pledge certain revenues assets project plant see note 18 4 resource recovery revenue bonds 52636 issued total amount 86780 bonds collateralized pledge certain revenues assets project 5 floatingfixed resource recovery revenue bonds amount 32848 issued total amount 45450 bonds collateralized irrevocable standby letter credit issued commercial bank entity held debt sold fourth quarter 2001 principal payments payable annual installments follows 2003 24227 2004 23195 2005 25165 2006 27072 2007 15323 balance due installments 2015 90858 205840 note payable senior secured notes described classified current liabilities due covenant violations companys revolving credit agreement potential debt acceleration agreements refer note 1 information including discussion companys ability continue going concern status bank negotiations 14 equity interests company owns noncontrolling equity interest three cogeneration project one wastetoenergy project three located italy one chile two projects italy 42 owned third 49 owned company project chile 85 owned company controlling financial interest chilean project following summarized financial information companys equity affiliates combined well companys interest affiliates december 28 2001 december 29 2000 balance sheet data current assets 99243 146277 assets primarily buildings equipment 538603 603665 current liabilities 27234 48604 liabilities primarily long term debt 487154 529182 net assets 123458 172156 income statement data year total revenues 204819 213076 income taxes 34769 46757 net earnings 23226 33029 december 28 2001 companys share net earnings investment equity affiliates totaled 12836 84514 respectively dividends 8178 received year 2001 company guaranteed certain performance obligations projects companys average contingent obligations guarantees approximately 2700 per year four projects company provided 10000 debt service reserve letter credit providing liquidity performance project insufficient cover debt service payments amounts drawn letter credit april 2001 company completed sale interests two hydrogen production plants south america net proceeds transactions approximately 40000 aftertax loss 5000 recorded second quarter relating sales 15 income taxes components lossearnings income taxes years 2001 2000 1999 taxed following jurisdictions 2001 2000 1999 domestic 237849 33477 320702 foreign 31844 89500 130176 total 206005 56023 190526 provisionbenefit income taxes earnings follows provision income taxes fiscal 2001 results net increase valuation allowance primarily domestic net deferred tax assets 161400 increase required fasb 109 accounting income taxes evidence losses domestic operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2020 beyond based current tax laws domestic investment tax credit carryforwards used expire years 2002 2007 foreign tax credit carryforwards recognized based potential utilization used expire years 2002 2004 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed 2000 decrease valuation allowance 24400 due expiration foreign tax credits 1999 increase valuation allowance 15000 caused primarily losses robbins facility impact realizability tax benefits future provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 16 leases company entered saleleaseback 600 tonperday wastetoenergy plant charleston south carolina 1989 terms agreement lease back plant longterm operating lease 25 years company recorded deferred gain 13800 relating saleleaseback transaction amortized income term lease december 28 2001 december 29 2000 unamortized gain saleleaseback transaction 6500 7100 respectively net current portion 500 year minimum lease payments longterm noncancelable operating lease follows 2002 8000 2003 8100 2004 9800 2005 9800 2006 9800 aggregate 51800 thereafter lease expense recognized 2001 2000 1999 7500 year recourse agreement primarily limited assets specialpurpose entity first quarter 2002 company entered preliminary agreement sale buyer wastetoenergy plant sale consummated terms preliminary agreement company recognize pretax loss sale approximately 19500 company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases subsequent various saleleaseback transactions amounted 29800 2001 30200 2000 27700 1999 future minimum rental commitments noncancelable leases follows 2002 27300 2003 21600 2004 20500 2005 16900 2006 12200 aggregate 151000 thereafter company 33000 lease financing facility matured february 28 2002 lease financing facility operating lease relating corporate office building fair value excess 40000 refer note 1 information regarding companys ability continue going concern including forbearance received banks party lease financing facility 17 quarterly financial data unaudited effect stock options convertible notes included calculation diluted earnings per share options antidilutive due quarterly loss 1 second third fourth quarters 2001 include tax increased pension costs 1200 1100 1000 respectively 2 second quarter 2001 includes following tax charges loss sale cogeneration plants 5000 provision ceo retirement 1800 3 fourth quarter 2001 includes following tax charges contract writedowns 104400 restructuring charges 27000 reserve deferred tax assets 171900 loss sale cogeneration plant 22900 4 net earnings second quarter 2001 restated 1200 eliminate change accounting principle pension costs amend current year calculation pension expense consistent prior periods 18 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating companys liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts company subsidiaries along many companies codefendants numerous asbestosrelated lawsuits pending united states plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company subsidiaries 1970s prior summary claim activity three years ended december 28 2001 follows number claims 2001 2000 1999 balance beginning year 92100 73600 62400 new claims 54700 41300 30700 claims resolved 36100 22800 19500 balance end year 110700 92100 73600 amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 66900 2001 56200 2000 40400 1999 company continues actively manage claims negotiate certain insurance carriers concerning limits coverage provided different time periods company recorded liability related probable losses asbestosrelated insurance claims approximately 500000 asset probable recoveries similar amount net 18000 reserve approximately 60000 balance classified shortterm remainder considered longterm liability estimate future defense costs indemnity payments based upon assumed average claim resolution costs applied currently pending estimated future claims asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending litigation certain insurers well recoveries funding arrangement insurers place since 1993 defense costs underwriting payments expected incurred next ten years period new claims expected decline year 2001 2000 number companies petitioned courts protection federal bankruptcy laws result burden litigation relating asbestos early 2001 lawsuits commenced among company insurers determine respective rights responsibilities management company consultation counsel considered litigation financial viability legal obligations insurance carriers believes except insurers become insolvent reserve provided may become insolvent insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimate assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainty ultimate number claims filed amounts claim costs impact bankruptcies companies currently involved litigation uncertainties surrounding litigation process jurisdiction case well potential legislative changes number claims received future exceeds companys estimate likely costs defense indemnity similarly exceed companys estimates san francisco california jury returned verdict march 26 2002 finding foster wheeler liable 10600 case todak vs foster wheeler corporation case brought foster wheeler us navy several companies 59yearold man suffering mesothelioma allegedly resulted exposure asbestos company believes credible evidence presented plaintiff exposed asbestos contained foster wheeler product addition company believes verdict clearly excessive set aside reduced appeal company intends move set aside verdict management company believes financial obligation may ultimately result entry judgment case paid insurance april 3 2002 united states district court northern district texas entered amended final judgment matter koch engineering company et al vs glitsch inc et al glitsch inc known tray inc indirect subsidiary company lawsuit claimed damages patent infringement trade secret misappropriations pending 18 years previously reported company judgment entered case november 29 1999 awarding plaintiffs compensatory punitive damages plus prejudgment interest amount yet calculated amended final judgment amount 54283 includes interest period beginning 1983 lawsuit filed entry judgment postjudgment interest accrue rate 5471 percent per annum november 29 1999 management tray inc believes courts decision contains numerous factual legal errors subject reversal appeal tray inc filed notice appeal court appeals 1997 united states supreme court effectively invalidated new jerseys longstanding municipal solid waste flow rules regulations immediate effect eliminate guaranteed supply municipal solid waste camden county wastetoenergy project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel plant marketbased revenues expected sufficient service debt outstanding bonds issued construct plant acquire landfill camden countys use outstanding bonds public debt company filed suit involved parties including state new jersey seeking among things void applicable contracts agreements governing project january 2002 state new jersey enacted legislation provides mechanism statesupported refinancing bond debt solid waste facilities located within state pending outcome litigation certain refinancing initiatives management believes plant continue operate full capacity receiving market rates waste disposal time management cannot determine ultimate outcome foregoing effect project 1996 company completed construction recycling wastetoenergy project located village robbins illinois robbins facility virtue robbins facility qualifying illinois retail rate law qualified solid wastetoenergy facility receive electricity revenues projected substantially higher utilitys avoided cost retail rate law utility entitled tax credit state tax utility gross receipts invested capital state illinois state reimbursed robbins facility tax credit beginning 20th year following initial sale electricity utility state repealed retail rate law insofar applied robbins facility october 1999 company reached agreement robbins agreement holders bonds issued village robbins finance construction robbins facility bondholders part robbins agreement company agreed continue contest repeal litigation pursuant robbins agreement company also agreed proceeds litigation allocated certain order priority pursuant agreement reached debtor project companies bondholders foregoing allocation modified proceeds allocated following order priority 1 attorneys entitled contingency fee 15 2 next 10000 50 company 50 redeem outstanding 1999d bonds 3 redeem outstanding 1999d bonds 4 reimburse company amounts paid respect 1999d bonds 5 reimburse company costs incurred connection prosecuting retail rate litigation 6 redeem outstanding 1999c bonds 7 106 interest foregoing items 4 5 company extent proceeds 80 proceeds shall paid indenture trustee nonrecourse robbins bonds amount sufficient repay bonds full paid remaining 20 paid company foregoing payments shall made remaining proceeds shall paid company see note 24 description robbins settlement ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process 19 stock option plans company two fixed option plans reserve shares common stock issuance executives key employees directors company adopted disclosureonly provisions statement financial accounting standards sfas 123 accounting stockbased compensation accordingly compensation cost recognized stock option plans compensation cost companys three stock option plans determined based fair value grant date awards 2001 2000 1999 consistent provisions sfas 123 companys net earnings per share would reduced pro forma amounts indicated stock options included diluted earnings per share due losses 2001 1999 assumption regarding stock options issued executives 2001 2000 1999 100 options vested year grant fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions 1995 stock option plan approved shareholders april 1995 amended april 1999 total number shares common stock may granted 3300000 april 1990 shareholders approved stock option plan directors company april 29 1997 shareholders approved amendment directors stock option plan authorizes granting options 400000 shares common stock nonemployee directors company automatically receive option acquire 3000 shares year plans provide shares granted come companys authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted executive compensation plan longterm incentive segment provides stock options issued one third options become exercisable end first three years connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect whollyowned subsidiary company also granted inducement options 2001 chief executive officer connection employment agreement price options granted pursuant agreement fair market value date grant one fifth options become exercisable year date agreement options available exercise fifth anniversary agreement date options granted agreement expire 10 years date granted information regarding option plans years 2001 2000 1999 follows following table summarizes information fixedprice stock options outstanding december 28 2001 20 preferred share purchase rights september 22 1987 companys board directors board declared dividend distribution one preferred share purchase right share companys common stock outstanding october 2 1987 adopted rights agreement dated september 22 1987 rights agreement september 30 1997 board amended restated rights agreement right allows shareholder purchase one onehundredth share new series preferred stock company exercise price 175 rights exercisable person group acquires 20 companys common stock announces tender offer consummation would result ownership person group 20 companys common stock connection reorganization may 25 2001 foster wheeler corporation rights exchanged rights foster wheeler ltd new rights agreement governs rights although terms rights right vote receive dividends expire may 20 2011 may redeemed prior becoming exercisable board 02 per right shareholder action acquisition proposal person group acquires 20 companys outstanding common stock flipin provision rights triggered rights entitle holder person member group acquire number additional shares companys common stock market value twice exercise price right event company involved merger business combination transaction right entitle holder purchase rights thencurrent exercise price number acquiring companys common stock market value time twice rights exercise price board directors may amend rights agreement prevent approved transactions triggering rights 21 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value companys longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities carrying amount 2001 includes debt issuances classified current liabilities due covenant violations companys revolving credit agreement potential acceleration debt certain debt agreements see note 1 information foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated better standard poors a2 better moodys see notes 1 8 12 carrying amounts fair values estimated fair values companys financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 1025612 1050496 december 28 2001 december 29 2000 respectively balances include standby letters credit issued revolving credit agreement discussed note 9 companys past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 28 2001 company 328200 foreign currency contracts outstanding foreign currency contracts mature 2002 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising companys customer base dispersion across different business geographic areas december 28 2001 december 29 2000 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 yearend 2001 2000 respect partnership interest commercial real estate project 22 business segments data business company subsidiaries falls within two business groups engineering construction group designs engineers constructs petroleum chemical petrochemical alternativefuels facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities process plants production fine chemicals pharmaceuticals dyestuffs fragrances flavors food additives vitamins also ec group provides broad range environmental remediation services together related technical design regulatory services energy equipment group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering ee group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition ee group also builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries since fiscal 2000 power systems group combined ee group rest companys power expertise resides prior years amounts adjusted reflect change unit small project development team longer develop wastetoenergy facilities united states company conducts business global basis ec group accounted largest portion companys operating revenues operating income last ten years 2001 ec group accounted approximately 65 operating revenues geographic dispersion operating revenues follows 40 north america 22 asia 29 europe 8 middle east 1 ee group accounted 35 operating revenues company geographic dispersion operating revenues follows 61 north america 37 europe 2 asia earnings segments represent revenues less expenses attributable group geographic area operating units located revenues business segments immaterial eliminated corporate financial services export revenues account 76 operating revenues single customer represented 10 operating revenues 2001 2000 1999 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate summary financial information concerning companys reportable segments shown following table 1 includes general corporate income expense companys captive insurance operation eliminations 2 includes intercompany interest charged corporate financial services business groups outstanding borrowings 3 includes 2001 contract writedowns 160600 104400 aftertax engineering construction group 67200 energy equipment group 88400 corporate financial services 5000 4 includes 2001 loss sale cogeneration plants energy equipment group 40300 27900 aftertax increased pension cost corporate financial services 5000 3300 aftertax 5 includes 2001 valuation allowance deferred tax assets 171900 corporate financial services 6 includes dividends preferred security 15750 2000 2001 15181 1999 7 includes 1999 cost realignment 37600 27600 tax pretax charge per group engineering construction group 19600 energy equipment group 2500 corporate financial services 15500 8 includes 1999 214000 154000 tax related final settlement robbins facility 30600 relates current year operation robbins facility restated reflect inclusion power system group operations energy equipment group revenues longlived assets based country contracting subsidiary located 23 consolidating financial information following represents summarized consolidating financial information december 28 2001 december 29 2000 respect financial position three years period ended december 28 2001 results operations cash flows company 100 owned majorityowned subsidiaries result reorganization may 25 2001 foster wheeler llc successor foster wheeler corporation became obligor companys 675 notes due november 15 2005 notes foster wheeler usa corporation foster wheeler energy corporation foster wheeler power group inc formerly known foster wheeler energy international inc foster wheeler international holdings inc foster wheeler ltd foreign holdings ltd foster wheeler inc issued guarantees favor holders notes otherwise assumed obligations indenture governing notes guarantees full unconditional joint several may june 2001 company issued 65 convertible subordinated notes convertible notes due 2007 fully described note 8 convertible notes fully unconditionally guaranteed foster wheeler llc summarized consolidating financial information presented lieu separate financial statements related disclosures whollyowned subsidiary guarantors management believe separate financial statements related disclosures would material investors none subsidiary guarantor restricted making distributions company comparative statements december 29 2000 respect financial position results operations cash flows years ended december 29 2000 december 31 1999 reflect financial information company prior reorganization occurred may 25 2001 managements belief due nature reorganization restatement prior financial statements would meaningful foster wheeler ltd condensed consolidating balance sheet december 28 2001 thousands dollars foster wheeler corporation condensed consolidating balance sheet december 29 2000 thousands dollars foster wheeler ltd condensed consolidating statement earnings year ended december 28 2001 thousands dollars includes interest expense dividends preferred securities 84484 includes contract writedowns 160600 104400 tax restructuring cost 41600 27000 aftertax reserve deferred tax assets 171900 loss sale cogeneration plants 40300 27900 tax increased pension cost 5000 3300 tax provision ceo retirement 2700 1800 tax foster wheeler corporation condensed consolidating statement earnings year ended december 29 2000 thousands dollars includes interest expense dividends preferred securities 83254 foster wheeler corporation condensed consolidating statement earnings year ended december 31 1999 thousands dollars includes interest expense dividends preferred securities 70213 includes provision 37600 27600 tax cost realignment charge totaling 244600 173900 tax 214000 relates robbins facility writedown 30600 relates current year operations robbins facility foster wheeler ltd condensed consolidating statement cash flow year ended december 28 2001 thousands dollars foster wheeler corporation condensed consolidating statement cash flow year ended december 29 2000 thousands dollars foster wheeler corporation condensed consolidating statement cash flow year ended december 31 1999 thousands dollars 24 robbins settlement october 21 1999 company announced reached agreement robbins agreement holders approximately 80 principal amount bonds issued connection financing robbins facility robbins agreement 320000 aggregate principal amount existing bonds exchanged 273000 aggregate principal amount new bonds february 3 2000 113000 companysupported robbins bonds funded payments company balance nonrecourse robbins bonds nonrecourse company addition pursuant robbins agreement company would exit operating role respect robbins facility specific elements robbins agreement follows new companysupported robbins bonds consist 95000 aggregate principal amount 725 amortizing terms bonds 17845 mature october 15 2009 77155 mature october 15 2024 see note 10 sinking fund requirements 1999 c bonds b 18000 aggregate principal amount 7 accretion bonds maturing october 15 2009 interest paid maturity 1999d bonds company agreed operate robbins facility benefit bondholders earlier sale robbins facility october 15 2001 fullcost reimbursable basis operational performance guarantees remaining obligations company 55000 additional credit support facility respect existing bonds terminated company would continue prosecute certain pending litigation retail rate litigation various officials state illinois see note 17 financial statements litigation uncertainties company would cooperate bondholders seeking new owneroperator robbins facility december 1 1999 three special purpose subsidiaries company commenced reorganization proceedings chapter 11 bankruptcy code order effectuate terms robbins agreement january 21 2000 subsidiaries plan reorganization confirmed plan consummated february 3 2000 august 8 2000 company initiated final phase exit robbins facility part robbins agreement company agreed operate robbins facility subject reimbursed costs operation reimbursement occur therefore pursuant robbins agreement company october 10 2000 completed final phase exit project company administering project companies delaware business trust owns project behalf bondholders result exit project company longer administering project companies 2002 subsidiary company reached agreement debtor project companies requisite holders bonds agreement expected favorably resolve issues related exit project fourth quarter 1999 company recorded pretax charge approximately 214000 charge fully recognized existing obligations company related robbins facility including prepaid lease expense 45600 b 20400 outstanding bonds issued conjunction equity financing robbins facility c transaction expenses 4500 liability december 31 1999 companysupported bonds recorded net present value 133400 113000 subordinated obligations 20400 senior company obligations company considered primary obligor bonds ongoing legal expenses relating retail rate litigation see note 17 financial statements litigation uncertainties expensed incurred third quarter 1998 company recorded charge approximately 47000 asset impairments relating robbins facility included 72800 losses 1998 item 9item 8 financial statements supplementary data financial statement schedule financial statements certain foster wheeler ltd subsidiaries following financial statements certain foster wheeler ltd indirectly wholly owned subsidiaries included pursuant regulation sx rule 316 “financial statements affiliates whose securities collateralize issue registered” see note 7 foster wheeler ltd consolidated financial statements foster wheeler holdings ltd subsidiaries foster wheeler llc subsidiaries foster wheeler international holdings inc subsidiaries foster wheeler international corporation subsidiaries foster wheeler europe limited subsidiaries fw netherlands cv subsidiaries financial services sarl subsidiary fw hungary licensing limited liability company report independent registered public accounting firm board directors shareholders foster wheeler ltd completed integrated audits foster wheeler ltd’s “company” 2005 2004 consolidated financial statements internal control financial reporting december 30 2005 audit 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ltd subsidiaries december 30 2005 december 31 2004 results operations cash flows three years period ended december 30 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 30 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 30 2005 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler ltd subsidiaries consolidated statement operations comprehensive loss thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ deficit thousands dollars except share data see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data continued noncash financing activities 2005 71289 preferred shares converted 4637949 common shares resulting 1 reduction preferred share capital 46 increase common share capital 45 reduction paidin capital august 2005 5634464 common shares exchanged 65214 trust preferred securities see note 6 information regarding equityfordebt exchange november 2005 6026981 common shares exchanged 150003 2011 senior notes see note 6 information regarding equityfordebt exchange 2004 3062574 common shares 599944 preferred shares warrants purchase 6994059 common shares 147130 longterm debt exchanged 593102 existing debt trust preferred securities see note 6 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies liquidity outlook significantly improved 2003 2005 completed three equityfordebt exchange offers reduced outstanding principal interest obligations improved short longterm liquidity refer note 6 information regarding transactions closely monitor domestic global liquidity update liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period domestic operating entities generate sufficient cash flow cover costs related indebtedness obligations fund us pension plans asbestosrelated liabilities corporate overhead expenses consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2006 forecast assumes total cash repatriation nonus subsidiaries amounts consistent prior years royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 134900 77000 nonus subsidiaries 2005 2004 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory financing requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors may limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire also access domestic revolving credit facility described note 7 principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2005 2003 included 52 weeks 2004 included 53 weeks capital alterations november 29 2004 shareholders approved series capital alterations including consolidation authorized common share capital ratio onefortwenty reduction par value common shares preferred shares result capital alterations references share capital number shares per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect capital alterations retroactive basis revisions prior period consolidated statement operations comprehensive loss revised classify amortization intangible assets within cost operating revenues rather within deductions asbestos provision separate line item rather within deductions impact consolidated balance sheet consolidated statement cash flows summary financial statement line items affected revision presented foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred include flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts 2005 revised presentation contractrelated balance sheet line items financial statement line item billings excess costs estimated earnings uncompleted contracts replaces previously used line items advances payments estimated costs complete longterm contracts addition unbilled receivables included within contracts process rather component trade receivables numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition estimates may revised time additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” review major contracts monthly result process 2005 approximately 45 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued complete longterm contract indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 99600 37600 respectively claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs record claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded commercial claims receivable customers approximately 5700 3900 december 30 2005 december 31 2004 respectively additionally consolidated financial statements assume recovery 27900 pending submitted requests equitable adjustment “reas” 7000 recorded contracts process december 30 2005 reas relate project currently executed us government agency include work performed 2008 time expect recover total amount reas continuing negotiate us government agency regarding reas well potentially restructuring related contract account reas similar account claims described recognizing contract revenue reas conditions set forth paragraph 65 sop 811 achieved certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract deferred precontract costs december 30 2005 december 31 2004 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancellable service contracts cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 298839 225861 maintained foreign subsidiaries december 30 2005 december 31 2004 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments december 31 2004 consisted primarily certificates deposit classified held maturity financial accounting standards board foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued “fasb” statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable trade accounts receivable represents amounts billed customers accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 7921 7080 december 30 2005 december 31 2004 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued restricted cash following table details restricted cash held investments advances use equity method accounting affiliates investment ownership 20 50 unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years test impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 30 2005 december 31 2004 unamortized goodwill 50982 51812 respectively decrease goodwill 830 resulted changes foreign currency translation rates goodwill related global power business group accordance sfas 142 effective december 29 2001 longer amortize goodwill 2004 2005 fair value reporting units exceeded carrying amounts foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued december 30 2005 december 31 2004 unamortized identifiable intangible assets 64066 69690 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations comprehensive loss totaled 3570 3650 3675 fiscal years 2005 2004 2003 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment provision made federal income taxes may payable foreign subsidiary earnings extent anticipate earnings remitted based strategic initiatives modified foreign earnings repatriation policy address domestic liquidity plans foreign earnings considered necessary meet plans considered permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 77614 december 30 2005 practicable estimate additional tax would incurred amounts repatriated reviewed foreign earnings repatriation provision american jobs creation act 2004 “ajca” concluded given effective foreign tax rates applicable unrepatriated earnings well certain restrictions ajca concerning definitions extraordinary dividends us investment foreign earnings repatriation provision ajca provide financial benefit foster wheeler accordingly change existing repatriation practices result ajca foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued restrictions shareholders’ dividends discontinued common share dividend july 2001 restricted paying dividends senior credit agreement accordingly paid dividends common shares 2005 2004 2003 expect pay dividends common shares foreseeable future earnings per share accordance emerging issues task force issue 036 “participating securities twoclass method sfas 128” use twoclass method allocate income holders preferred shares computing basic diluted earnings per share common shareholders however losses allocated holders preferred shares purposes calculating earnings per share since preferred shareholders required fund losses 4195 preferred shares outstanding december 30 2005 convertible 273102 common shares option preferred shareholder see note 11 information regarding preferred shares see also “capital alterations” discussion beginning note 1 computations basic diluted loss per common share follows basic loss per common share computed based weightedaverage number common shares outstanding excluding nonvested restricted common shares 1111189 restricted common shares included weightedaverage number common shares outstanding shares vest one third restricted awards vested fourth calendar quarter 2005 balance vest fourth calendar quarter 2006 impact potentially dilutive securities outstanding stock options warrants purchase common shares convertible securities nonvested portion restricted common shares restricted common share awards excluded computation diluted loss per share since inclusion securities would antidilutive following table summarizes potentially dilutive securities foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued stock option plans three stock option plans reserve shares common stock issuance key employees directors follow disclosureonly provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 net loss available common shareholders basic diluted loss per common share would follows foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 summary significant accounting policies continued fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 30 2005 awards fully vested december 30 2005 2006 operating results expected include approximately 6500 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 2 accounts notes receivable following table shows components trade accounts notes receivable following table shows components nontrade accounts notes receivable 3 contracts process following table shows elements included contracts process related longterm contracts foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 4 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2005 2004 2003 23982 28447 31214 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project italy well refineryelectric power generation project chile two projects italy 42 owned third project 39 owned us reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway project chile 85 owned us however controlling financial interest chilean project following summarized financial information assuming 100 ownership interest entities equity interest foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 5 equity interests continued share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 24129 20636 17142 2005 2004 2003 respectively investment equity affiliates recorded within investment advances consolidated balance sheet totaled 140723 109106 december 30 2005 december 31 2004 respectively dividends 18272 9221 received 2005 2004 respectively guaranteed certain performance obligations three projects contingent obligations guarantees approximately 1700 aggregate additional contingent obligation chilean project capped 20000 twentyyear life project’s financing date amounts paid guarantees also provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments date amounts drawn letter credit undistributed retained earnings equity investees amounted 72407 42087 december 30 2005 december 31 2004 respectively 6 equityfordebt exchanges november 2005 completed offer exchange common shares portion 2011 senior notes 150003 aggregate principal amount 2011 senior notes tendered part exchange resulting issuance 6026981 common shares exchange reduced carrying value 2011 senior notes 155299 representing aggregate principal amount plus corresponding premium improved shareholders’ deficit 151076 exchange resulted 167909 increase common stock paidin capital partially offset 16833 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange concurrent exchange offer also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein august 2005 completed offer exchange common shares portion trust preferred securities trust preferred securities 2608548 tendered part exchange resulting issuance 5634464 common shares exchange reduced aggregate liquidation amount existing trust preferred securities 65214 reduced amount deferred accrued interest 26052 improved shareholders’ deficit 87571 exchange resulted increase common stock paidin capital totaling 129084 partially offset 41513 charge income pretax charge substantially noncash related primarily difference carrying value trust preferred securities including deferred accrued interest market price common shares closing date exchange september 2004 consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new senior notes exchange certain outstanding debt securities trust preferred securities exchange reduced existing debt 437041 reduced deferred accrued interest 31128 improved shareholders’ deficit 448136 combined proceeds issuance new senior notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 exchange offer resulted aggregate 623190 increase capital stock paidin capital partially offset 175054 charge income pretax foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 6 equityfordebt exchanges continued charge substantially noncash related primarily exchange convertible notes tendered exchange offer 7 longterm debt following table shows components longterm debt senior credit agreement march 2005 entered new 5year 250000 senior credit agreement senior credit agreement includes 75000 sublimit borrowings rate equal libor plus 5 standby letters credit issued senior credit agreement carry fixed price throughout life facility assets andor stock certain domestic foreign subsidiaries collateralize senior credit agreement paid approximately 13724 fees expenses conjunction execution senior credit agreement fees amortized expense life agreement senior credit agreement requires us maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly leverage ratio compares total indebtedness defined senior credit agreement ebitda defined leverage ratio must less levels specified senior credit agreement fixed charge coverage ratio compares ebitda total fixed charges defined must greater levels specified senior credit agreement must compliance minimum liquidity foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 7 longterm debt continued level covenant times current forecast indicates compliance financial covenants contained senior credit agreement throughout 2006 senior credit agreement also requires us prepay facility certain circumstances proceeds asset sales issuance debt 131642 letters credit outstanding senior credit agreement december 30 2005 funded borrowings outstanding december 30 2005 previous senior credit facility august 2002 entered senior credit facility comprising 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date part september 2004 equityfordebt exchange repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 letters credit outstanding 90018 december 31 2004 march 2005 replaced previous senior credit facility new senior credit agreement senior notes 10359 interest due september 15 2011 series “2011 senior notes” 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 september 15 commencing march 15 2005 conjunction issuance 2011 senior notes recorded premium 5659 since fair value 2011 senior notes 104 principal result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain subsidiaries time prior september 15 2006 option redeem 2011 senior notes 100 principal amount plus accrued unpaid interest plus premium based us treasury rates redemption price including accrued interest estimated 1434 december 30 2005 option redeem 2011 senior notes prices decreasing 107769 face amount plus accrued unpaid interest redeemed twelvemonth period commencing september 15 2006 par redeemed twelvemonth period commencing september 15 2010 concurrent 2004 equityfordebt exchange completed 120000 private offering senior notes 10359 due september 2011 series b “series b notes” proceeds series b notes offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 recorded premium 4800 offering since fair value series b notes 104 principal result premium effective interest rate series b notes 95602 december 2004 exchanged series b notes registered 2011 senior notes november 2005 completed offer exchange common shares portion 2011 senior notes exchange reduced aggregate carrying value 2011 senior notes 155299 see note 6 information senior notes 675 interest due november 15 2005 “2005 senior notes” 1995 issued 200000 2005 senior notes bearing interest fixed rate 675 per annum payable semiannually maturing november 15 2005 described note 6 exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange consummated 2004 repaid remaining 2005 senior notes scheduled maturity date november 2005 convertible subordinated notes 650 interest due 2007 “convertible notes” may june 2001 issued convertible notes aggregate principal amount 210000 convertible notes due june 1 2007 bear interest 650 per annum payable semiannually june 1 december 1 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 7 longterm debt continued year commencing december 2001 convertible notes subordinated right payment existing future senior indebtedness convertible notes convertible common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances part equityfordebt exchange consummated 2004 exchanged common shares preferred shares 206930 convertible notes see note 6 information subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 part equityfordebt exchange consummated 2004 exchanged common shares preferred shares 93721 robbins bonds see note 6 information subordinated deferrable interest debentures 1999 fw preferred capital trust “capital trust” 100 indirectlyowned finance subsidiary foster wheeler ltd consummated 175000 public offering 7000000 trust preferred securities trust preferred securities fully unconditionally guaranteed joint several basis us foster wheeler llc capital trust invested proceeds sale trust preferred securities equal principal amount 9 junior subordinated deferrable interest debentures foster wheeler llc due january 15 2029 accordance provisions fasb interpretation 46 “consolidation variable interest entities” capital trust consolidated within financial statements presented herein since primary beneficiary however consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures trust preferred securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision deferred quarterly distributions beginning distribution due january 15 2002 redeem trust preferred securities january 15 2004 senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements part equityfordebt exchange consummated 2004 issued common shares preferred shares warrants purchase common shares exchange trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 103823 reduced amount deferred accrued interest 31128 subsequently august 2005 completed another offer exchange common shares trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 65214 reduced amount deferred accrued interest 26052 see note 6 information exchange offers resulted corresponding reductions outstanding subordinated deferrable interest debentures deferred accrued interest foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 7 longterm debt continued specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned foster wheeler certain assets project collateralize notes andor bonds obligations respect debt limited guaranteeing operating performance projects martinez cogen limited partnership debt represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semi annually july 30 2006 note matures july 30 2006 gasfired electric generation project located california foster wheeler coque verde debt represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey capital leases entered series capital leases primarily office buildings assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 30 2005 fiscal year 7840 7588 7819 8153 8227 thereafter 115189 less interest 90576 net minimum lease payments capital leases 64240 less current portion net minimum lease payments 1021 longterm portion net minimum lease payments 63219 interest costs interest costs incurred 2005 2004 2003 50618 94622 95791 respectively 0 307 respectively capitalized foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 7 longterm debt continued aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 3847 next five years follows 8 pensions postretirement benefits pension benefits united states certain foreign subsidiaries several defined benefit pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation us plans noncontributory effective january 1 1999 cash balance program added us plan pension benefit previous formulas remained current employees elected however new us employees offered cash balance program amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs cash contributions made intended provide benefits attributed service date also expected earned future also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 froze serp issued letters credit totaling 2250 certain employees support obligations serp december 30 2005 letters credit outstanding serp april 10 2003 board directors approved changes us employee benefits program including pension postretirement medical 401k plans changes made following review us employee benefits assessed benefit program marketplace competitors principal changes consist following us pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued level employer matching contribution believe net effect changes improves financial condition reduced costs reduced cash outflow future years us subsidiaries 401k plan salaried employees contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 2813 3317 4066 2005 2004 2003 respectively 401k plan provision discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years’ membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 479 205 36 2005 2004 2003 respectively defined contribution plan foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued following chart contains disclosures pension benefit obligation foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued following chart contains disclosures net periodic benefit cost charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement 2005 2004 obligations former executives supplemental executive retirement plan 56 1390 respectively ii impact 2003 freezing us pension plans mothballing us manufacturing facility 900 employee terminations part workforce reduction 100 plan measurement date measurement date defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” defined benefit plans aggregated 985600 915100 december 30 2005 december 31 2004 respectively recorded net cumulative charge comprehensive loss years 2000 2005 due abo exceeding fair value plan assets investment policy pension plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 625 775 equities 225 325 bonds 0 5 cash currently reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 783 753 past three years foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued contributions expect contribute total approximately 24800 us pension plans approximately 29800 foreign pension plans 2006 contributions us pension plans expected approximate 18700 2007 15200 2008 6200 2009 essentially zero year thereafter estimated future benefit payments expect make following benefit payments postretirement benefits addition providing pension benefits subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits qualify commence normal early retirement pension benefits defined pension plan working foster wheeler certain benefits provided insurance companies additionally subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective interim period ending september 24 2004 based upon proposed regulations medicare act concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 final regulations issued center medicare medicaid services “cms” january 2005 additional guidance issued cms april 2005 based upon review regulations confirmed benefits provided plan actuarially equivalent medicare part medicare act foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued following chart contains disclosures postretirement benefit obligation following chart contains disclosures net periodic postretirement benefit cost foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 8 pensions postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects plan measurement date measurement date postretirement benefit plans december 31 year obligations contributions expect contribute total approximately 7185 postretirement benefit plans 2006 net health care subsidy estimated future benefit payments expect pay following postretirement benefit payments benefits certain foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 34845 32650 recorded within pension postretirement employee benefits consolidated balance sheet december 30 2005 december 31 2004 respectively related benefits also benefit plan referred survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan also recorded within pension postretirement employee benefits consolidated balance sheet 23300 23572 december 30 2005 december 31 2004 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 5285 6351 december 30 2005 december 31 2004 respectively benefit assets recorded assets consolidated balance sheet foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 9 guarantees warranties provided indemnifications third parties relating businesses andor assets previously owned indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale provide warranty project execution reserves certain longterm contracts generally warranty reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 10 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency contracts estimate fair value foreign currency contracts used hedging purposes obtaining quotes brokers exposed market risks fluctuations foreign exchange rates utilize financial instruments reduce risk hold issue financial instruments trading purposes exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 1 16 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 10 financial instruments risk management continued carrying amounts fair values estimated fair values financial instruments follows contingently liable performance standby letters credit bank guarantees surety bonds totaling 551900 559900 december 30 2005 december 31 2004 respectively balances include standby letters credit issued senior credit agreement discussed note 7 based upon past experience material claims made financial instruments expect material losses result offbalancesheet instruments therefore believe fair value instruments zero december 30 2005 165827 foreign currency contracts outstanding foreign currency contracts mature 2006 2009 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 30 2005 december 31 2004 significant concentrations credit risk issued thirdparty financial guarantee totaling 2750 december 30 2005 december 31 2004 respect partnership interest commercial real estate project 11 preferred shares issued 599944 preferred shares connection 2004 equityfordebt exchange 4195 preferred shares outstanding december 30 2005 preferred share optionally convertible 65 common shares 273102 additional common shares preferred shares converted preferred shareholders voting rights except certain limited circumstances preferred shares right receive dividends distributions including liquidating distributions asconverted basis declared paid common shares preferred shares 001 liquidation preference 12 restricted stock plan october 6 2004 management issued 1883745 restricted share awards accordance management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 12 restricted stock plan continued awards vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share november 29 2004 shareholders approved grant 18065 restricted share units nonemployee directors restricted share units awarded nonemployee directors vested december 31 2005 grant date fair value restricted common share awards issued nonemployee directors 1540 per share august 8 2005 one senior executives issued 20000 restricted share units accordance management restricted stock plan onethird award vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value restricted common share award 2320 per unit october 10 2005 one senior executives issued 17417 restricted shares accordance inducement award onethird award vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value award 2930 per share november 8 2005 nonemployee directors issued 8603 restricted share units accordance management restricted stock plan award vests september 30 2006 grant date fair value awards 2969 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 1230 17609 2005 2004 respectively related compensation expense recorded 2005 2004 8769 1712 respectively 13 stock option programs september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum 10 years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share options expire october 5 2007 one third options issued management vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 november 29 2004 shareholders approved grant options 2004 plan purchase 413 preferred shares nonemployee directors exercise price 9378 per common share options expire october 5 2007 nonemployee director options vested december 31 2005 upon shareholder approval option grant nonemployee directors unearned compensation 162 recorded since exercise price options 9378 per share less market price underlying shares 1540 per share unearned compensation charge equivalent difference market value underlying shares exercise price options recorded part shareholders’ deficit corresponding increase paidin capital unearned compensation amortized compensation expense appropriate vesting period grant related compensation expense recorded 2005 2004 150 12 respectively november 29 2004 option 2004 plan purchase preferred shares granted management nonemployee directors mandatorily converted option purchase 65 common shares exercise price 9378 per common share foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 13 stock option programs continued august 8 2005 one senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 october 10 2005 one senior executives issued options 2004 plan purchase 52165 common shares exercise price 2995 per common share options expire october 9 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 november 8 2005 nonemployee directors issued options 2004 plan purchase 7343 common shares exercise price 29675 per common share options expire september 30 2010 nonemployee director options vest onetwelfth increments fully vested september 30 2006 1995 stock option plan approved shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 shareholders approved stock option plan directors foster wheeler april 29 1997 shareholders approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler plans provide shares granted come authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted also granted 65000 inducement options exercise price 9970 2001 chief executive officer connection employment agreement 50000 options exercise price 3280 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted also granted 12750 inducement options exercise price 2980 president chief executive officer foster wheeler north america corp connection employment agreement 2002 granted 5000 inducement options exercise price 2410 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 13 stock option programs continued information regarding option plans years 2005 2004 2003 follows presented actual number shares foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 13 stock option programs continued following table summarizes information fixedprice stock options outstanding december 30 2005 14 common share purchase warrants connection exchange offer consummated 2004 issued 4152914 class common share purchase warrants 40771560 class b common share purchase warrants class warrant entitles owner purchase 16841 common shares exercise price 9378 per common share thereunder subject terms warrant agreement us warrant agent class warrants exercisable september 24 2009 december 30 2005 approximately 38397 class warrants exercised approximately 64664 common shares generated cash proceeds 606 number common shares issuable upon exercise remaining outstanding class warrants approximately 6929759 december 30 2005 class b warrant entitles owner purchase 00723 common shares exercise price 9378 per common share thereunder subject terms conditions warrant agreement us warrant agent class b warrants exercisable september 24 2007 december 30 2005 approximately 5670032 class b warrants exercised approximately 409944 common shares generated cash proceeds 3845 number common shares issuable upon exercise remaining outstanding class b warrants approximately 2538341 december 30 2005 january 2006 completed transactions temporarily increased number common shares delivered upon exercise class b common share purchase warrants raised 75300 net proceeds exercise price per warrant increased offers holders approximately 95 57 class warrants class b warrants participated offers respectively resulting aggregate issuance approximately 8403500 common shares holders class b warrants entitled vote receive dividends exercise rights common shareholders purpose warrants duly exercised currently maintain intend continue maintain times warrants exercisable “shelf” registration statement relating issuance common shares underlying warrants benefit warrant holders subject terms registration rights agreement registration statement became effective december 28 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 15 income taxes components loss income taxes years 2005 2004 2003 following tax jurisdictions provision income taxes losses follows deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits believe foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 15 income taxes continued likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed prior periods reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely deferred tax assets would realized fourth quarter 2005 reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized jurisdictions improved operational performance resulted reduction less full reversal valuation allowance addition decreased valuation allowance reflect utilization tax credits deferred tax liability set anticipated repatriations foreign earnings three events combined decrease valuation allowance 49766 also established new valuation allowance another foreign operating units due presence fourth quarter 2005 negative evidence deferred tax assets unit realized resulted increase valuation allowance 5581 however net reduction offset need increase net valuation allowance primarily us continue experience negative evidence deferred tax assets would realized result valuation allowance increased 25669 2005 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws result equityfordebt exchange offers consummated 2004 2005 subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period part overall reorganization took place may 2001 transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however transfer subject tax us required sfas 109 us tax charge gain reported deferred charge assets consolidated balance sheet amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 16 derivative financial instruments operate worldwide basis activities expose us risks related effect changes foreigncurrency exchange rates maintain foreigncurrency riskmanagement strategy uses derivative instruments protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates utilize foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” years 2005 2004 2003 meet requirements deferral sfas 133 recorded pretax losses 3933 2900 5160 respectively amounts recorded following line items consolidated statement operations comprehensive loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 30 2005 21690 owed us counterparties 144137 owed us counterparties maximum term hedging exposure variability cash flows 12 months 17 business segments operate two business groups also constitute separate reportable segments global engineering construction group refer ec group global power group global ec group operates worldwide designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers contractors ec group owns one leading refinery residue upgrading technologies hydrogen production processes used oil refineries petrochemical plants additionally ec group experience able work wide range refining chemical oil gas processes owned others ec group performs international environmental remediation services together related technical engineering design regulatory services ec group also involved development engineering construction ownership power generation facilities ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration operating activities pursuant longterm sale project outputs electricity returns equity investments various production facilities global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases circulating fluidizedbed boiler technology recognized one foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 17 business segments continued leading solid fired fuel technologies world auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners provide broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs electricity steam operating maintenance agreements returns equity investments various production facilities conduct business global basis ec group accounted largest portion operating revenues last ten years 2005 ec group accounted 67 total operating revenues global power group accounted 33 total operating revenues geographic dispersion 2005 operating revenues based upon location project follows use several financial metrics measure performance business segments ebitda primary earnings measure used chief decision makers single customer represented 10 operating revenues 2005 2004 2003 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 17 business segments continued 1 includes general corporate income expense captive insurance operation eliminations 2 includes 2005 charge 113700 cf revaluation estimated asbestos liability asbestos insurance receivable regular reevaluation contract profit estimates 99600 66300 ec 33300 global power credit agreement costs cf associated previous senior credit facility 3500 aggregate charge 58300 cf recorded conjunction trust preferred securities 2011 senior notes exchange offers 3 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 equity interest wastetoenergy project italy regular reevaluation contract profit estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 17 business segments continued coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 4 includes 2003 15100 impairment loss cf anticipated sale domestic corporate office building 16700 gain ec sale certain assets foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 17 business segments continued revenues presented based country contracting subsidiary located longlived assets presented based country contracting subsidiary located operating revenues industry follows 18 sale certain business assets march 7 2003 sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 recognized gain 15300 sale recorded income consolidated statement operations comprehensive loss first quarter 2003 also retained 8000 cash hand time asset sale proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 agreed buyer final net worth foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 18 sale certain business assets continued calculation resulted us returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february 2004 transactions related sale concluded march 31 2003 sold interest corporate office building net proceeds approximately 7900 approximated value investment completion transaction 1445 net proceeds used prepay principal outstanding previous senior credit facility accordance terms facility 2004 sold domestic corporate office building net cash proceeds 16400 approximated carrying value amount 50 prepaid previous senior credit facility’s lenders second quarter 2004 previously recorded impairment loss 15100 building 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss 2004 sold minority equity interests specialpurpose companies established develop power plant projects europe recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss 19 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases 32601 2005 34048 2004 34117 2003 future minimum rental commitments noncancelable leases follows fiscal year 31484 25840 22495 20683 20723 thereafter 209587 330812 entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years 2005 2004 2003 respectively december 30 2005 december 31 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear decrease deferred gain balance primarily due change foreign currency translation rates foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s prior united states summary us claim activity three years ended december 30 2005 follows 1 claims valued liability include claims six years old considered abandoned claims certain inactive court dockets certain claims amount spent asbestos litigation defense case resolution 83800 2005 100200 2004 73600 2003 funded 12400 2005 payments remaining amounts reimbursed insurance coverage december 30 2005 total indemnity costs paid prior insurance recoveries approximately 510800 total defense costs paid approximately 136500 overall average combined indemnity defense cost per resolved claim since 1993 approximately 22 average cost per resolved claim increasing believe continue increase future december 30 2005 following asbestosrelated assets liabilities recorded consolidated balance sheet asbestosrelated assets recorded within accounts notes receivableother 24200 asbestosrelated insurance recovery receivable 295800 total asbestosrelated assets 320000 asbestosrelated liabilities recorded within accrued expenses 75000 asbestosrelated liability 441000 total asbestosrelated liabilities 516000 december 30 2005 total asbestosrelated liabilities comprised estimated liability 223700 relating open outstanding claims valued estimated liability 292300 relating future unasserted claims foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued 2004 retained counsel analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities work us estimate amounts asbestosrelated indemnity defense costs following 15 year period consult arpc end quarter regarding estimate arpc reviewed asbestos indemnity payments defense costs claims activity 2005 compared 15year forecast prepared 2004 2005 number mesothelioma claims filed us significantly higher forecast addition average indemnity amounts paid mesothelioma nonmesothelioma claims significantly higher forecast factors increase indemnity costs partially offset significantly higher forecasted rates dismissals claims zero indemnity payments based review 2005 activity arpc recommended assumptions used estimate future asbestos liability next 15 years updated yearend 2005 accordingly worked arpc develop revised estimate indemnity defense costs 2020 yearend increased liability asbestos indemnity defense costs 2020 516000 brings liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability asset recorded loss 113700 fourth quarter 2005 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity liability estimated incurred year 2020 period new claims forecasted decline year believe likely new claims filed 2020 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2020 historically defense costs represented approximately 21 total defense indemnity costs asbestosrelated asset amount recorded within accounts notes receivableother reflects amounts due 2006 executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers based upon assumptions relating cost allocation application new york law factors well estimate amount recoveries existing settlements insurers since 2003 used outside consultant assist us estimation asbestos insurance asset 2005 retained counsel peterson risk consulting nationally recognized experts estimation insurance recoveries review prior estimate value unsettled insurance asset assist current estimation primary unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset utilized analysis determine estimate value unsettled insurance asset december 30 2005 estimate value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 115000 litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could significantly limit insurance recoveries however favorable outcome part litigation could significantly increase available insurance recoveries current estimate regard january 10 2005 new york foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among subsidiaries various insurers prior entry new york court order calculated estimated insurance recoveries applying new jersey law application new york rather new jersey law would result subsidiaries realizing lower insurance recoveries thus result decision factors estimated insurance asset assuming application new york law recorded charge earnings fourth quarter 2004 approximately 75800 reduced yearend 2004 carrying value probable insurance recoveries similar amount unless decision reversed expect required fund portion asbestos liabilities cash amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes insurers yet settled february 16 2005 subsidiaries filed appeal decision higher court appeal currently pending assurances timing outcome new jersey law applied prevail issues litigated asbestos insurance asset could increase significantly prevail whole part litigation revalue asset based asbestos liability estimated time even coverage litigation resolved manner favorable us recoveries may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers also may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries material adverse effect financial condition results operations cash flow pending coverage litigation active negotiations insurers continuing subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred intend continue attempt negotiate additional settlements achievable reasonable basis order minimize amount future costs would required fund cash flow cannot achieve settlements amounts necessary cover future costs may continue fund portion future costs may reduce cash flow working capital may adversely affect liquidity change estimated asbestos liability impact expense would dependent upon available insurance recoveries assuming change assumptions used estimate insurance asset december 30 2005 change estimated liability plus minus 25 would result nearly equal change statement operations longterm cash flow funded 12400 asbestos liabilities cash flow 2005 expect active settlement negotiations unsettled insurers continue 2006 may determine appropriate course action continue fund portion asbestos liabilities 2006 coverage litigation settlement negotiations continue elect continue course action may spend cash flow 51000 2006 estimate assumes additional settlements insurance companies considered liquidity forecast proposed asbestos trust fund legislation recently considered us senate proposed legislation become law present form would alter payment obligations would required fund approximately 19250 per year 30 years thus legislation could material adverse impact financial condition results operations longterm cash flow remain part foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued consortium companies actively lobbying enactment proposed legislation currently drafted estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes occurred 2005 increases number claims filed costs resolve claims cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 747 claims brought uk subsidiaries 306 remained open december 30 2005 none settled claims resulted material costs us december 30 2005 recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivableother 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling change asbestos liability asset recorded uk would approximate 66200 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims us could differ materially balances included financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced us arising compact cfb boiler engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations us relief granted could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified vigorously defending case counterclaimed unpaid receivables approximately 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued stages discovery final award expected 2007 based upon investigation proceedings date appear valid defenses claim however premature predict outcome proceeding arbitration also commenced us respect thermal electric power plant south america designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 investigating rights may seek reimbursement damages third parties believe valid legal defenses claim exist responded denying claim however premature predict outcome matter currently dispute client connection two power plants designed built eastern europe dispute primarily concerns whether liquidated damages refer lds due client contract delayed completion projects client contends owed lds capped contract approximately 39700 approximately 47000 retaining security lds approximately 22000 approximately 26100 contract payments otherwise due us work performed client contends owed additional amount approximately 3000 approximately 3600 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects believe period delay client seeking lds grossly overstated client’s calculation include extension time agreed well extensions time entitled clientcaused excusable delays also believe lds provision may unenforceable controlling english law asserted claims client delay costs extra work excess 4700 approximately 5600 yet recognized recent mediation client unsuccessful therefore intend request arbitration provided contract however premature predict outcome matter camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp ccera owns operates wastetoenergy facility camden county new jersey refer project pollution control finance authority camden county pcfa issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant longterm government contract one subsidiaries foster wheeler environmental corporation fwenc retained longterm contract spent nuclear storage facility us government agency fwenc sold assets contract scheduled consists four phases first phase initial design permitting licensing spent fuel facility first phase project complete profitable current second phase contract billed costplusfee basis phase fwenc required license facility nuclear regulatory commission nrc respond questions regarding initial design generated phase one complete final design fwenc requested clarification certain technical specifications detailed guidance government agency regarding government agencydirected changes project scope government agency failed provide clarification guidance july 2005 instead directed fwenc proceed third phase contract phase three consists procurement longlead items construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility issued november 30 2004 delay caused cost constructing facility increase third phase scheduled last approximately three years requires fwenc fund construction cost provide performance bond full construction price project foster wheeler usa corporation parent company fwenc provided performance guarantee project cost facility expected recovered first nine months operations phase four fwenc would operate facility fixed rates subject escalation approximately four years february 2006 fwenc entered final modification contract government agency final modification contract terminated nofault basis fwenc transfers government agency certain licenses permits contracts drawings documents related project specifically final modification provides fwenc transfers government agency licenses permits contracts drawings documents related project fwenc parent released obligations perform contract fwenc government agency exchange broad releases claims related project neither party required pay foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued money pursuant final modification fwenc government agency process arranging necessary transfers yet complete however expect fwenc able complete required transfers final modification target date completion transfers related exchange releases march 6 2006 fwenc fails complete transfers neither parent released contract remain legally obligated perform contract case fwenc would seek thirdparty financing fund majority construction costs assurance secure financing acceptable terms also assurance able obtain required performance bond necessary financing bonding cannot obtained unlikely fwenc would able perform construction obligations contract could material adverse effect financial condition results operations cash flow claims raised date government agency fwenc although directed us proceed construction ultimate potential liability fwenc parent andor foster wheeler ltd would arise event government agency terminates contract example due fwenc’s inability continue contract rebids contract substantially terms resulting cost government agency greater would existing terms fwenc however believe claim probable management believes fwenc would variety potential legal defenses government agency decide make claim management presently unable estimate possible loss could occur result claim environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 cercla clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances aware conditions currently owned facilities united states expect cause us incur material costs excess reserves established also may receive claims pursuant indemnity obligations owners recently sold facilities may require us incur costs investigation andor remediation based available information believe costs materially excess reserves already established assurance provided discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 20 litigation uncertainties continued notified potentially responsible party prp cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency usepa regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility february 1988 one subsidiaries foster wheeler energy corporation fwec entered consent agreement order usepa pennsylvania department environmental protection padep regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene tce soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest historic source tce former fwec facility since time fwec usepa padep cooperating broadranging investigation seeks among things identify sources tce residential wells although fwec believes available evidence sufficient support conclusion prp tce residential wells august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay provision public water affected residences involve extension water main installation laterals main affected residences also possibility fwec would incur costs required conduct formal study better define affected area since october 2004 fwec providing potentially affected residences temporary replacement water arranged filters remove tce installed tested maintained fwec incurring costs related public outreach communications affected area finally fwec may required pay agencies’ costs overseeing responding situation fwec accrued best estimate cost foregoing costs fwec could exposed could include among things costs associated supplying public water fwec’s counsel consulting fees agency oversight andor response costs potential costs exposure related potential litigation described costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items residents affected area retained counsel notified fwec intends file legal action fwec near future action filed date although fwec believes likely substantial defenses action might filed possible present determine whether fwec ultimately determined liability residents reliably estimate extent liability one third parties determined source tce fwec evaluate options regarding recovery costs fwec incurred options could include seeking recover costs determined source foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 21 quarterly financial data unaudited impact potentially dilutive securities outstanding stock options warrants purchase common shares convertible securities nonvested portion restricted common shares restricted common share awards included calculation diluted earnings per share due antidilutive effect foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 21 quarterly financial data unaudited continued 1 includes charge 113700 cf revaluation estimated asbestos liability asbestos insurance receivable charge 16800 recorded conjunction 2011 senior notes exchange offer charge 1400 related common share purchase warrants offers commenced december 2005 2 includes charge 75800 revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information convertible subordinated notes may june 2001 issued 65 convertible subordinated notes “convertible notes” due 2007 foster wheeler llc 100 owned subsidiary foster wheeler ltd fully unconditionally guarantees convertible notes foster wheeler llc assumed obligation fund debt service following summarized condensed consolidating financial information presented lieu separate financial statements related disclosures foster wheeler llc believe separate financial statements related disclosures would material investors 2004 completed equityfordebt exchange issued common shares preferred shares exchange portion convertible notes 3070 convertible notes outstanding december 30 2005 december 31 2004 following represents summarized condensed consolidating financial information december 30 2005 december 31 2004 respect financial position three years period ended december 30 2005 results operations cash flows foster wheeler ltd column presents financial information also issuer guarantor subsidiary column presents financial information sole guarantor foster wheeler llc nonguarantor subsidiaries include results direct indirect nonguarantor subsidiaries including foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities 1999 capital trust consummated 175000 public offering 7000000 trust preferred securities “trust preferred securities” trust preferred securities accrue cumulative distributions annual rate 9 distributions payable quarterly arrears april 15 july 15 october 15 january 15 year maturity date trust preferred securities january 15 2029 however capital trust redeem trust preferred securities january 15 2004 noted note 7 capital trust invested proceeds sale trust preferred securities equal principal amount 9 junior subordinated deferrable interest debentures foster wheeler llc due january 15 2029 “debentures” foster wheeler llc used net proceeds pay indebtedness revolving credit agreement capital trust distributes quarterly cash payments may receive foster wheeler llc interest debentures trust preferred securities security holders foster wheeler llc may defer interest debentures 20 consecutive quarterly periods occurs capital trust also defers distribution payments trust preferred securities accordance provision capital trust deferred quarterly distributions beginning distribution due january 15 2002 consolidated financial statements presented herein reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures presented consolidated statement operations comprehensive loss interest expense september 2004 completed equityfordebt exchange issued common shares preferred shares warrants purchase common shares exchange portion trust preferred securities conjunction exchange capital trust recorded 103823 reduction aggregate liquidation amount trust preferred securities 31128 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding decrease debentures accrued interest receivable august 2005 completed another equityfordebt exchange issued common shares exchange remaining portion trust preferred securities conjunction exchange capital trust recorded 65214 reduction aggregate liquidation amount existing trust preferred securities 26052 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding decrease debentures accrued interest receivable trust preferred securities 238538 aggregate liquidation amount 5963 outstanding december 30 2005 december 31 2004 trust preferred securities 2847086 aggregate liquidation amount 71177 outstanding summarized condensed financial information capital trust foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued sfas 114 “accounting creditors impairment loan” states “a loan impaired based current information events probable creditor unable collect amounts due according contractual terms loan agreement” sfas 114 requires measurement impairment based one several methods including loan’s observable market price capital trust established valuation allowance debentures related interest income receivable foster wheeler llc based foster wheeler llc’s financial condition decision exercise right defer payments debentures since january 15 2002 debentures related interest income receivable assets capital trust preferred securities related interest expense payable liabilities capital trust result capital trust measures loan impairment based market price trust preferred securities deemed proxy debentures’ observable market price decrease valuation allowance resulted increase market price trust preferred securities market price per security trust preferred securities 3720 december 30 2005 2705 december 31 2004 300 december 26 2003 additionally capital trust recorded gain exchange mandatorily redeemable preferred trust securities 39430 2004 difference gain recognized capital trust 39430 gain recorded foster wheeler llc 66352 due 1 34646 loss recognized capital trust settlement 593 subordinated deferrable interest debentures corresponding accrued interest 2 transaction fees 4244 write unamortized issuance costs 3480 borne foster wheeler llc following represents summarized condensed consolidating financial information december 30 2005 december 31 2004 respect financial position two years ended december 30 2005 results operations cash flows following summarized condensed consolidating financial information presented lieu separate financial statements related disclosures guarantors believe separate financial statements related disclosures would material investors foster wheeler ltd column presents financial information foster wheeler llc guarantors foster wheeler llc 100 owned indirect subsidiary guarantees full unconditional joint several nonguarantor subsidiaries include foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating balance sheet december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year endeed december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued previously noted capital trust consolidated financial statements prior december 27 2003 accordingly trust preferred securities presented mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements distributions expense trust preferred securities presented interest expense consolidated statement operations comprehensive loss following represents summarized condensed consolidating financial information year ended december 26 2003 results operations cash flows following summarized condensed consolidating financial information presented lieu financial statements 100 indirectly owned subsidiary guarantor issuer believe separate financial statements related disclosures would material investors foster wheeler ltd column presents financial information also guarantor fw preferred capital trust column presents financial information issuer guarantor subsidiary column presents financial information foster wheeler llc excludes financial information separately presented guarantees us foster wheeler llc full unconditional joint several nonguarantor subsidiaries include foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year endeed december 26 2003 1 purposes condensed consolidated financial information fw preferred capital trust reflected valuation allowance intercompany note receivable foster wheeler llc allowance reflected condensed consolidating financial statements foster wheeler ltd foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued b trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year endeed december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes conjunction equityfordebt exchange consummated 2004 foster wheeler llc issued new 2011 senior notes exchange portion 2005 senior notes new cash proceeds 115315 271643 2011 senior notes outstanding including unamortized premium 3847 10172 respectively december 30 2005 december 31 2004 respectively november 2005 completed offer exchange common shares 2011 senior notes exchange reduced aggregate carrying value 2011 senior notes 155299 concurrent exchange offer also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default 2011 senior notes fully unconditionally guaranteed us following companies continental finance company ltd equipment consultants inc financial services sarl foster wheeler canada ltd foster wheeler holdings ltd foster wheeler asia limited foster wheeler asia pacific pte ltd foster wheeler caribe corporation ca foster wheeler constructors inc foster wheeler continental bv foster wheeler development corporation fw energie bv foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler environmental corporation foster wheeler europe bv foster wheeler europe limited foster wheeler facilities management inc foster wheeler inc foster wheeler intercontinental corporation foster wheeler international corporation foster wheeler international holdings inc foster wheeler malaysia sdn bhd foster wheeler middle east corporation foster wheeler north america corp foster wheeler petroleum services sae foster wheeler power company ltd la societe d’energie foster wheeler ltee foster wheeler power corporation foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corp foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler zack inc fw gestao e servicos sa fw hungary licensing limited liability company fw management operations ltd fw overseas operations limited manops limited pe consultants inc perryville service company ltd process consultants inc pyropower operating services company inc perryville iii trust singleton process systems gmbh guarantees full unconditional joint several foster wheeler llc subsidiary guarantors 100 owned directly indirectly us summarized condensed consolidating financial information presented lieu separate financial statements related disclosures guarantors believe separate financial statements related disclosures would material investors following represents summarized condensed consolidating financial information december 30 2005 december 31 2004 respect financial position three years period ended december 30 2005 results operations cash flows foster wheeler ltd column presents financial information also guarantor foster wheeler llc column presents issuer’s financial information guarantor subsidiaries column presents financial information guarantors excluding financial information separately presented guarantor subsidiaries include results foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly guarantor subsidiaries nonguarantor subsidiaries terms 2011 senior notes indenture option add certain specified 100 owned subsidiaries guarantors december 31 2004 avoid 1 increase interest rate added one additional guarantors december 31 2004 final guarantor added january 2005 accordingly interest rate 2011 senior notes 1 higher period time january 2005 provided additional guarantor subsidiary foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 30 2005 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year endeed december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 22 consolidating financial information continued c 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 23 related party transactions mr victor hebert attorney law firm heller ehrman white mcauliffe llp served director foster wheeler 2003 resignation november 2003 law firm heller ehrman white mcauliffe appointed serve general counsel connection retirement previous general counsel thomas r o’brien mr hebert behalf heller ehrman selected lead legal team assistant secretary february 10 2005 heller ehrman ceased serve general counsel assistant secretary made payments heller ehrman amount 418 1317 2005 2004 respectively foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands included following pages financial statements certain indirectly wholly owned subsidiary companies required provide financial statements regulation sx rule 316 “financial statements affiliates whose securities collateralize issue registered” stock andor debt subsidiaries collateralize 2011 senior notes described note 7 consolidated financial statements appearing item 8 foster wheeler holdings ltd subsidiaries consolidated financial statements december 30 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive loss cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler holdings ltd subsidiaries “company” direct whollyowned subsidiary foster wheeler ltd “parent” december 30 2005 december 31 2004 results operations cash flows three years period ended december 30 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler holdings ltd subsidiaries consolidated statement operations comprehensive loss thousands dollars see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated statement changes shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated statement cash flows thousands dollars foster wheeler holdings ltd subsidiaries consolidated statement cash flows thousands dollars continued noncash financing activities august 2005 5634464 common shares foster wheeler ltd exchanged 65214 company’s trust preferred securities see note 7 information regarding equityfordebt exchange november 2005 6026981 common shares foster wheeler ltd exchanged 150003 company’s 2011 senior notes see note 7 information regarding equityfordebt exchange 2004 company exchanged 623190 notes accounts payable foster wheeler ltd 147130 longterm debt 593102 existing debt trust securities see note 7 information regarding debt exchange see notes consolidated financial statements foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler holdings ltd “company” “foster wheeler” incorporated december 18 2000 laws bermuda company wholly owned subsidiary foster wheeler ltd “parent” foster wheeler holdings ltd holding company owns stock foster wheeler llc pursuant reorganization occurred may 25 2001 foster wheeler corporation merged foster wheeler llc assets primarily investments subsidiaries design engineer construct petroleum chemical petrochemical alternative fuel facilities related infrastructures design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide liabilities foster wheeler corporation recorded foster wheeler llc historical cost operate two business groups also constitute separate reportable segments global engineering construction group “ec group” global power group “global power group” ec group designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction “lng” facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers subcontractors ec group owns industry leading technology delayed coking solvent deasphalting hydrogen production processes used oil refineries access numerous technologies owned others also designs supplies directfired furnaces types refining petrochemical chemical oil gas processes ec group also provides international environmental remediation services together related technical engineering design regulatory services ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners provide broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs ie electricity steam etc operating maintenance agreements returns equity investments certain production facilities corporate center restructuring expenses certain legacy liabilities eg corporate debt included corporate finance group “cf” 2 summary significant accounting policies liquidity outlook significantly improved 2003 2005 completed three equityfordebt exchange offers reduced outstanding principal interest obligations improved short longterm liquidity refer note 7 information regarding transactions closely monitor domestic global liquidity update liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued availability claims recoveries liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period domestic operating entities generate sufficient cash flow cover costs related indebtedness obligations fund us pension plans asbestosrelated liabilities corporate overhead expenses consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2006 forecast assumes total cash repatriation nonus subsidiaries amounts consistent prior years royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 134900 77000 nonus subsidiaries 2005 2004 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory financing requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors may limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire also access domestic revolving credit facility described note 8 principles consolidation consolidated financial statements include accounts foster wheeler holdings ltd significant domestic foreign subsidiary companies intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2005 2003 included 52 weeks 2004 included 53 weeks revisions prior period consolidated statement operations comprehensive loss revised classify amortization intangible assets within cost operating revenues rather within deductions asbestos provision separate line item rather within deductions impact consolidated balance sheet consolidated statement cash flows summary financial statement line items affected revision presented reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred include flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts 2005 revised presentation contractrelated line items balance sheet financial statement line item billings excess costs estimated earnings uncompleted contracts replaces previously used line items advance payments estimated costs complete longterm contracts addition unbilled receivables included within contracts process rather component trade receivables numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition estimates may revised time additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” review major contracts monthly result process 2005 approximately 45 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contract indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 99600 37600 respectively claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs record claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded commercial claims receivable customers approximately 5700 3900 december 30 2005 december 31 2004 respectively additionally consolidated financial statements assume recovery 27900 pending submitted requests equitable adjustment “reas” 7000 recorded contracts process december 30 2005 reas relate project currently executed us government agency include work performed 2008 time expect recover total amount reas continuing negotiate us government agency regarding reas well potentially restructuring related contract account reas similar account claims described recognizing contract revenue reas conditions set forth paragraph 65 sop 811 achieved certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable pre contract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract deferred precontract costs december 30 2005 december 31 2004 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives non cancellable service contracts cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 298839 225861 maintained foreign subsidiaries december 30 2005 december 31 2004 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments december 31 2004 consisted primarily certificates deposit classified held maturity financial accounting standards board “fasb” statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable trade accounts receivable represents amounts billed customers accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 7921 7080 december 30 2005 december 31 2004 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held investments advances use equity method accounting affiliates investment ownership 20 50 unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years test impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 30 2005 december 31 2004 unamortized goodwill 50982 51812 respectively decrease goodwill 830 resulted changes foreign currency translation rates goodwill related global power business group accordance sfas 142 effective december 29 2001 longer amortize goodwill 2004 2005 fair value reporting units exceeded carrying amounts december 30 2005 december 31 2004 unamortized identifiable intangible assets 64066 69690 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations comprehensive loss totaled 3570 3650 3675 fiscal years 2005 2004 2003 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment provision made federal income taxes may payable foreign subsidiary earnings extent anticipate earnings remitted based strategic initiatives management modified foreign earnings repatriation policy address domestic liquidity plans foreign earnings considered necessary meet plans considered permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 77614 december 30 2005 practicable estimate additional tax would incurred amounts repatriated reviewed foreign earnings repatriation provision american jobs creation act 2004 “ajca” concluded given effective foreign tax rates applicable unrepatriated earnings well certain restrictions ajca concerning definitions extraordinary dividends us investment foreign earnings repatriation provision ajca provide financial benefit foster wheeler accordingly change existing repatriation practices result ajca foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates stock option plans foster wheeler ltd three stock option plans reserve shares common stock issuance key employees directors employees company participate plans foster wheeler ltd company follow disclosure provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 net loss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 30 2005 awards fully vested december 30 2005 2006 operating results expected include approximately 6500 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements 3 accounts notes receivable following table shows components trade accounts notes receivable foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 3 accounts notes receivable continued following table shows components nontrade accounts notes receivable 4 contracts process following table shows elements included contracts process related longterm contracts 5 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2005 2004 2003 23982 28447 31214 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 6 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project italy well refineryelectric power generation project chile two projects foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 6 equity interests continued italy 42 owned third project 39 owned us reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway project chile 85 owned us however controlling financial interest chilean project following summarized financial information assuming 100 ownership interest entities equity interest share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 24129 20636 17142 2005 2004 2003 respectively investment equity affiliates recorded within investment advances consolidated balance sheet totaled 140723 109106 december 30 2005 december 31 2004 respectively dividends 18272 9221 received 2005 2004 respectively guaranteed certain performance obligations three projects contingent obligations guarantees approximately 1700 aggregate additional contingent obligation chilean project capped 20000 twentyyear life project’s financing date amounts paid guarantees also provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments date amounts drawn letter credit undistributed retained earnings equity investees amounted 72407 42087 december 30 2005 december 31 2004 respectively 7 equityfordebt exchanges november 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion 2011 senior notes total 150003 aggregate principal amount 2011 senior notes tendered part exchange resulting issuance foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 7 equityfordebt exchanges continued 6026981 common shares exchange reduced carrying value 2011 senior notes 155299 representing aggregate principal amount plus corresponding premium exchange resulted 167909 increase accounts payable foster wheeler ltd represents value common shares issued foster wheeler ltd 16833 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange concurrent exchange offer also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein august 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion trust preferred securities trust preferred securities 2608548 tendered part exchange resulting issuance foster wheeler ltd 5634464 common shares exchange reduced aggregate liquidation amount existing trust preferred securities 65214 reduced amount deferred accrued interest 26052 exchange resulted 129084 increase accounts payable foster wheeler ltd represents value common shares issued foster wheeler ltd 41513 charge income pretax charge substantially noncash related primarily difference carrying value trust preferred securities including deferred accrued interest market price common shares closing date exchange september 2004 conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new senior notes exchange certain outstanding debt securities trust preferred securities company recorded 623190 accounts notes payable foster wheeler ltd represents value common shares preferred shares warrants issued foster wheeler ltd exchange offer resulted 175054 charge income pretax charge substantially noncash related primarily exchange convertible notes tendered exchange offer foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt following table shows components longterm debt senior credit agreement march 2005 entered new 5year 250000 senior credit agreement senior credit agreement includes 75000 sublimit borrowings rate equal libor plus 5 standby letters credit issued senior credit agreement carry fixed price throughout life facility assets andor stock certain domestic foreign subsidiaries collateralize senior credit agreement paid approximately 13724 fees expenses conjunction execution senior credit agreement fees amortized expense life agreement senior credit agreement requires us maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly must compliance minimum liquidity level covenant times current forecast indicates compliance financial covenants contained senior credit agreement throughout 2006 senior credit agreement also requires us prepay facility certain circumstances proceeds asset sales issuance debt 131642 letters credit outstanding senior credit agreement december 30 2005 funded borrowings outstanding december 30 2005 previous senior credit facility august 2002 entered senior credit facility comprising 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date part september 2004 equityfordebt exchange repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 letters credit outstanding 90018 december 31 2004 march 2005 replaced previous senior credit facility new senior credit agreement senior notes 10359 interest due september 15 2011 series “2011 senior notes” 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued september 15 commencing march 15 2005 conjunction issuance 2011 senior notes recorded premium 5659 since fair value 2011 senior notes 104 principal result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain subsidiaries time prior september 15 2006 option redeem 2011 senior notes 100 principal amount plus accrued unpaid interest plus premium based us treasury rates redemption price including accrued interest estimated 1434 december 30 2005 option redeem 2011 senior notes prices decreasing 107769 face amount plus accrued unpaid interest redeemed twelvemonth period commencing september 15 2006 par redeemed twelvemonth period commencing september 15 2010 concurrent 2004 equityfordebt exchange completed 120000 private offering senior notes 10359 due september 2011 series b “series b notes” proceeds series b notes offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 recorded premium 4800 offering since fair value series b notes 104 principal result premium effective interest rate series b notes 95602 december 2004 exchanged series b notes registered 2011 senior notes november 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion 2011 senior notes exchange reduced aggregate carrying value 2011 senior notes 155299 see note 6 information senior notes 675 interest due november 15 2005 “2005 senior notes” 1995 issued 200000 2005 senior notes bearing interest fixed rate 675 per annum payable semiannually maturing november 15 2005 described note 7 foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange consummated 2004 repaid remaining 2005 senior notes scheduled maturity date november 2005 notes payable affiliate may june 2001 foster wheeler ltd issued convertible subordinated notes “convertible notes” aggregate principal amount 210000 convertible notes due june 1 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 proceeds securities loaned company included caption “notes payable affiliate” accompanying consolidated financial statements convertible notes convertible foster wheeler ltd common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 206930 convertible notes see note 7 information subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 93721 robbins bonds see note 7 information subordinated deferrable interest debentures 1999 fw preferred capital trust “capital trust” 100 indirectlyowned finance subsidiary company consummated 175000 public offering 7000000 trust preferred securities trust preferred securities fully unconditionally guaranteed joint several basis foster wheeler ltd foster wheeler llc capital trust invested proceeds sale trust preferred securities equal principal amount 9 junior subordinated deferrable interest debentures foster wheeler llc due january 15 2029 accordance provisions fasb interpretation 46 “consolidation variable interest entities” capital trust consolidated within financial statements presented herein since primary beneficiary however consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures trust preferred securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision deferred quarterly distributions beginning distribution due january 15 2002 redeem trust preferred securities january 15 2004 senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements part equityfordebt exchange consummated 2004 foster wheeler ltd issued common shares preferred shares warrants purchase common shares exchange trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 103823 reduced amount deferred accrued interest 31128 subsequently august 2005 conjunction foster wheeler ltd completed another offer exchange foster wheeler ltd common shares trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 65214 reduced amount deferred accrued interest 26052 see note 7 information exchange offers resulted corresponding reductions outstanding subordinated deferrable interest debentures deferred accrued interest specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned foster wheeler certain assets project collateralize notes andor bonds obligations respect debt limited guaranteeing operating performance projects martinez cogen limited partnership debt represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semi annually july 30 2006 note matures july 30 2006 gasfired electric generation project located california foster wheeler coque verde debt represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey capital leases entered series capital leases primarily office buildings assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 30 2005 fiscal year 7840 7588 7819 8153 8227 thereafter 115189 less interest 90576 net minimum lease payments capital leases 64240 less current portion net minimum lease payments 1021 longterm portion net minimum lease payments 63219 interest costs interest costs incurred 2005 2004 2003 50619 94556 95415 respectively 0 307 respectively capitalized aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 3847 next five years follows foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits pension benefits united states certain foreign subsidiaries several defined benefit pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation us plans noncontributory effective january 1 1999 cash balance program added us plan pension benefit previous formulas remained current employees elected however new us employees offered cash balance program amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs cash contributions made intended provide benefits attributed service date also expected earned future also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 froze serp issued letters credit totaling 2250 certain employees support obligations serp december 30 2005 letters credit outstanding serp april 10 2003 board directors foster wheeler ltd approved changes us employee benefits program including pension postretirement medical 401k plans changes made following review us employee benefits assessed benefit program marketplace competitors principal changes consist following us pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution believe net effect changes improves financial condition reduced costs reduced cash outflow future years foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued us subsidiaries 401k plan salaried employees contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 2813 3317 4066 2005 2004 2003 respectively 401k plan provision discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years’ membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 479 205 36 2005 2004 2003 respectively defined contribution plan foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures pension benefit obligation foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures net periodic benefit cost charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement 2005 2004 obligations former executives supplemental executive retirement plan 56 1390 respectively ii impact 2003 freezing us pension plans mothballing us manufacturing facility 900 employee terminations part workforce reduction 100 plan measurement date measurement date defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” defined benefit plans aggregated 985600 915100 december 30 2005 december 31 2004 respectively recorded net cumulative charge comprehensive loss years 2000 2005 due abo exceeding fair value plan assets foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued investment policy pension plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 625 775 equities 225 325 bonds 0 5 cash currently reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 783 753 past three years contributions expect contribute total approximately 24800 us pension plans approximately 29800 foreign pension plans 2006 contributions us pension plans expected approximate 18700 2007 15200 2008 6200 2009 essentially zero year thereafter foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued estimated future benefit payments expect make following benefit payments postretirement benefits addition providing pension benefits subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits qualify commence normal early retirement pension benefits defined pension plan working foster wheeler certain benefits provided insurance companies additionally subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective interim period ending september 24 2004 based upon proposed regulations medicare act concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 final regulations issued center medicare medicaid services “cms” january 2005 additional guidance issued cms april 2005 based upon review regulations confirmed benefits provided plan actuarially equivalent medicare part medicare act foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures postretirement benefit obligation following chart contains disclosures net periodic postretirement benefit cost foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects plan measurement date measurement date postretirement benefit plans december 31 year obligations contributions expect contribute total approximately 7185 postretirement benefit plans 2005 net health care subsidy estimated future benefit payments expect pay following postretirement benefit payments benefits certain foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 34845 32650 recorded within pension postretirement employee benefits consolidated balance sheet december 30 2005 december 31 2004 respectively related benefits also benefit plan referred survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan also recorded within pension postretirement employee benefits consolidated balance sheet 23300 23572 december 30 2005 december 31 2004 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 5285 6351 december 30 2005 december 31 2004 respectively benefit assets recorded assets consolidated balance sheet foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 10 guarantees warranties provided indemnifications third parties relating businesses andor assets previously owned indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale provide warranty project execution reserves certain longterm contracts generally warranty reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 11 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency contracts estimate fair value foreign currency contracts used hedging purposes obtaining quotes brokers exposed market risks fluctuations foreign exchange rates utilize financial instruments reduce risk hold issue financial instruments trading purposes exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 2 15 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 11 financial instruments risk management continued carrying amounts fair values estimated fair values financial instruments follows contingently liable performance standby letters credit bank guarantees surety bonds totaling 551900 559900 december 30 2005 december 31 2004 respectively balances include standby letters credit issued senior credit agreement discussed note 8 based upon past experience material claims made financial instruments expect material losses result offbalancesheet instruments therefore believe fair value instruments zero practicable estimate fair value company’s intercompany debt 211971 december 30 2005 206930 december 31 2004 market value type instrument december 30 2005 165827 foreign currency contracts outstanding foreign currency contracts mature 2006 2009 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 30 2005 december 31 2004 significant concentrations credit risk issued thirdparty financial guarantee totaling 2750 december 30 2005 december 31 2004 respect partnership interest commercial real estate project 12 restricted stock plan october 6 2004 management issued 1883745 restricted share awards accordance management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted awards vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share august 8 2005 one senior executives issued 20000 restricted share units accordance management restricted stock plan onethird award vested fourth quarter 2005 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 12 restricted stock plan continued balance scheduled vest fourth quarter 2006 grant date fair value restricted common share award 2320 per unit october 10 2005 one senior executives issued 17417 restricted shares accordance inducement award onethird award vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value award 2930 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part foster wheeler ltd shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 1230 17609 2005 2004 respectively related compensation expense recorded 2005 2004 8769 1712 respectively 13 stock option programs september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum 10 years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share options expire october 5 2007 one third options issued management vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 november 29 2004 option 2004 plan purchase preferred shares granted management mandatorily converted option purchase 65 common shares exercise price 9378 per common share august 8 2005 one senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 october 10 2005 one senior executives issued options 2004 plan purchase 52165 common shares exercise price 2995 per common share options expire october 9 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 1995 stock option plan approved shareholders foster wheeler ltd april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plan provides shares granted come authorized unissued reacquired common stock foster wheeler ltd price options granted pursuant plan less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted foster wheeler ltd also granted 65000 inducement options exercise price 9970 2001 chief executive officer connection employment agreement 50000 options exercise price 3280 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 13 stock option programs continued foster wheeler ltd also granted 12750 inducement options exercise price 2980 president chief executive officer foster wheeler north america corp connection employment agreement 2002 granted 5000 inducement options exercise price 2410 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted information regarding option plans years 2005 2004 2003 follows presented actual number shares foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 13 stock option programs continued following table summarizes information fixedprice stock options outstanding december 30 2005 14 income taxes components loss income taxes years 2005 2004 2003 following tax jurisdictions provision income taxes losses follows foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 14 income taxes continued deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed prior periods reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely deferred tax assets would realized fourth quarter 2005 reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized jurisdictions improved operational performance resulted reduction less full reversal valuation allowance addition decreased valuation allowance reflect utilization tax credits deferred tax liability set anticipated repatriations foreign earnings three events combined decrease valuation allowance 49766 also established new valuation allowance another foreign operating units due presence fourth quarter 2005 negative evidence deferred tax assets unit realized resulted increase valuation allowance 5581 however net reduction offset need increase net valuation allowance primarily us continue experience negative evidence deferred tax assets would realized result valuation allowance increased 25669 2005 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 14 income taxes continued result equityfordebt exchange offers consummated 2004 2005 subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period part overall reorganization took place may 2001 transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however transfer subject tax us required sfas 109 us tax charge gain reported deferred charge assets consolidated balance sheet amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 15 derivative financial instruments operate worldwide basis activities expose us risks related effect changes foreigncurrency exchange rates maintain foreigncurrency riskmanagement strategy uses derivative instruments protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates utilize foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” years 2005 2004 2003 meet requirements deferral sfas 133 recorded pretax losses 3933 2900 5160 respectively amounts recorded following line items consolidated statement operations comprehensive loss foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 15 derivative financial instruments continued amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 30 2005 21690 owed us counterparties 144137 owed us counterparties maximum term hedging exposure variability cash flows 12 months 16 business segments operate two business groups also constitute separate reportable segments global engineering construction group refer ec group global power group global ec group operates worldwide designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers contractors ec group owns one leading refinery residue upgrading technologies hydrogen production processes used oil refineries petrochemical plants additionally ec group experience able work wide range refining chemical oil gas processes owned others ec group performs international environmental remediation services together related technical engineering design regulatory services ec group also involved development engineering construction ownership power generation facilities ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration operating activities pursuant longterm sale project outputs electricity returns equity investments various production facilities global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases circulating fluidizedbed boiler technology recognized one leading solid fired fuel technologies world auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners provide broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs electricity steam operating maintenance agreements returns equity investments various production facilities conduct business global basis ec group accounted largest portion operating revenues last ten years 2005 ec group accounted 67 total operating revenues global power group accounted 33 total operating revenues foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued geographic dispersion 2005 operating revenues based upon location project follows use several financial metrics measure performance business segments ebitda primary earnings measure used chief decision makers single customer represented 10 operating revenues 2005 2004 2003 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate 1 includes general corporate income expense captive insurance operation eliminations 2 includes 2005 charge 113700 cf revaluation estimated asbestos liability asbestos insurance receivable regular reevaluation contract profit estimates 99600 66300 ec 33300 global power credit agreement costs cf associated previous senior credit facility 3500 aggregate charge 58300 cf recorded conjunction trust preferred securities 2011 senior notes exchange offers foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued 3 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 equity interest wastetoenergy project italy regular reevaluation contract profit estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 4 includes 2003 15100 impairment loss cf anticipated sale domestic corporate office building 16700 gain ec sale certain assets foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf revenues presented based country contracting subsidiary located foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued longlived assets presented based country contracting subsidiary located operating revenues industry follows 17 sale certain business assets march 7 2003 sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 recognized gain 15300 sale recorded income consolidated statement operations comprehensive loss first quarter 2003 also retained 8000 cash hand time asset sale proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 agreed buyer final net worth calculation resulted us returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february 2004 transactions related sale concluded march 31 2003 sold interest corporate office building net proceeds approximately 7900 approximated value investment completion transaction 1445 net proceeds used prepay principal outstanding previous senior credit facility accordance terms facility 2004 sold domestic corporate office building net cash proceeds 16400 approximated carrying value amount 50 prepaid previous senior credit facility’s lenders second quarter 2004 previously recorded impairment loss 15100 building foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 17 sale certain business assets continued 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss 2004 sold minority equity interests specialpurpose companies established develop power plant projects europe recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss 18 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases 32601 2005 34048 2004 34117 2003 future minimum rental commitments noncancelable leases follows fiscal year 31484 25840 22495 20683 20723 thereafter 209587 330812 entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years 2005 2004 2003 respectively december 30 2005 december 31 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear decrease deferred gain balance primarily due change foreign currency translation rates 19 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s prior foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued united states summary us claim activity three years ended december 30 2005 follows 1 claims valued liability include claims six years old considered abandoned claims certain inactive court dockets certain claims amount spent asbestos litigation defense case resolution 83800 2005 100200 2004 73600 2003 funded 12400 2005 payments remaining amounts reimbursed insurance coverage december 30 2005 total indemnity costs paid prior insurance recoveries approximately 510800 total defense costs paid approximately 136500 overall average combined indemnity defense cost per resolved claim since 1993 approximately 22 average cost per resolved claim increasing believe continue increase future december 30 2005 following asbestosrelated assets liabilities recorded consolidated balance sheet december 30 2005 total asbestosrelated liabilities comprised estimated liability 223700 relating open outstanding claims valued estimated liability 292300 relating future unasserted claims 2004 retained counsel analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities work us estimate amounts asbestosrelated indemnity defense costs following 15 year period consult arpc end quarter regarding estimate arpc reviewed asbestos indemnity payments defense costs claims activity 2005 compared 15year forecast prepared 2004 foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued 2005 number mesothelioma claims filed us significantly higher forecast addition average indemnity amounts paid mesothelioma nonmesothelioma claims significantly higher forecast factors increase indemnity costs partially offset significantly higher forecasted rates dismissals claims zero indemnity payments based review 2005 activity arpc recommended assumptions used estimate future asbestos liability next 15 years updated yearend 2005 accordingly worked arpc develop revised estimate indemnity defense costs 2020 yearend increased liability asbestos indemnity defense costs 2020 516000 brings liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability asset recorded loss 113700 fourth quarter 2005 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity liability estimated incurred year 2020 period new claims forecasted decline year believe likely new claims filed 2020 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2020 historically defense costs represented approximately 21 total defense indemnity costs asbestosrelated asset amount recorded within accounts notes receivableother reflects amounts due 2006 executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers based upon assumptions relating cost allocation application new york law factors well estimate amount recoveries existing settlements insurers since 2003 used outside consultant assist us estimation asbestos insurance asset 2005 retained counsel peterson risk consulting nationally recognized experts estimation insurance recoveries review prior estimate value unsettled insurance asset assist current estimation primary unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset utilized analysis determine estimate value unsettled insurance asset december 30 2005 estimate value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 115000 litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could significantly limit insurance recoveries however favorable outcome part litigation could significantly increase available insurance recoveries current estimate regard january 10 2005 new york state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among subsidiaries various insurers prior entry new york court order calculated estimated insurance recoveries applying new jersey law application new york rather new jersey law would result subsidiaries realizing lower insurance recoveries thus result foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued decision factors estimated insurance asset assuming application new york law recorded charge earnings fourth quarter 2004 approximately 75800 reduced yearend 2004 carrying value probable insurance recoveries similar amount unless decision reversed expect required fund portion asbestos liabilities cash amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes insurers yet settled february 16 2005 subsidiaries filed appeal decision higher court appeal currently pending assurances timing outcome new jersey law applied prevail issues litigated asbestos insurance asset could increase significantly prevail whole part litigation revalue asset based asbestos liability estimated time even coverage litigation resolved manner favorable us recoveries may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers also may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries material adverse effect financial condition results operations cash flow pending coverage litigation active negotiations insurers continuing subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred intend continue attempt negotiate additional settlements achievable reasonable basis order minimize amount future costs would required fund cash flow cannot achieve settlements amounts necessary cover future costs may continue fund portion future costs may reduce cash flow working capital may adversely affect liquidity change estimated asbestos liability impact expense would dependent upon available insurance recoveries assuming change assumptions used estimate insurance asset december 30 2005 change estimated liability plus minus 25 would result nearly equal change statement operations longterm cash flow funded 12400 asbestos liabilities cash flow 2005 expect active settlement negotiations unsettled insurers continue 2006 may determine appropriate course action continue fund portion asbestos liabilities 2006 coverage litigation settlement negotiations continue elect continue course action may spend cash flow 51000 2006 estimate assumes additional settlements insurance companies considered liquidity forecast proposed asbestos trust fund legislation recently considered us senate proposed legislation become law present form would alter payment obligations would required fund approximately 19250 per year 30 years thus legislation could material adverse impact financial condition results operations longterm cash flow remain part consortium companies actively lobbying enactment proposed legislation currently drafted estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes occurred 2005 increases number claims filed costs resolve claims cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 747 claims brought uk subsidiaries 306 remained open december 30 2005 none settled claims resulted material costs us december 30 2005 recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivableother 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling change asbestos liability asset recorded uk would approximate 66200 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims us could differ materially balances included financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced us arising compact cfb boiler engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations us relief granted could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified vigorously defending case counterclaimed unpaid receivables approximately 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon investigation proceedings date appear valid defenses claim however premature predict outcome proceeding arbitration also commenced us respect thermal electric power plant south america designed supplied erected member consortium parties plant’s foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 investigating rights may seek reimbursement damages third parties believe valid legal defenses claim exist responded denying claim however premature predict outcome matter currently dispute client connection two power plants designed built eastern europe dispute primarily concerns whether liquidated damages refer lds due client contract delayed completion projects client contends owed lds capped contract approximately 39700 approximately 47000 retaining security lds approximately 22000 approximately 26100 contract payments otherwise due us work performed client contends owed additional amount approximately 3000 approximately 3600 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects believe period delay client seeking lds grossly overstated client’s calculation include extension time agreed well extensions time entitled clientcaused excusable delays also believe lds provision may unenforceable controlling english law asserted claims client delay costs extra work excess 4700 approximately 5600 yet recognized recent mediation client unsuccessful therefore intend request arbitration provided contract however premature predict outcome matter camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp ccera owns operates wastetoenergy facility camden county new jersey refer project pollution control finance authority camden county pcfa issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant longterm government contract one subsidiaries foster wheeler environmental corporation fwenc retained longterm contract spent nuclear storage facility us government agency fwenc sold assets contract scheduled consists four phases first phase initial design permitting licensing spent fuel facility first phase project complete profitable current second phase contract billed costplusfee basis phase fwenc required license facility nuclear regulatory commission nrc respond questions regarding initial design generated phase one complete final design fwenc requested clarification certain technical specifications detailed guidance government agency regarding government agencydirected changes project scope government agency failed provide clarification guidance july 2005 instead directed fwenc proceed third phase contract phase three consists procurement longlead items construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility issued november 30 2004 delay caused cost constructing facility increase third phase scheduled last approximately three years requires fwenc fund construction cost provide performance bond full construction price project foster wheeler usa corporation parent company fwenc provided performance guarantee project cost facility expected recovered first nine months operations phase four fwenc would operate facility fixed rates subject escalation approximately four years february 2006 fwenc entered final modification contract government agency final modification contract terminated nofault basis fwenc transfers government agency certain licenses permits contracts drawings documents related project specifically final modification provides fwenc transfers government agency licenses permits contracts drawings documents related project fwenc parent released obligations perform contract fwenc government agency exchange broad releases claims related project neither party required pay money pursuant final modification fwenc government agency process arranging necessary transfers yet complete however expect fwenc able complete required transfers final modification target date completion transfers related exchange releases march 6 2006 fwenc fails complete transfers neither parent released contract remain legally obligated perform contract case fwenc would seek thirdparty financing foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued fund majority construction costs assurance secure financing acceptable terms also assurance able obtain required performance bond necessary financing bonding cannot obtained unlikely fwenc would able perform construction obligations contract could material adverse effect financial condition results operations cash flow claims raised date government agency fwenc although directed us proceed construction ultimate potential liability fwenc parent andor foster wheeler ltd would arise event government agency terminates contract example due fwenc’s inability continue contract rebids contract substantially terms resulting cost government agency greater would existing terms fwenc however believe claim probable management believes fwenc would variety potential legal defenses government agency decide make claim management presently unable estimate possible loss could occur result claim environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 cercla clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances aware conditions currently owned facilities united states expect cause us incur material costs excess reserves established also may receive claims pursuant indemnity obligations owners recently sold facilities may require us incur costs investigation andor remediation based available information believe costs materially excess reserves already established assurance provided discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party prp cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued usepa regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility february 1988 one subsidiaries foster wheeler energy corporation fwec entered consent agreement order usepa pennsylvania department environmental protection padep regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene tce soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest historic source tce former fwec facility since time fwec usepa padep cooperating broadranging investigation seeks among things identify sources tce residential wells although fwec believes available evidence sufficient support conclusion prp tce residential wells august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay provision public water affected residences involve extension water main installation laterals main affected residences also possibility fwec would incur costs required conduct formal study better define affected area since october 2004 fwec providing potentially affected residences temporary replacement water arranged filters remove tce installed tested maintained fwec incurring costs related public outreach communications affected area finally fwec may required pay agencies’ costs overseeing responding situation fwec accrued best estimate cost foregoing costs fwec could exposed could include among things costs associated supplying public water fwec’s counsel consulting fees agency oversight andor response costs potential costs exposure related potential litigation described costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items residents affected area retained counsel notified fwec intends file legal action fwec near future action filed date although fwec believes likely substantial defenses action might filed possible present determine whether fwec ultimately determined liability residents reliably estimate extent liability one third parties determined source tce fwec evaluate options regarding recovery costs fwec incurred options could include seeking recover costs determined source foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 20 valuation qualifying accounts foster wheeler llc subsidiaries consolidated financial statements december 30 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated statement financial position related consolidated statements operations comprehensive loss cash flows changes member’s deficit present fairly material respects financial position foster wheeler llc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 30 2005 december 31 2004 results operations cash flows three years period ended december 30 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler llc subsidiaries consolidated statement operations comprehensive loss thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement financial position thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement changes member’s deficit thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement cash flows thousands dollars foster wheeler llc subsidiaries consolidated statement cash flows thousands dollars continued noncash financing activities august 2005 5634464 common shares foster wheeler ltd exchanged 65214 company’s trust preferred securities see note 7 information regarding equityfordebt exchange november 2005 6026981 common shares foster wheeler ltd exchanged 150003 company’s 2011 senior notes see note 7 information regarding equityfordebt exchange 2004 company exchanged 623190 notes accounts payable foster wheeler ltd 147130 longterm debt 593102 existing debt trust securities see note 7 information regarding debt exchange see notes consolidated financial statements foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler llc formed february 9 2001 delaware limited liability company pursuant reorganization occurred may 25 2001 foster wheeler corporation merged foster wheeler llc assets primarily investments subsidiaries design engineer construct petroleum chemical petrochemical alternative fuel facilities related infrastructures design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide liabilities foster wheeler corporation recorded foster wheeler llc historical cost company wholly owned subsidiary foster wheeler holdings ltd turn wholly owned subsidiary foster wheeler ltd foster wheeler llc holding company owns stock substantially subsidiary companies foster wheeler group terms “foster wheeler” “company” used herein include foster wheeler llc direct indirect subsidiaries operate two business groups also constitute separate reportable segments global engineering construction group “ec group” global power group “global power group” ec group designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction “lng” facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers subcontractors ec group owns industry leading technology delayed coking solvent deasphalting hydrogen production processes used oil refineries access numerous technologies owned others also designs supplies directfired furnaces types refining petrochemical chemical oil gas processes ec group also provides international environmental remediation services together related technical engineering design regulatory services ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners provide broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs ie electricity steam etc operating maintenance agreements returns equity investments certain production facilities corporate center restructuring expenses certain legacy liabilities eg corporate debt included corporate finance group “cf” 2 summary significant accounting policies liquidity outlook significantly improved 2003 2005 completed three equityfordebt exchange offers reduced outstanding principal interest obligations improved short longterm liquidity refer note 7 information regarding transactions closely monitor domestic global liquidity update liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period domestic operating entities generate sufficient cash flow cover costs related indebtedness obligations fund us pension plans asbestosrelated liabilities corporate overhead expenses consequently require cash repatriations nonus subsidiaries normal course operations meet domestic cash needs successfully repatriated cash many years current 2006 forecast assumes total cash repatriation nonus subsidiaries amounts consistent prior years royalties management fees intercompany loans debt service intercompany loans andor dividends repatriated 134900 77000 nonus subsidiaries 2005 2004 respectively nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes addition certain nonus subsidiaries subject statutory financing requirements jurisdictions organization restrict amount funds subsidiaries may distribute factors may limit ability repatriate funds held certain nonus subsidiaries however believe could repatriate additional cash certain foreign subsidiaries desire also access domestic revolving credit facility described note 8 principles consolidation consolidated financial statements include accounts foster wheeler llc significant domestic foreign subsidiary companies intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2005 2003 included 52 weeks 2004 included 53 weeks revisions prior period consolidated statement operations comprehensive loss revised classify amortization intangible assets within cost operating revenues rather within deductions asbestos provision separate line item rather within deductions impact consolidated balance sheet consolidated statement cash flows summary financial statement line items affected revision presented reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred include flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts 2005 revised presentation contractrelated line items statement financial position financial statement line item billings excess costs estimated earnings uncompleted contracts replaces previously used line items advance payments estimated costs complete longterm contracts addition unbilled receivables included within contracts process rather component trade receivables numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition estimates may revised time additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” review major contracts monthly result process 2005 approximately 45 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contract indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 99600 37600 respectively claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs record claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded commercial claims receivable customers approximately 5700 3900 december 30 2005 december 31 2004 respectively additionally consolidated financial statements assume recovery 27900 pending submitted requests equitable adjustment “reas” 7000 recorded contracts process december 30 2005 reas relate project currently executed us government agency include work performed 2008 time expect recover total amount reas continuing negotiate us government agency regarding reas well potentially restructuring related contract account reas similar account claims described recognizing contract revenue reas conditions set forth paragraph 65 sop 811 achieved certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable pre contract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract deferred precontract costs december 30 2005 december 31 2004 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives non cancellable service contracts cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 298839 225861 maintained foreign subsidiaries december 30 2005 december 31 2004 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments december 31 2004 consisted primarily certificates deposit classified held maturity financial accounting standards board “fasb” statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable trade accounts receivable represents amounts billed customers accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued customer payment history trends within various markets served general economic trends also evaluated considering necessity provision contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 7921 7080 december 30 2005 december 31 2004 respectively amounts recorded within current assets consolidated statement financial position land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held investments advances use equity method accounting affiliates investment ownership 20 50 unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years test impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 30 2005 december 31 2004 unamortized goodwill 50982 51812 respectively decrease goodwill 830 resulted changes foreign currency translation rates goodwill related global power business group accordance sfas 142 effective december 29 2001 longer amortize goodwill 2004 2005 fair value reporting units exceeded carrying amounts december 30 2005 december 31 2004 unamortized identifiable intangible assets 64066 69690 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations comprehensive loss totaled 3570 3650 3675 fiscal years 2005 2004 2003 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment provision made federal income taxes may payable foreign subsidiary earnings extent anticipate earnings remitted based strategic initiatives management modified foreign earnings repatriation policy address domestic liquidity plans foreign earnings considered necessary meet plans considered permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 77614 december 30 2005 practicable estimate additional tax would incurred amounts repatriated reviewed foreign earnings repatriation provision american jobs creation act 2004 “ajca” concluded given effective foreign tax rates applicable unrepatriated earnings well certain restrictions ajca concerning definitions extraordinary dividends us investment foreign earnings repatriation provision ajca provide financial benefit foster wheeler accordingly change existing repatriation practices result ajca foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates stock option plans foster wheeler ltd three stock option plans reserve shares common stock issuance key employees directors employees company participate plans foster wheeler ltd company follow disclosure provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 net loss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 30 2005 awards fully vested december 30 2005 2006 operating results expected include approximately 6500 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements 3 accounts notes receivable following table shows components trade accounts notes receivable foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 3 accounts notes receivable continued following table shows components nontrade accounts notes receivable 4 contracts process following table shows elements included contracts process related longterm contracts 5 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2005 2004 2003 23982 28447 31214 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 6 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project italy well refineryelectric power generation project chile two projects italy 42 owned third project 39 owned us reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway project chile 85 owned us however controlling financial interest chilean project following summarized financial information assuming 100 ownership interest entities equity interest share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 24129 20636 17142 2005 2004 2003 respectively investment equity affiliates recorded within investment advances consolidated statement financial position totaled 140723 109106 december 30 2005 december 31 2004 respectively dividends 18272 9221 received 2005 2004 respectively guaranteed certain performance obligations three projects contingent obligations guarantees approximately 1700 aggregate additional contingent obligation chilean project capped 20000 twentyyear life project’s financing date amounts paid guarantees also provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments date amounts drawn letter credit undistributed retained earnings equity investees amounted 72407 42087 december 30 2005 december 31 2004 respectively foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 7 equityfordebt exchanges november 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion 2011 senior notes total 150003 aggregate principal amount 2011 senior notes tendered part exchange resulting issuance 6026981 common shares exchange reduced carrying value 2011 senior notes 155299 representing aggregate principal amount plus corresponding premium exchange resulted 167909 increase accounts payable foster wheeler ltd represents value common shares issued foster wheeler ltd 16833 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange concurrent exchange offer also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein august 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion trust preferred securities trust preferred securities 2608548 tendered part exchange resulting issuance foster wheeler ltd 5634464 common shares exchange reduced aggregate liquidation amount existing trust preferred securities 65214 reduced amount deferred accrued interest 26052 exchange resulted 129084 increase accounts payable foster wheeler ltd represents value common shares issued foster wheeler ltd 41513 charge income pretax charge substantially noncash related primarily difference carrying value trust preferred securities including deferred accrued interest market price common shares closing date exchange september 2004 conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new senior notes exchange certain outstanding debt securities trust preferred securities company recorded 623190 accounts notes payable foster wheeler ltd represents value common shares preferred shares warrants issued foster wheeler ltd exchange offer resulted 175054 charge income pretax charge substantially noncash related primarily exchange convertible notes tendered exchange offer foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt following table shows components longterm debt senior credit agreement march 2005 entered new 5year 250000 senior credit agreement senior credit agreement includes 75000 sublimit borrowings rate equal libor plus 5 standby letters credit issued senior credit agreement carry fixed price throughout life facility assets andor stock certain domestic foreign subsidiaries collateralize senior credit agreement paid approximately 13724 fees expenses conjunction execution senior credit agreement fees amortized expense life agreement senior credit agreement requires us maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly must compliance minimum liquidity level covenant times current forecast indicates compliance financial covenants contained senior credit agreement throughout 2006 senior credit agreement also requires us prepay facility certain circumstances proceeds asset sales issuance debt 131642 letters credit outstanding senior credit agreement december 30 2005 funded borrowings outstanding december 30 2005 previous senior credit facility august 2002 entered senior credit facility comprising 71000 term loan 69000 revolving credit facility 149900 letter credit facility foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued april 30 2005 maturity date part september 2004 equityfordebt exchange repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 letters credit outstanding 90018 december 31 2004 march 2005 replaced previous senior credit facility new senior credit agreement senior notes 10359 interest due september 15 2011 series “2011 senior notes” 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 september 15 commencing march 15 2005 conjunction issuance 2011 senior notes recorded premium 5659 since fair value 2011 senior notes 104 principal result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain subsidiaries time prior september 15 2006 option redeem 2011 senior notes 100 principal amount plus accrued unpaid interest plus premium based us treasury rates redemption price including accrued interest estimated 1434 december 30 2005 option redeem 2011 senior notes prices decreasing 107769 face amount plus accrued unpaid interest redeemed twelvemonth period commencing september 15 2006 par redeemed twelvemonth period commencing september 15 2010 concurrent 2004 equityfordebt exchange completed 120000 private offering senior notes 10359 due september 2011 series b “series b notes” proceeds series b notes offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 recorded premium 4800 offering since fair value series b notes 104 principal result premium effective interest rate series b notes 95602 december 2004 exchanged series b notes registered 2011 senior notes november 2005 conjunction foster wheeler ltd completed offer exchange foster wheeler ltd’s common shares portion 2011 senior notes exchange reduced aggregate carrying value 2011 senior notes 155299 see note 6 information senior notes 675 interest due november 15 2005 “2005 senior notes” 1995 issued 200000 2005 senior notes bearing interest fixed rate 675 per annum payable semiannually maturing november 15 2005 described note 7 foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange consummated 2004 repaid remaining 2005 senior notes scheduled maturity date november 2005 notes payable affiliate may june 2001 foster wheeler ltd issued convertible subordinated notes “convertible notes” aggregate principal amount 210000 convertible notes due june 1 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 proceeds securities loaned company included caption “notes payable affiliate” accompanying consolidated financial statements convertible notes convertible foster wheeler ltd common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 206930 convertible notes see note 7 information foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 93721 robbins bonds see note 7 information subordinated deferrable interest debentures 1999 fw preferred capital trust “capital trust” 100 indirectlyowned finance subsidiary company consummated 175000 public offering 7000000 trust preferred securities trust preferred securities fully unconditionally guaranteed joint several basis foster wheeler ltd us capital trust invested proceeds sale trust preferred securities equal principal amount 9 junior subordinated deferrable interest debentures company due january 15 2029 accordance provisions fasb interpretation 46 “consolidation variable interest entities” capital trust consolidated within financial statements presented herein since primary beneficiary however consolidated financial statements reflect company’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures trust preferred securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision deferred quarterly distributions beginning distribution due january 15 2002 redeem trust preferred securities january 15 2004 senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements part equityfordebt exchange consummated 2004 foster wheeler ltd issued common shares preferred shares warrants purchase common shares exchange trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 103823 reduced amount deferred accrued interest 31128 subsequently august 2005 conjunction foster wheeler ltd completed another offer exchange foster wheeler ltd common shares trust preferred securities exchange reduced aggregate liquidation amount trust preferred securities 65214 reduced amount deferred accrued interest 26052 see note 7 information exchange offers resulted corresponding reductions outstanding subordinated deferrable interest debentures deferred accrued interest specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned foster wheeler certain assets project collateralize notes andor bonds obligations respect debt limited guaranteeing operating performance projects foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 8 longterm debt continued martinez cogen limited partnership debt represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semi annually july 30 2006 note matures july 30 2006 gasfired electric generation project located california foster wheeler coque verde debt represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey capital leases entered series capital leases primarily office buildings assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 30 2005 fiscal year 7840 7588 7819 8153 8227 thereafter 115189 less interest 90576 net minimum lease payments capital leases 64240 less current portion net minimum lease payments 1021 longterm portion net minimum lease payments 63219 interest costs interest costs incurred 2005 2004 2003 50618 94622 95413 respectively 0 307 respectively capitalized aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 3847 next five years follows foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits pension benefits united states certain foreign subsidiaries several defined benefit pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation us plans noncontributory effective january 1 1999 cash balance program added us plan pension benefit previous formulas remained current employees elected however new us employees offered cash balance program amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs cash contributions made intended provide benefits attributed service date also expected earned future also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 froze serp issued letters credit totaling 2250 certain employees support obligations serp december 30 2005 letters credit outstanding serp april 10 2003 board directors foster wheeler ltd approved changes us employee benefits program including pension postretirement medical 401k plans changes made following review us employee benefits assessed benefit program marketplace competitors principal changes consist following us pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued level employer matching contribution believe net effect changes improves financial condition reduced costs reduced cash outflow future years us subsidiaries 401k plan salaried employees contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 2813 3317 4066 2005 2004 2003 respectively 401k plan provision discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years’ membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 479 205 36 2005 2004 2003 respectively defined contribution plan foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures pension benefit obligation foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures net periodic benefit cost charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement 2005 2004 obligations former executives supplemental executive retirement plan 56 1390 respectively ii impact 2003 freezing us pension plans mothballing us manufacturing facility 900 employee terminations part workforce reduction 100 plan measurement date measurement date defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” defined benefit plans aggregated 985600 915100 december 30 2005 december 31 2004 respectively recorded net cumulative charge comprehensive loss years 2000 2005 due abo exceeding fair value plan assets investment policy pension plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 625 775 equities 225 325 bonds 0 5 cash currently reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 783 753 past three years foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued contributions expect contribute total approximately 24800 us pension plans approximately 29800 foreign pension plans 2006 contributions us pension plans expected approximate 18700 2007 15200 2008 6200 2009 essentially zero year thereafter estimated future benefit payments expect make following benefit payments postretirement benefits addition providing pension benefits subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits qualify commence normal early retirement pension benefits defined pension plan working foster wheeler certain benefits provided insurance companies additionally subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective interim period ending september 24 2004 based upon proposed regulations medicare act concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 final regulations issued center medicare medicaid services “cms” january 2005 additional guidance issued cms april 2005 based upon review regulations confirmed benefits provided plan actuarially equivalent medicare part medicare act foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued following chart contains disclosures postretirement benefit obligation following chart contains disclosures net periodic postretirement benefit cost foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 9 pensions postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects plan measurement date measurement date postretirement benefit plans december 31 year obligations contributions expect contribute total approximately 7185 postretirement benefit plans 2005 net health care subsidy estimated future benefit payments expect pay following postretirement benefit payments benefits certain foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 34845 32650 recorded within pension postretirement employee benefits consolidated statement financial position december 30 2005 december 31 2004 respectively related benefits also benefit plan referred survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan also recorded within pension postretirement employee benefits consolidated statement financial position 23300 23572 december 30 2005 december 31 2004 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 5285 6351 december 30 2005 december 31 2004 respectively benefit assets recorded assets consolidated statement financial position foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 10 guarantees warranties provided indemnifications third parties relating businesses andor assets previously owned indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale provide warranty project execution reserves certain longterm contracts generally warranty reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 11 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency contracts estimate fair value foreign currency contracts used hedging purposes obtaining quotes brokers exposed market risks fluctuations foreign exchange rates utilize financial instruments reduce risk hold issue financial instruments trading purposes exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 2 15 foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 11 financial instruments risk management continued carrying amounts fair values estimated fair values financial instruments follows contingently liable performance standby letters credit bank guarantees surety bonds totaling 551900 559900 december 30 2005 december 31 2004 respectively balances include standby letters credit issued senior credit agreement discussed note 8 based upon past experience material claims made financial instruments expect material losses result offbalancesheet instruments therefore believe fair value instruments zero practicable estimate fair value company’s intercompany debt 211971 december 30 2005 206930 december 31 2004 market value type instrument december 30 2005 165827 foreign currency contracts outstanding foreign currency contracts mature 2006 2009 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 30 2005 december 31 2004 significant concentrations credit risk issued thirdparty financial guarantee totaling 2750 december 30 2005 december 31 2004 respect partnership interest commercial real estate project 12 restricted stock plan october 6 2004 management issued 1883745 restricted share awards accordance management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted awards vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share august 8 2005 one senior executives issued 20000 restricted share units accordance management restricted stock plan onethird award vested fourth quarter 2005 foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 12 restricted stock plan continued balance scheduled vest fourth quarter 2006 grant date fair value restricted common share award 2320 per unit october 10 2005 one senior executives issued 17417 restricted shares accordance inducement award onethird award vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 grant date fair value award 2930 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part foster wheeler ltd shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 1230 17609 2005 2004 respectively related compensation expense recorded 2005 2004 8769 1712 respectively 13 stock option programs september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum 10 years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share options expire october 5 2007 one third options issued management vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 november 29 2004 option 2004 plan purchase preferred shares granted management mandatorily converted option purchase 65 common shares exercise price 9378 per common share august 8 2005 one senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 october 10 2005 one senior executives issued options 2004 plan purchase 52165 common shares exercise price 2995 per common share options expire october 9 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 1995 stock option plan approved shareholders foster wheeler ltd april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plan provides shares granted come authorized unissued reacquired common stock foster wheeler ltd price options granted pursuant plan less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted foster wheeler ltd also granted 65000 inducement options exercise price 9970 2001 chief executive officer connection employment agreement 50000 options exercise price 3280 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 13 stock option programs continued foster wheeler ltd also granted 12750 inducement options exercise price 2980 president chief executive officer foster wheeler north america corp connection employment agreement 2002 granted 5000 inducement options exercise price 2410 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted information regarding option plans years 2005 2004 2003 follows presented actual number shares foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 13 stock option programs continued following table summarizes information fixedprice stock options outstanding december 30 2005 14 income taxes components loss income taxes years 2005 2004 2003 following tax jurisdictions provision income taxes losses follows foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 14 income taxes continued deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed prior periods reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely deferred tax assets would realized fourth quarter 2005 reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized jurisdictions improved operational performance resulted reduction less full reversal valuation allowance addition decreased valuation allowance reflect utilization tax credits deferred tax liability set anticipated repatriations foreign earnings three events combined decrease valuation allowance 49766 also established new valuation allowance another foreign operating units due presence fourth quarter 2005 negative evidence deferred tax assets unit realized resulted increase valuation allowance 5581 however net reduction offset need increase net valuation allowance primarily us continue experience negative evidence deferred tax assets would realized result valuation allowance increased 25669 2005 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 14 income taxes continued result equityfordebt exchange offers consummated 2004 2005 subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period part overall reorganization took place may 2001 transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however transfer subject tax us required sfas 109 us tax charge gain reported deferred charge assets consolidated statement financial position amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 15 derivative financial instruments operate worldwide basis activities expose us risks related effect changes foreigncurrency exchange rates maintain foreigncurrency riskmanagement strategy uses derivative instruments protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates utilize foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” years 2005 2004 2003 meet requirements deferral sfas 133 recorded pretax losses 3933 2900 5160 respectively amounts recorded following line items consolidated statement operations comprehensive loss foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 15 derivative financial instruments continued amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 30 2005 21690 owed us counterparties 144137 owed us counterparties maximum term hedging exposure variability cash flows 12 months 16 business segments operate two business groups also constitute separate reportable segments global engineering construction group refer ec group global power group global ec group operates worldwide designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers contractors ec group owns one leading refinery residue upgrading technologies hydrogen production processes used oil refineries petrochemical plants additionally ec group experience able work wide range refining chemical oil gas processes owned others ec group performs international environmental remediation services together related technical engineering design regulatory services ec group also involved development engineering construction ownership power generation facilities ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration operating activities pursuant longterm sale project outputs electricity returns equity investments various production facilities global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases circulating fluidizedbed boiler technology recognized one leading solid fired fuel technologies world auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners provide broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs electricity steam operating maintenance agreements returns equity investments various production facilities conduct business global basis ec group accounted largest portion operating revenues last ten years 2005 ec group accounted 67 total operating revenues global power group accounted 33 total operating revenues foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued geographic dispersion 2005 operating revenues based upon location project follows use several financial metrics measure performance business segments ebitda primary earnings measure used chief decision makers single customer represented 10 operating revenues 2005 2004 2003 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued 1 includes general corporate income expense captive insurance operation eliminations 2 includes 2005 charge 113700 cf revaluation estimated asbestos liability asbestos insurance receivable regular reevaluation contract profit estimates 99600 66300 ec 33300 global power credit agreement costs cf associated previous senior credit facility 3500 aggregate charge 58300 cf recorded conjunction trust preferred securities 2011 senior notes exchange offers 3 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 equity interest wastetoenergy project italy regular reevaluation contract profit estimates 58000 98700 ec 40700 global power charge 75800 foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 4 includes 2003 15100 impairment loss cf anticipated sale domestic corporate office building 16700 gain ec sale certain assets foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf revenues presented based country contracting subsidiary located foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 16 business segments continued longlived assets presented based country contracting subsidiary located operating revenues industry follows 17 sale certain business assets march 7 2003 sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 recognized gain 15300 sale recorded income consolidated statement operations comprehensive loss first quarter 2003 also retained 8000 cash hand time asset sale proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 agreed buyer final net worth calculation resulted us returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february 2004 transactions related sale concluded march 31 2003 sold interest corporate office building net proceeds approximately 7900 approximated value investment completion transaction 1445 net proceeds used prepay principal outstanding previous senior credit facility accordance terms facility 2004 sold domestic corporate office building net cash proceeds 16400 approximated carrying value amount 50 prepaid previous senior credit facility’s lenders second quarter 2004 previously recorded impairment loss 15100 building foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 17 sale certain business assets continued 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss 2004 sold minority equity interests specialpurpose companies established develop power plant projects europe recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss 18 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases 32601 2005 34048 2004 34117 2003 future minimum rental commitments noncancelable leases follows fiscal year 31484 25840 22495 20683 20723 thereafter 209587 330812 entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years 2005 2004 2003 respectively december 30 2005 december 31 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated statement financial position yearoveryear decrease deferred gain balance primarily due change foreign currency translation rates 19 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s prior foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued united states summary us claim activity three years ended december 30 2005 follows 1 claims valued liability include claims six years old considered abandoned claims certain inactive court dockets certain claims amount spent asbestos litigation defense case resolution 83800 2005 100200 2004 73600 2003 funded 12400 2005 payments remaining amounts reimbursed insurance coverage december 30 2005 total indemnity costs paid prior insurance recoveries approximately 510800 total defense costs paid approximately 136500 overall average combined indemnity defense cost per resolved claim since 1993 approximately 22 average cost per resolved claim increasing believe continue increase future december 30 2005 following asbestosrelated assets liabilities recorded consolidated statement financial position december 30 2005 total asbestosrelated liabilities comprised estimated liability 223700 relating open outstanding claims valued estimated liability 292300 relating future unasserted claims 2004 retained counsel analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities work us estimate amounts asbestosrelated indemnity defense costs following 15year period consult arpc end quarter regarding estimate arpc reviewed asbestos indemnity payments defense costs claims activity 2005 compared 15year forecast prepared 2004 2005 number mesothelioma claims filed us significantly higher forecast addition average indemnity amounts paid mesothelioma nonmesothelioma claims foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued significantly higher forecast factors increase indemnity costs partially offset significantly higher forecasted rates dismissals claims zero indemnity payments based review 2005 activity arpc recommended assumptions used estimate future asbestos liability next 15 years updated yearend 2005 accordingly worked arpc develop revised estimate indemnity defense costs 2020 yearend increased liability asbestos indemnity defense costs 2020 516000 brings liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability asset recorded loss 113700 fourth quarter 2005 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity liability estimated incurred year 2020 period new claims forecasted decline year believe likely new claims filed 2020 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2020 historically defense costs represented approximately 21 total defense indemnity costs asbestosrelated asset amount recorded within accounts notes receivableother reflects amounts due 2006 executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers based upon assumptions relating cost allocation application new york law factors well estimate amount recoveries existing settlements insurers since 2003 used outside consultant assist us estimation asbestos insurance asset 2005 retained counsel peterson risk consulting nationally recognized experts estimation insurance recoveries review prior estimate value unsettled insurance asset assist current estimation primary unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset utilized analysis determine estimate value unsettled insurance asset december 30 2005 estimate value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 115000 litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could significantly limit insurance recoveries however favorable outcome part litigation could significantly increase available insurance recoveries current estimate regard january 10 2005 new york state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among subsidiaries various insurers prior entry new york court order calculated estimated insurance recoveries applying new jersey law application new york rather new jersey law would result subsidiaries realizing lower insurance recoveries thus result decision factors estimated insurance asset assuming application new york law recorded charge earnings fourth quarter 2004 approximately 75800 reduced year foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued end 2004 carrying value probable insurance recoveries similar amount unless decision reversed expect required fund portion asbestos liabilities cash amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes insurers yet settled february 16 2005 subsidiaries filed appeal decision higher court appeal currently pending assurances timing outcome new jersey law applied prevail issues litigated asbestos insurance asset could increase significantly prevail whole part litigation revalue asset based asbestos liability estimated time even coverage litigation resolved manner favorable us recoveries may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers also may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries material adverse effect financial condition results operations cash flow pending coverage litigation active negotiations insurers continuing subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred intend continue attempt negotiate additional settlements achievable reasonable basis order minimize amount future costs would required fund cash flow cannot achieve settlements amounts necessary cover future costs may continue fund portion future costs may reduce cash flow working capital may adversely affect liquidity change estimated asbestos liability impact expense would dependent upon available insurance recoveries assuming change assumptions used estimate insurance asset december 30 2005 change estimated liability plus minus 25 would result nearly equal change statement operations longterm cash flow funded 12400 asbestos liabilities cash flow 2005 expect active settlement negotiations unsettled insurers continue 2006 may determine appropriate course action continue fund portion asbestos liabilities 2006 coverage litigation settlement negotiations continue elect continue course action may spend cash flow 51000 2006 estimate assumes additional settlements insurance companies considered liquidity forecast proposed asbestos trust fund legislation recently considered us senate proposed legislation become law present form would alter payment obligations would required fund approximately 19250 per year 30 years thus legislation could material adverse impact financial condition results operations longterm cash flow remain part consortium companies actively lobbying enactment proposed legislation currently drafted estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued jurisdiction case well potential legislative changes occurred 2005 increases number claims filed costs resolve claims cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 747 claims brought uk subsidiaries 306 remained open december 30 2005 none settled claims resulted material costs us december 30 2005 recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated statement financial position asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivableother 25200 recorded asbestosrelated insurance recovery receivable consolidated statement financial position liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling change asbestos liability asset recorded uk would approximate 66200 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims us could differ materially balances included financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced us arising compact cfb boiler engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations us relief granted could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified vigorously defending case counterclaimed unpaid receivables approximately 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon investigation proceedings date appear valid defenses claim however premature predict outcome proceeding arbitration also commenced us respect thermal electric power plant south america designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 investigating rights may seek reimbursement damages third parties believe valid legal defenses claim exist responded denying claim however premature predict outcome matter currently dispute client connection two power plants designed built eastern europe dispute primarily concerns whether liquidated damages refer lds due client contract delayed completion projects client contends owed lds capped contract approximately 39700 approximately 47000 retaining security lds approximately 22000 approximately 26100 contract payments otherwise due us work performed client contends owed additional amount approximately 3000 approximately 3600 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects believe period delay client seeking lds grossly overstated client’s calculation include extension time agreed well extensions time entitled clientcaused excusable delays also believe lds provision may unenforceable controlling english law asserted claims client delay costs extra work excess 4700 approximately 5600 yet recognized recent mediation client unsuccessful therefore intend request arbitration provided contract however premature predict outcome matter camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp ccera owns operates wastetoenergy facility camden county new jersey refer project pollution control finance authority camden county pcfa issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated statement financial position ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant longterm government contract one subsidiaries foster wheeler environmental corporation fwenc retained longterm contract spent nuclear storage facility us government agency fwenc sold assets contract scheduled consists four phases first phase initial design permitting licensing spent fuel facility first phase project complete profitable current second phase contract billed costplusfee basis phase fwenc required license facility nuclear regulatory commission nrc respond questions regarding initial design generated phase one complete final design fwenc requested clarification certain technical specifications detailed guidance government agency regarding government agencydirected changes project scope government agency failed provide clarification guidance july 2005 instead directed fwenc proceed third phase contract phase three consists procurement longlead items construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility issued november 30 2004 delay caused cost constructing facility increase third phase scheduled last approximately three years requires fwenc fund construction cost provide performance bond full construction price project foster wheeler usa corporation parent company fwenc provided performance guarantee project cost facility expected recovered first nine months operations phase four fwenc would operate facility fixed rates subject escalation approximately four years february 2006 fwenc entered final modification contract government agency final modification contract terminated nofault basis fwenc transfers government agency certain licenses permits contracts drawings documents related project specifically final modification provides fwenc transfers government agency licenses permits contracts drawings documents related project fwenc parent released obligations perform contract fwenc government agency exchange broad releases claims related project neither party required pay money pursuant final modification fwenc government agency process arranging necessary transfers yet complete however expect fwenc able complete required transfers final modification target date completion transfers related exchange releases march 6 2006 fwenc fails complete transfers neither parent released contract remain legally obligated perform contract case fwenc would seek thirdparty financing fund majority construction costs assurance secure financing foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued acceptable terms also assurance able obtain required performance bond necessary financing bonding cannot obtained unlikely fwenc would able perform construction obligations contract could material adverse effect financial condition results operations cash flow claims raised date government agency fwenc although directed us proceed construction ultimate potential liability fwenc parent andor foster wheeler ltd would arise event government agency terminates contract example due fwenc’s inability continue contract rebids contract substantially terms resulting cost government agency greater would existing terms fwenc however believe claim probable management believes fwenc would variety potential legal defenses government agency decide make claim management presently unable estimate possible loss could occur result claim environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 cercla clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances aware conditions currently owned facilities united states expect cause us incur material costs excess reserves established also may receive claims pursuant indemnity obligations owners recently sold facilities may require us incur costs investigation andor remediation based available information believe costs materially excess reserves already established assurance provided discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party prp cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency usepa regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 19 litigation uncertainties continued february 1988 one subsidiaries foster wheeler energy corporation fwec entered consent agreement order usepa pennsylvania department environmental protection padep regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene tce soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest historic source tce former fwec facility since time fwec usepa padep cooperating broadranging investigation seeks among things identify sources tce residential wells although fwec believes available evidence sufficient support conclusion prp tce residential wells august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay provision public water affected residences involve extension water main installation laterals main affected residences also possibility fwec would incur costs required conduct formal study better define affected area since october 2004 fwec providing potentially affected residences temporary replacement water arranged filters remove tce installed tested maintained fwec incurring costs related public outreach communications affected area finally fwec may required pay agencies’ costs overseeing responding situation fwec accrued best estimate cost foregoing costs fwec could exposed could include among things costs associated supplying public water fwec’s counsel consulting fees agency oversight andor response costs potential costs exposure related potential litigation described costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items residents affected area retained counsel notified fwec intends file legal action fwec near future action filed date although fwec believes likely substantial defenses action might filed possible present determine whether fwec ultimately determined liability residents reliably estimate extent liability one third parties determined source tce fwec evaluate options regarding recovery costs fwec incurred options could include seeking recover costs determined source foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 20 valuation qualifying accounts foster wheeler international holdings subsidiaries consolidated financial statements december 30 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income cash flows shareholder’s deficit present fairly material respects financial position foster wheeler international holdings inc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 30 2005 december 31 2004 results operations cash flows three years period ended december 30 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler international holdings subsidiaries consolidated statement operations comprehensive income thousands dollars see notes consolidated financial statements foster wheeler international holdings subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler international holdings subsidiaries consolidated statement shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler international holdings subsidiaries consolidated statement cash flows thousands dollars non cash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations 2005 company declared 4677 dividend payable parent year end see notes consolidated financial statements foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international holdings inc subsidiaries “company” wholly owned subsidiary foster wheeler llc “fwllc” indirectly wholly owned subsidiary foster wheeler ltd principal operations company design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company operates primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada 2 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 3 summary significant accounting policies principles consolidation condensed consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler international corporation significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies year 2005 2004 included 53 weeks year 2003 included 52 weeks liquidity company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 3 8 17 18 relationship company foster wheeler ltd affiliates also impact company’s continuing operations foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period company also monitors liquidity weekly basis forecasts extend twelve month period forecasts indicate sufficient liquidity available find working capital needs next twelve months use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others reclassifications certain prior period financial statement amounts reclassified conform current year presentation revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts company presents customer billings estimated losses excess costs profits recorded uncompleted contracts billings excess costs estimated earnings uncompleted contracts company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result reevaluation process 2005 approximately 23 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 64000 76500 respectively claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2005 company recorded commercial claims receivable customers december 31 2004 company recorded commercial claims receivable 544 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract company deferred precontract costs december 30 2005 december 31 2004 cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 10500 december 30 2005 required collateralize letters credit bank guarantees approximately 3800 client escrow funds trade accounts receivable accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision provisions uncollectible accounts receivable reversed subsequent periods result collections included income accordingly uncollectible accounts receivable provision reversals included income 6375 1333 period ended september 30 2005 2004 respectively accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 16462 december 30 2005 16249 december 31 2004 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment provision made federal income taxes may payable foreign subsidiary earnings extent management anticipates earnings remitted based strategic initiatives management modified foreign earnings repatriation policy address domestic liquidity plans foreign earnings considered necessary meet plans considered permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 77614 december 30 2005 practicable estimate additional tax would incurred amounts repatriated company reviewed foreign earnings repatriation provision american jobs creation act 2004 “ajca” concluded given effective foreign tax rates applicable unrepatriated earnings well certain restrictions ajca concerning definitions extraordinary dividends us investment foreign earnings repatriation provision ajca provide financial benefit foster wheeler accordingly company change existing repatriation practices result ajca foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 30 2005 company recorded aftertax net foreign currency transaction gain 1845 year ended december 31 2004 company recorded aftertax net foreign currency transaction loss 2560 year ended december 31 2003 recorded aftertax net foreign currency transaction gain 4701 contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued inventories principally materials supplies stated lower cost market determined primarily averagecost method company inventories 1115 898 december 31 2005 2004 respectively amounts recorded within current assets consolidated balance sheet income consists following stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosure provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued august 8 2005 one company’s senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 company’s shareholders approved stock option plan directors foster wheeler april 29 1997 company’s shareholders approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler ltd plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2004 2003 2002 relating options granted company personnel options available grant follows presented actual number shares foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 31 2004 recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 31 2005 awards fully vested december 31 2005 2006 operating results expected include approximately 2200 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 4 accounts notes receivable trade following table shows components trade accounts notes receivable changes allowance doubtful accounts years ended december 31 2003 2005 presented foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 5 contracts process following table shows elements included contracts process related longterm contracts 6 land buildings equipment land buildings equipment stated cost set forth depreciation expenses 2005 2004 2003 7085 8360 7440 respectively 7 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 39 owned company reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway following summarized financial information company’s equity affiliates combined well company’s interest affiliates foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 7 investments advances equity interests continued company’s share net earnings equity affiliates included income totaled 18893 11292 9738 years ended december 31 2005 2004 2003 respectively company’s investment equity affiliates totaled 83358 48458 december 31 2005 2004 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 900 total undistributed retained earnings company’s equity investees amounted approximately 72400 42000 december 30 2005 december 31 2004 respectively additionally december 30 2005 company held investments unconsolidated affiliates 52803 carried cost since company hold controlling financial interest company made advances approximately 3484 thirdparty equity investees 8 income taxes company’s earnings income taxes years 2005 2004 2003 taxed following jurisdictions provision income taxes earnings follows foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 8 income taxes continued deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed prior periods company reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely portion deferred tax assets would realized fourth quarter 2005 company reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized addition company decreased valuation allowance reflect utilization tax credits deferred tax liability set anticipated repatriations foreign earnings two events combined decrease valuation allowance 35868 company also established new valuation allowance another foreign operating units due presence fourth quarter 2005 negative evidence deferred tax assets unit realized resulted increase valuation allowance 5581 net reduction contributed total valuation allowance decrease 43115 2005 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes deferred tax assets valuation allowance provided begin expiring 2010 beyond based current tax laws foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 8 income taxes continued provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 9 pension postretirement benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 30 2005 company recognized cumulative minimum liability consolidated financial statements underfunded amount 156823 pretax resulting cumulative pretax charge comprehensive incomeloss represents decrease minimum liability 9377 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes postretirement benefits addition providing pension benefits company’s subsidiary canada provides certain health care life insurance benefits retired employees “other benefits” employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued following chart contains disclosures pension benefits plans years 2005 2004 2003 foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plan onepercentagepoint change assumed health care cost trend rates would following effects onepercentage point increase onepercentage point decrease effect total service interest cost components 2 effect accumulated postretirement benefit obligations 17 plan measurement date measurement date company’s pension benefits plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo company’s pension plans totaled 635600 580000 year end 2005 2004 respectively previously noted company recorded net cumulative charge comprehensive incomeloss years 2000 2005 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return pension plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations company annually reviews adjusts required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 75 73 past three years contributions company expects contribute approximately 29800 pension plans 60 benefits plan 2006 estimated future benefit payments company expects make following benefit payments employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2005 2004 foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued 2003 company recorded expense approximately 4215 4050 3700 respectively liability 25311 2005 27623 2004 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 10 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years ended 2005 2004 2003 respectively december 30 2005 december 31 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear decrease deferred gain balance primarily due amortization change foreign currency translation rates 11 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 23775 2005 23711 2004 19588 2003 future minimum rental commitments noncancelable leases follows fiscal year 24201 20596 17626 16229 16581 thereafter 200974 296207 12 capital leases assets capital leases summarized follows foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 12 capital leases continued following minimum lease payments made years indicated capital leases effect december 30 2005 fiscal year 1020 thereafter less interest 2531 net minimum lease payments capital leases 2371 less current portion net minimum lease payments longterm net minimum lease payments 1666 13 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 30 2005 december 31 2004 december 26 2003 company meet requirements deferral sfas 133 recorded year ended december 30 2005 pretax loss derivative instruments 3560 recorded year ended december 31 2004 pretax loss derivative instruments 189 year ended december 26 2003 pretax gain 617 recorded cost operating revenues consolidated statement operations comprehensive income loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 30 2005 approximately 145100 owed company counterparties approximately 11600 owed company counterparties foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 13 derivative financial instruments continued maximum term company hedging exposure variability cash flows 12 months 14 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 26 2003 49000 accruals 13100 settlements 3800 adjustments provisions 22900 balance december 31 2004 35400 accruals 10300 settlements 1900 adjustments provisions 17400 balance december 30 2005 26400 15 litigation uncertainties ordinary course business company party litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company’s canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter company’s accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced company respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 company investigating rights may seek reimbursement damages third parties company believes valid legal defenses claim exist company responded denying claim however premature predict outcome matter company’s subsidiaries uk also received claims alleging personal injury arising exposure asbestos date 747 claims brought company’s uk subsidiaries 306 remain open december 31 2005 none settled claims resulted material costs company foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 15 litigation uncertainties continued december 31 2005 company recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivables 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury without ruling asbestos liability asset recorded uk would approximate 66200 ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 16 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 3 13 foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 16 financial instruments risk management continued carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 258649 186830 december 30 2005 december 31 2004 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero practicable estimate fair value company’s intercompany debt market value type instrument december 30 2005 company 156708 foreign currency contracts outstanding foreign currency contracts mature 2006 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 30 2005 december 31 2004 company significant concentrations credit risk foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 17 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2005 2004 2003 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 30591 24980 18886 2005 2004 2003 respectively included consolidated balance sheet 2005 2004 related longterm contract activity intercompany borrowings foster wheeler affiliates following also reflected balance sheet due uncertainty timing repayment company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 58141 99408 december 30 2005 december 31 2004 respectively additionally december 30 2005 december 31 2004 company held investments unconsolidated affiliates 52803 57687 cost respectively related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 30 2005 december 31 2004 december 26 2003 18 sale certain business assets investments first quarter 2005 company sold investment accounted equity method sale resulted proceeds approximately 1700 gain approximately 1500 recorded income consolidated statement operations comprehensive income 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 company recorded loss sale 3300 foster wheeler international holdings subsidiaries notes consolidated financial statements thousands dollars 18 sale certain business assets investments continued 2004 recorded income consolidated statement operations comprehensive incomeloss 19 subsequent events january 31 2006 company entered binding preliminary agreement purchase remaining 51 interest special purpose joint venture company italy dedicated development construction operation wind farm projects italy company currently 49 equity interest joint venture company upon completion purchase company 100 equity interest joint venture accordance terms preliminary agreement company expects pay purchase price 18800 approximately 22500 15400 approximately 18400 payable closing 3400 approximately 4100 due upon start construction one three wind farms developed joint venture company purchase price subject various adjustments based net financial position joint venture company closing date including timing drawdown project debt distributions excess cash joint venture company shareholders assuming joint venture company’s excess cash distributed prior closing adjusted purchase price paid company closing currently estimated approximately 8000 9000 approximately 9600 10800 company expects joint venture company borrowed expected closing date approximately 26000 approximately 31200 nonrecourse debt following completion acquisition company fully consolidate financial results joint venture company including nonrecourse debt company’s consolidated financial statements completion purchase expected first quarter 2006 foster wheeler international corporation subsidiaries consolidated financial statements december 30 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income cash flows shareholder’s deficit present fairly material respects financial position foster wheeler international corporation inc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 30 2005 december 31 2004 results operations cash flows three years period ended december 30 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler international corporation subsidiaries consolidated statement operations comprehensive income thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement cash flows thousands dollars non cash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations 2005 company declared 4877 dividend payable parent year end see notes consolidated financial statements foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international corporation “company” wholly owned subsidiary foster wheeler international holdings indirectly wholly owned subsidiary foster wheeler ltd principal operations company provide design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company principally operates one segment primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada 2 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 3 summary significant accounting policies principles consolidation condensed consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler international corporation significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies year 2005 2004 included 53 weeks year 2003 included 52 weeks liquidity company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 3 8 17 18 relationship company foster wheeler ltd affiliates also impact company’s continuing operations foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period company also monitors liquidity weekly basis forecasts extend twelve month period forecasts indicate sufficient liquidity available find working capital needs next twelve months use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others reclassifications certain prior period financial statement amounts reclassified conform current year presentation revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts company presents customer billings estimated losses excess costs profits recorded uncompleted contracts billings excess costs estimated earnings uncompleted contracts company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result reevaluation process 2005 approximately 23 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 64000 76500 respectively claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2005 company recorded commercial claims receivable customers december 31 2004 company recorded commercial claims receivable 544 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract company deferred precontract costs december 30 2005 december 31 2004 cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 10500 december 30 2005 required collateralize letters credit bank guarantees approximately 3800 client escrow funds trade accounts receivable accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision provisions uncollectible accounts receivable reversed subsequent periods result collections included income accordingly uncollectible accounts receivable provision reversals included income 6375 1333 period ended september 30 2005 2004 respectively accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 16462 december 30 2005 16249 december 31 2004 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment provision made federal income taxes may payable foreign subsidiary earnings extent management anticipates earnings remitted based strategic initiatives management modified foreign earnings repatriation policy address domestic liquidity plans foreign earnings considered necessary meet plans considered permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 77614 december 30 2005 practicable estimate additional tax would incurred amounts repatriated company reviewed foreign earnings repatriation provision american jobs creation act 2004 “ajca” concluded given effective foreign tax rates applicable unrepatriated earnings well certain restrictions ajca concerning definitions extraordinary dividends us investment foreign earnings repatriation provision ajca provide financial benefit foster wheeler accordingly company change existing repatriation practices result ajca foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 30 2005 company recorded aftertax net foreign currency transaction gain 1845 year ended december 31 2004 company recorded aftertax net foreign currency transaction loss 2560 year ended december 31 2003 recorded aftertax net foreign currency transaction gain 4701 contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued inventories principally materials supplies stated lower cost market determined primarily averagecost method company inventories 1115 898 december 31 2005 2004 respectively amounts recorded within current assets consolidated balance sheet income consists following stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 august 8 2005 one company’s senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 company’s shareholders approved stock option plan directors foster wheeler april 29 1997 company’s shareholders approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2004 2003 2002 relating options granted company personnel options available grant follows presented actual number shares foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 31 2004 recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 31 2005 awards fully vested december 31 2005 2006 operating results expected include approximately 2200 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 4 accounts notes receivable trade following table shows components trade accounts notes receivable changes allowance doubtful accounts years ended december 31 2003 2005 presented 5 contracts process following table shows elements included contracts process related longterm contracts foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 6 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2005 2004 2003 7085 8360 7440 respectively 7 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 39 owned company reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway following summarized financial information company’s equity affiliates combined well company’s interest affiliates company’s share net earnings equity affiliates included income totaled 18893 11292 9738 years ended december 31 2005 2004 2003 respectively company’s investment equity affiliates totaled 83358 48458 december 31 2005 2004 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 900 total undistributed retained earnings company’s equity investees amounted approximately 72400 42000 december 30 2005 december 31 2004 respectively foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 7 investments advances equity interests continued additionally december 30 2005 company held investments unconsolidated affiliates 52803 carried cost since company hold controlling financial interest company made advances approximately 3484 thirdparty equity investees 8 income taxes company’s earnings income taxes years 2005 2004 2003 taxed following jurisdictions provision income taxes earningslosses follows deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 8 income taxes continued taxable income carryforward period changed prior periods company reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely portion deferred tax assets would realized fourth quarter 2005 company reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized addition company decreased valuation allowance reflect utilization tax credits deferred tax liability set anticipated repatriations foreign earnings two events combined decrease valuation allowance 35868 company also established new valuation allowance another foreign operating units due presence fourth quarter 2005 negative evidence deferred tax assets unit realized resulted increase valuation allowance 5581 net reduction contributed total valuation allowance decrease 43115 2005 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes deferred tax assets valuation allowance provided begin expiring 2010 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable us statutory rate earningsloss income taxes result following 9 pension postretirement benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 30 2005 company recognized cumulative minimum liability consolidated financial statements underfunded amount 156823 pretax resulting cumulative pretax charge comprehensive incomeloss represents decrease minimum liability 9377 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes postretirement benefits addition providing pension benefits company’s subsidiary canada provides certain health care life insurance benefits retired employees “other benefits” employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued following chart contains disclosures pension benefits plans years 2005 2004 2003 foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plan onepercentagepoint change assumed health care cost trend rates would following effects onepercentage point increase point decrease effect total service interest cost components 2 effect accumulated postretirement benefit obligations 17 plan measurement date measurement date company’s pension benefits plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo company’s pension plans totaled 635600 580000 year end 2005 2004 respectively previously noted company recorded net cumulative charge comprehensive incomeloss years 2000 2005 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 9 pension postretirement benefits continued minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return pension plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations company annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 75 73 past three years plan asset allocations contributions company expects contribute approximately 29800 pension plans 60 benefits plan 2006 estimated future benefit payments company expects make following benefit payments employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2005 2004 2003 company recorded expense approximately 4215 4050 3700 respectively liability 25311 2005 27623 2004 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 10 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years ended 2005 2004 2003 respectively december 30 2005 december 31 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear decrease deferred gain balance primarily due amortization change foreign currency translation rates 11 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 23775 2005 23711 2004 19588 2003 future minimum rental commitments noncancelable leases follows fiscal year 24201 20596 17626 16229 16581 thereafter 200974 296207 12 capital leases assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 30 2005 fiscal year 1020 thereafter less interest 2531 net minimum lease payments capital leases 2371 less current portion net minimum lease payments longterm net minimum lease payments 1666 foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 13 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 30 2005 december 31 2004 december 26 2003 company meet requirements deferral sfas 133 recorded year ended december 30 2005 pretax loss derivative instruments 3560 recorded year ended december 31 2004 pretax loss derivative instruments 189 year ended december 26 2003 pretax gain 617 recorded cost operating revenues consolidated statement operations comprehensive income loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 30 2005 approximately 145100 owed company counterparties approximately 11600 owed company counterparties maximum term company hedging exposure variability cash flows 12 months 14 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 26 2003 49000 accruals 13100 settlements 3800 adjustments provisions 22900 balance december 31 2004 35400 accruals 10300 settlements 1900 adjustments provisions 17400 balance december 30 2005 26400 foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 15 litigation uncertainties ordinary course business company party litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company’s canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter company’s accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced company respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 company investigating rights may seek reimbursement damages third parties company believes valid legal defenses claim exist company responded denying claim however premature predict outcome matter company’s subsidiaries uk also received claims alleging personal injury arising exposure asbestos date 747 claims brought company’s uk subsidiaries 306 remain open december 31 2005 none settled claims resulted material costs company december 31 2005 company recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivables 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury without ruling asbestos liability asset recorded uk would approximate 66200 ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 16 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 3 13 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 258649 186830 december 30 2005 december 31 2004 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero practicable estimate fair value company’s intercompany debt market value type instrument december 30 2005 company 156708 foreign currency contracts outstanding foreign currency contracts mature 2006 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 16 financial instruments risk management continued risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 30 2005 december 31 2004 company significant concentrations credit risk 17 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2005 2004 2003 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 30591 24980 18886 2005 2004 2003 respectively included consolidated balance sheet 2005 2004 related longterm contract activity intercompany borrowings foster wheeler affiliates following also reflected balance sheet due uncertainty timing repayment company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 58141 99408 december 30 2005 december 31 2004 respectively additionally december 30 2005 december 31 2004 company held investments unconsolidated affiliates 52803 57687 cost respectively related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 30 2005 december 31 2004 december 26 2003 18 sale certain business assets investments first quarter 2005 company sold investment accounted equity method sale resulted proceeds approximately 1700 gain approximately 1500 recorded income consolidated statement operations comprehensive income foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 18 sale certain business assets investments continued 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss 19 subsequent events january 31 2006 company entered binding preliminary agreement purchase remaining 51 interest special purpose joint venture company italy dedicated development construction operation wind farm projects italy company currently 49 equity interest joint venture company upon completion purchase company 100 equity interest joint venture accordance terms preliminary agreement company expects pay purchase price 18800 approximately 22500 15400 approximately 18400 payable closing 3400 approximately 4100 due upon start construction one three wind farms developed joint venture company purchase price subject various adjustments based net financial position joint venture company closing date including timing drawdown project debt distributions excess cash joint venture company shareholders assuming joint venture company’s excess cash distributed prior closing adjusted purchase price paid company closing currently estimated approximately 8000 9000 approximately 9600 10800 company expects joint venture company borrowed expected closing date approximately 26000 approximately 31200 nonrecourse debt following completion acquisition company fully consolidate financial results joint venture company including nonrecourse debt company’s consolidated financial statements completion purchase expected first quarter 2006 foster wheeler europe limited subsidiaries consolidated financial statements december 31 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler europe limited subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2005 december 31 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 foster wheeler europe limited subsidiaries consolidated statement operations comprehensive income thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement changes shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement cash flows thousands dollars noncash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations 2005 company declared 4681 dividend payable parent year end see notes consolidated financial statements foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler europe limited “company” wholly owned subsidiary foster wheeler international corporation indirectly wholly owned subsidiary foster wheeler ltd principal operations company provide design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company principally operates one segment primarily outside united states operations united kingdom italy france turkey spain singapore south africa functional currency company pound sterling reporting currency us dollar 2 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 3 summary significant accounting policies principles consolidation consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler europe limited significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year ends december 31 liquidity company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 3 8 17 18 relationship company foster wheeler ltd affiliates also impact company’s continuing operations foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period company also monitors liquidity weekly basis forecasts extend twelve month period forecasts indicate sufficient liquidity available find working capital needs next twelve months use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others reclassifications certain prior period financial statement amounts reclassified conform current year presentation revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts company presents customer billings estimated losses excess costs profits recorded uncompleted contracts billings excess costs estimated earnings uncompleted contracts company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result process 2005 approximately 22 individual projects final estimated profit revisions exceeding 1000 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years changes final estimated profits resulted net increase accrued profits 2005 2004 approximately 62000 76500 respectively claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred december 31 2005 company recorded commercial claims receivable customers december 31 2004 company recorded commercial claims receivable 544 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract company deferred precontract costs december 30 2005 december 31 2004 cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 8700 december 31 2005 required collateralize letters credit bank guarantees approximately 3800 client escrow funds trade accounts receivable accordance terms longterm contracts customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision provisions uncollectible accounts receivable reversed subsequent periods result collections included income accordingly uncollectible accounts receivable provision reversals included income 6375 1333 period ended december 31 2005 2004 respectively accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 17146 december 31 2005 13801 december 31 2004 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued cost method appropriate equity method also used affiliates investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently significant investments affiliates consolidated recorded using equity method income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foreign currency assets liabilities foreign subsidiaries translated us dollars month end exchange rates income expenses cash flows monthly weightedaverage rates years ended december 31 2005 2004 company recorded aftertax net foreign currency transaction losses 2951 2845 respectively year ended december 31 2003 company recorded aftertax net foreign currency transaction gain 129 contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method company inventories 1115 898 december 31 2005 2004 respectively amounts recorded within current assets consolidated balance sheet income consists following foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 august 8 2005 one company’s senior executives issued options 2004 plan purchase 169000 common shares exercise price 2320 per common share options expire august 7 2008 one third options vested fourth quarter 2005 balance scheduled vest fourth quarter 2006 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 company’s shareholders approved stock option plan directors foster wheeler april 29 1997 company’s shareholders approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler ltd plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable 10 years date granted foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2005 2004 2003 relating options granted company personnel options available grant follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2005 recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements use modified prospective transition method foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 31 2005 awards fully vested december 31 2005 2006 operating results expected include approximately 2200 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact consolidated financial statements 4 accounts notes receivable trade following table shows components trade accounts notes receivable foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 4 accounts notes receivable trade continued changes allowance doubtful accounts years ended december 31 2003 2005 presented 5 contracts process following table shows elements included contracts process related longterm contracts 6 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2005 2004 2003 6190 7637 8203 respectively foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 7 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 39 owned company reflecting sale 10 minority equity interest project april 2005 sale intended facilitate future expansion project expansion currently underway following summarized financial information company’s equity affiliates combined well company’s interest affiliates company’s share net earnings equity affiliates included income totaled 18893 11292 9738 years ended december 31 2005 2004 2003 respectively company’s investment equity affiliates totaled 83358 48458 december 31 2005 2004 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 900 total undistributed retained earnings company’s equity investees amounted approximately 72400 42000 december 31 2005 2004 respectively additionally december 31 2005 company held investments unconsolidated affiliates 52117 carried cost since company hold controlling financial interest company made advances approximately 3484 thirdparty equity investees 8 income taxes company’s earnings income taxes years 2005 2004 2003 taxed foreign jurisdictions provision income taxes earningslosses follows foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 8 income taxes continued deferred tax assets liabilities consist following reflected company recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies company continues experience positive earnings trend certain jurisdictions valuation allowance set deferred tax assets previous years accordingly valuation allowance decreased 24327 2005 includes complete reversal valuation allowance one jurisdiction valuation reserve required sfas 109 “accounting income taxes” evidence losses operations three recent years statutory purposes majority deferred tax assets valuation allowance provided expire based current tax laws provision income taxes differs amount income tax determined applying applicable uk statutory rate earnings income taxes result following 9 pension benefits pension benefits company’s subsidiary united kingdom pension plan covers fulltime employees plan retirement benefits primarily function years service level compensation december 31 2005 company recognized cumulative minimum liability consolidated financial statements underfunded amount 149320 pretax resulting cumulative pretax charge comprehensive income represents decrease minimum liability 7865 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 9 pension benefits continued following chart contains disclosures pension benefits years 2005 2004 2003 foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 9 pension benefits continued plan measurement date measurement date company’s defined benefit plan december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo totaled 608800 557500 yearend 2005 2004 respectively previously noted company recorded net cumulative charge comprehensive incomeloss years 2000 2005 due abo exceeding fair value plan assets investment policy company’s plan governed written investment policy investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plan’s portfolio expected returns asset class developed considering past performance future considerations company annually reviews adjusts required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 75 73 past three years contributions company expects contribute approximately 28800 pension plan 2006 foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 9 pension benefits continued estimated future benefit payments company expects make following benefit payments 20124 21983 24406 26941 28668 20112014 188659 employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2005 2004 2003 company recorded expense approximately 4215 4050 3700 respectively liability 25311 2005 27623 2004 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 10 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4124 4135 3622 years ended december 31 2005 2004 2003 respectively december 31 2005 2004 balance deferred gains 64255 76383 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear decrease deferred gain balance primarily due amortization change foreign currency translation rates 11 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 22176 2005 23070 2004 19235 2003 future minimum rental commitments noncancelable leases follows fiscal year 22977 19822 17035 16103 16488 thereafter 200893 293318 foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 12 capital leases assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 31 2005 fiscal year 1020 thereafter less interest 2531 net minimum lease payments capital leases 2371 less current portion net minimum lease payments longterm net minimum lease payments 1666 13 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities”at december 31 2005 2004 2003 company meet requirements deferral sfas 133 recorded year ended december 31 2005 2004 pretax losses derivative instruments 3521 227 respectively recorded year ended december 31 2003 pretax gain derivative instruments 616 recorded cost operating revenues consolidated statement operations comprehensive income amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2005 foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 13 derivative financial instruments continued approximately 149800 owed company counterparties approximately 5700 owed company counterparties maximum term company hedging exposure variability cash flows 12 months 14 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 31 2003 40800 accruals 12600 settlements 1200 adjustments provisions 20400 balance december 31 2004 31800 accruals 11100 settlements 1800 adjustments provisions 17800 balance december 31 2005 23300 15 litigation uncertainties ordinary course business company party litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company’s canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter company’s accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract addition matters described arbitration commenced company respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 company investigating rights may seek reimbursement damages third parties company believes valid legal defenses claim exist company responded denying claim however premature predict outcome matter company’s subsidiaries uk also received claims alleging personal injury arising exposure asbestos date 747 claims brought company’s uk subsidiaries foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 15 litigation uncertainties continued 306 remain open december 31 2005 none settled claims resulted material costs company december 31 2005 company recorded total liabilities 26200 comprised estimated liability relating open outstanding claims 3100 estimated liability relating future unasserted claims 23100 total 1000 recorded accrued expenses 25200 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 1000 recorded accounts notes receivables 25200 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based recent uk court appeal ruling pleural plaque claims amount compensable injury without ruling asbestos liability asset recorded uk would approximate 66200 ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 16 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments carrying value shortterm investments approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 3 13 foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 16 financial instruments risk management continued carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 234254 163281 december 31 2005 2004 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero practicable estimate fair value company’s intercompany debt market value type instrument december 31 2005 company 155437 foreign currency contracts outstanding foreign currency contracts mature 2006 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2005 2004 company significant concentrations credit risk 17 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2005 2004 2003 related contracts intercompany borrowings following foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 17 related party transactions continued costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 29507 21316 17254 2005 2004 2003 respectively included consolidated balance sheet 2005 2004 related longterm contract activity intercompany borrowings foster wheeler affiliates following intercompany notes payable includes 270000 due full 2016 interest rates 75 2005 2004 2003 also reflected balance sheet due uncertainty timing repayment company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 97000 82277 december 31 2005 2004 respectively additionally december 31 2005 2004 company held investments unconsolidated affiliates 52117 56819 cost respectively 2001 company purchased investments subsidiaries parent foster wheeler international corporation transfer ownership occurred entities common control difference purchase price net equity subsidiaries 250291 charged paidin capital amount 86886 accumulated deficit amount 163405 company’s paidin capital could absorb full amount excess purchase price related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 30 2005 december 31 2004 december 26 2003 18 sale certain business assets investments first quarter 2005 company sold investment accounted equity method sale resulted proceeds approximately 1700 gain approximately 1500 recorded income consolidated statement operations comprehensive income 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 19 subsequent event january 31 2006 company entered binding preliminary agreement purchase remaining 51 interest specialpurpose joint venture company italy dedicated development construction operation wind farm projects italy company currently owns 49 equity interest joint venture company upon completion purchase company 100 equity interest joint venture accordance terms preliminary agreement company expects pay purchase price 18800 approximately 22500 15400 approximately 18400 payable closing 3400 approximately 4100 due upon start construction one three wind farms developed joint venture company purchase price subject various adjustments based net financial position joint venture company closing date including timing drawdown project debt distributions excess cash joint venture company shareholders assuming joint venture company’s excess cash distributed prior closing adjusted purchase price paid company closing currently estimated approximately 8000 9000 approximately 9600 10800 company expects joint venture company borrowed expected closing date approximately 26000 approximately 31200 nonrecourse debt following completion acquisition company fully consolidate financial results joint venture company including nonrecourse debt company’s consolidated financial statements completion purchase expected first quarter 2006 fw netherlands cv subsidiaries consolidated financial statements december 31 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows changes partners’ capital present fairly material respects financial position fw netherlands cv subsidiaries “partnership” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 fw netherlands cv subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements fw netherlands cv subsidiairies consolidated balance sheet thousands dollars see notes consolidated financial statements fw netherlands cv subsidiairies consolidated statement changes partners’ capital see notes consolidated financial statements fw netherlands cv subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 1 description business fw netherlands cv limited liability partnership registered netherlands subsidiaries collectively referred herein “partnership” owned foster wheeler llc 99 foster wheeler inc 1 indirectly wholly owned foster wheeler ltd principal operations partnership design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering partnership also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics partnership principally operates one segment primarily finland poland spain germany 2 summary significant accounting policies liquidity partnership transactions relationships foster wheeler ltd affiliates financial position results operations cash flows partnership impacted transactions relationships discussed notes 6 7 14 foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period partnership also monitors liquidity weekly basis forecasts extend twelvemonth period forecasts indicate sufficient liquidity available fund working capital needs next twelve months principles consolidation consolidated financial statements prepared based accounting principles generally accepted united states america include accounts significant foreign subsidiary companies intercompany transactions balances eliminated partnership’s fiscal year ends december 31 revisions prior period consolidated statement operations comprehensive incomeloss revised classify amortization intangible assets within cost operating revenues rather within deductions impact consolidated balance sheet consolidated statement cash flows summary financial statement line items affected revision presented reclassifications certain prior period financial statement amounts reclassified conform current year presentation fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts including customer vendor claims depreciation taxes contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred partnership includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts 2005 partnership revised presentation contract related balance sheet line items financial statement line item billings excess costs estimated earnings uncompleted contracts replaces previously used line items advances payments estimated costs complete longterm contracts addition unbilled receivables included within contracts process rather component trade receivables partnership numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” partnership reviews major contracts monthly result process 2005 approximately 12 individual projects final estimated profit revisions exceeding 500 revisions include increases decreases estimated profit resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years net aggregate dollar value accrued contract profitloss resulting estimate changes amounted approximately 10250 71470 2005 2004 respectively claims amounts excess agreed contract price amounts included original contract price partnership seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs partnership records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2005 partnership recorded commercial claims receivable customers december 31 2004 partnership recorded commercial claims receivable customers 3402 certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable pre contract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract partnership deferred precontract costs december 31 2005 2004 cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less partnership requires substantial portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly funds may readily available repatriation parent shortterm investments shortterm investments december 31 2004 consisted primarily certificates deposit classified held maturity financial accounting standards board “fasb” statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable accordance terms longterm contracts partnership’s customers withhold certain percentages billings completion acceptance contracts final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision contracts process billings excess costs estimated earnings uncompleted contracts accordance terms longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued inventories principally materials supplies stated lower cost market determined primarily averagecost method partnership inventories 3401 3290 december 31 2005 2004 respectively amounts recorded within current assets consolidated balance sheet accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 5345 december 31 2005 1513 december 31 2004 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 25 years buildings 3 20 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held partnership investments advances partnership uses equity method accounting affiliates investment ownership 20 50 unless significant economic considerations indicate cost method appropriate equity method also used affiliates partnership’s investment ownership greater 50 controlling financial interest affiliates investment ownership less 20 carried cost currently partnership’s significant investments affiliates recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years partnership tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year partnership evaluates goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued december 31 2005 2004 partnership unamortized goodwill 48580 49378 respectively decrease goodwill 798 resulted foreign currency translation rates accordance sfas 142 effective december 29 2001 partnership longer amortizes goodwill 2005 2004 fair value reporting units exceeded carrying amounts december 31 2005 2004 partnership unamortized identifiable intangible assets 13087 16026 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations comprehensive loss totaled 886 960 990 years ended december 31 2005 2004 2003 respectively amortization expense expected approximate 920 year next five years income taxes partnership subject income taxes taxable income loss applicable operation partnership includable income tax return partners income tax partnership’s statement operations balance sheet calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foreign currency partnership’s functional reporting currency us dollar assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 31 2005 partnership recorded aftertax net foreign currency transaction gain 299 years ended december 31 2004 2003 recorded aftertax net foreign currency transaction losses 40 850 respectively fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees partnership participate plans foster wheeler ltd partnership adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stockbased compensation transition disclosure” foster wheeler ltd partnership continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 partnership’s net incomeloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions applicable since stock options granted 2005 2003 september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum 10 years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vested fourth quarter 2005 balance vest fourth quarter 2006 1995 stock option plan approved foster wheeler ltd’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plan less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split stock option amounts reflect post reverse stock split amounts fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued information regarding option plans years 2005 2004 2003 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2005 pensions postretirement benefits partnership offers governmentsponsored retirement program employees subsidiary finland plans exist subsidiaries recent accounting developments december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 2 summary significant accounting policies continued fair values prior sfas 123r partnership adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value share based payments required notes consolidated financial statements partnership use modified prospective transition method accordingly sharebased employee compensation cost recognized beginning 2006 fiscal period fairvaluebased accounting method used account employee awards granted modified settled december 31 2005 awards fully vested december 31 2005 partnership’s 2006 operating results expected include approximately 21 additional compensation expense result adoption sfas 123r future compensation expense impacted various factors including number awards granted relative fair value date grant may 2005 fasb issued sfas 154 “accounting changes error corrections” sfas 154 replacement apb 20 sfas 3 sfas 154 provides guidance accounting reporting accounting changes error corrections establishes retrospective application required method reporting change accounting principle sfas 154 provides guidance determining whether retrospective application change accounting principle impracticable reporting change retrospective application impracticable sfas 154 also addresses reporting correction error restating previously issued financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 adoption sfas 154 expected impact partnership’s consolidated financial statements 3 accounts notes receivable following table shows components trade accounts notes receivable fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 3 accounts notes receivable continued changes allowance doubtful accounts periods ended december 31 2003 2005 presented 4 contracts process following table shows elements included contracts process relates longterm contracts 5 land buildings equipment land buildings equipment stated cost set forth depreciation years 2005 2004 2003 4325 5817 4189 respectively 2002 partnership entered lease transaction office building finland transaction qualified capital lease summarized follows fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 5 land buildings equipment continued following minimum lease payments made years indicated capital lease effect december 31 2005 fiscal year 1062 thereafter 23277 less interest 12389 net minimum lease payments capital lease 16198 partnership owns certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities partnership sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique partnership recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 6 notes payable notes payable longterm debt consisted following notes payable affiliates primarily composed two 20000 notes one note interest rate 10 note interest rate 75 notes due full december 2006 however expected refinanced therefore recorded longterm 7 derivative financial instruments partnership’s activities expose risks related effect changes foreigncurrency exchange rates partnership maintains foreigncurrency riskmanagement strategy uses derivative instruments protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates partnership utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” years 2005 2004 2003 partnership meet requirements deferral sfas 133 recorded pretax losses 373 2650 5792 respectively amounts recorded following line items consolidated statement operations comprehensive loss fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 7 derivative financial instruments continued amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process billings excess costs estimated earnings uncompleted contracts partnership exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2005 approximately 10115 owed partnership counterparties 0 owed partnership counterparties maximum term partnership hedging exposure variability cash flows 12 months 8 warranty reserves partnership provides warranty project execution reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 9 income taxes partnership’s earningsloss income taxes years 2005 2004 2003 taxed foreign jurisdictions provision income taxes earnings follows fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 9 income taxes continued deferred tax liabilities assets consist following provision income taxes differs amount income tax determined applying applicable finland statutory rate earnings income taxes result following reflected partnership recorded various deferred tax liabilitiesassets realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed company continues experience positive earnings trend certain jurisdictions valuation allowance set deferred tax assets previous years 2005 company experienced net positive impact effective tax rate versus prior periods result decreases valuation allowances certain jurisdictions full valuation allowances maintained tax refunds received certain jurisdictions result valuation allowance decreased 11197 2005 valuation reserve required sfas 109 “accounting income taxes” evidence losses certain foreign tax jurisdictions three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2014 beyond based current tax laws fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 10 operating leases partnership certain subsidiaries obligated operating lease agreements primarily office space rental expense totaled 3047 2005 4845 2004 4333 2003 future minimum rental commitments noncancelable leases follows fiscal year 2049 1309 thereafter 1722 7542 11 litigation uncertainties ordinary course business partnership party litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims partnership additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments partnership found liable claimscounterclaims would incur writedown charge earnings extent reserve established matter partnership’s accounts amounts ultimately realized claimscounterclaims partnership could differ materially balances included financial statements resulting charge earnings extent profit already accrued project contract arbitration commenced partnership arising compact cfb boiler partnership engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations partnership relief granted partnership could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified partnership vigorously defending case counterclaimed unpaid receivables approximately 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon partnership’s investigation proceedings date appear valid defenses claim however premature predict outcome proceeding partnership currently dispute client connection two power plants partnership designed built eastern europe dispute primarily concerns whether liquidated damages partnership refer lds due client contract delayed completion projects client contends owed lds capped contract approximately 39700 approximately 47000 retaining security lds approximately 22000 approximately 26100 contract payments otherwise due us work performed client contends owed additional amount approximately 3000 approximately 3600 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects partnership believes period delay client seeking lds grossly overstated client’s calculation include extension time agreed well extensions time partnership entitled clientcaused excusable delays partnership also believes lds provision may unenforceable fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 11 litigation uncertainties continued controlling english law partnership asserted claims client delay costs extra work excess 4700 approximately 5600 yet recognized recent mediation client unsuccessful therefore partnership intends request arbitration provided contract however premature predict outcome matter ultimate legal financial liability partnership respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used partnership becomes known partnership reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause partnership increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 12 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments carrying value partnership’s shortterm investments approximates fair value shortterm maturity instruments longterm debt partnership estimates fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities practicable estimate fair value partnership’s intercompany debt market type debt instrument foreign currency contracts partnership estimates fair value foreign currency contracts used hedging purposes obtaining quotes brokers partnership exposed market risks fluctuations foreign exchange rates partnership utilizes financial instruments reduce risk partnership hold issue financial instruments trading purposes partnership exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 2 8 fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 12 financial instruments risk management continued carrying amounts fair values estimated fair values partnership’s financial instruments follows partnership contingently liable performance letters credit bank guarantees totaling 139675 188875 december 31 2005 2004 respectively based upon past experience material claims made financial instruments management partnership expect material losses result offbalancesheet instruments therefore partnership believes fair value instruments zero december 31 2005 partnership 10115 foreign currency contracts outstanding foreign currency contracts mature 2006 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject partnership concentrations credit risk consist principally cash equivalents trade receivables partnership places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising partnership’s customer base dispersion across different business geographic areas december 31 2005 2004 partnership significant concentrations credit risk 13 related party transactions partnership enters longterm contracts subcontractor subcontracts work certain foster wheeler affiliates included consolidated statement operations comprehensive loss relating contracts follows fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 13 related party transactions continued included consolidated balance sheet related longterm contract activity intercompany borrowings foster wheeler affiliates following also reflected balance sheet due uncertainty timing collection partnership reduced intercompany notes receivable charged partners’ capital notes receivable us affiliates yearoveryear change reflected consolidated statement changes partners’ capital consolidated statement cash flows cumulative impact partners’ capital reduction 25823 33567 december 31 2005 2004 respectively costs incurred foster wheeler ltd certain affiliates behalf partnership charged partnership royalties management fees management fees represent management’s estimation reasonable allocation partnership’s share costs related party transactions discussed eliminated foster wheeler ltd subsidiaries condensed consolidated financial statements years ended december 30 2005 december 31 2004 14 purchase foster wheeler energia sa october 2003 partnership acquired foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary purchased wholly owned affiliate foster wheeler ltd sales price approximated carrying value partnership reflected transaction reorganization companies common control may 2004 pursuant foster wheeler energia sa sale agreement additional payment 3589 made foster wheeler europe limited payment could estimated time purchase therefore accrued payment made partnership recorded decrease contributed capital 2004 financial services sarl subsidiary consolidated financial statements december 31 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations cash flows changes shareholders’ deficit present fairly material respects financial position financial services sarl subsidiary “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2005 december 31 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 financial services sarl subsidiary consolidated statement operations thousands dollars see notes consolidated financial statements financial services sarl subsidiary consolidated balance sheet thousands dollars except per share amount see notes consolidated financial statements financial services sarl subsidiary consolidated statement changes shareholders’ deficit thousands dollars 1 accumulated deficit includes excess fair value recorded amount intangible assets acquired affiliated company 190000 net tax benefit 5700 capitalization note receivable 50 see notes consolidated financial statements financial services sarl subsidiary consolidated statement cash flows thousands dollars non cash financing activities date formation financial services sarl received 405000 notes receivable affiliated companies assumed 405000 notes payable affiliated company april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc see note 4 see notes consolidated financial statements financial services sarl subsidiary notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries financial services sarl “company” organized laws luxembourg subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 08 fwllc perryville indirectly wholly owned subsidiaries foster wheeler ltd principal operation company provide financing foster wheeler affiliates around world addition fw hungary licensing limited liability company “fw hungary” wholly owned subsidiary company provides management developing licensing beneficial rights foster wheeler ltd’s intellectual property fw hungary currently licenses rights various foster wheeler affiliates outside united states company’s functional currency us dollar 2 purchase fw hungary licensing limited liability company december 2003 company acquired 100 fw hungary previously wholly owned subsidiary fw technologies holding llc “fw tech holding” approximately 50000 transaction financed issuing 42500 demand note payable bearing interest 9 fw tech holding issuing additional ownership interest company approximate value 7500 perryville exchange respective 85 15 ownership interests fw hungary company reflected transaction reorganization companies common control accordingly accompanying condensed consolidated financial statements include activity fw hungary consolidated balance sheet results operations condensed cash flows periods presented 3 summary significant accounting policies principles consolidation condensed consolidated financial statements include accounts company wholly owned foreign subsidiary intercompany transactions balances eliminated fiscal year company’s fiscal year ends december 31 liquidity company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 4 relationship company foster wheeler ltd affiliates also impact company’s continuing operations foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period company forecasts meet obligations next twelve months use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date consolidated financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collection notes interest receivable royalty income affiliates income taxes financial services sarl subsidiary notes consolidated financial statements thousands dollars 3 summary significant accounting policies continued reclassifications certain prior period financial statement amounts reclassified conform current year presentation revenue recognition revenue recognized accrual basis company’s primary sources revenue interest income royalty income affiliated companies cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less accounts interest receivable affiliates accounts receivable interest receivable consists amounts due related parties presented net realizable value see note 4 income taxes company files tax return luxembourg income tax expense company’s consolidated statement operations calculated separate company basis subsidiary files tax return foreign jurisdiction luxembourg legislation decreased statutory rate company luxembourg 2967 effective january 1 2006 however company agreement luxembourg tax jurisdiction whereby company required pay minimum tax decrease statutory rate impact company provision made foreign income taxes payable company’s subsidiary hungary statutory rate 4 twelve months ended december 31 2005 2004 3 twelve months ended december 31 2003 hungarian legislation increased statutory rate 16 certain exemptions bring effective tax rate company approximately 8 effective january 1 2006 addition royalty income foreign sources company’s subsidiary subject foreign tax withholding deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described 4 related party transactions company acquired 405000 notes receivable various affiliated companies assignment fwllc may 25 2001 notes interest rates ranging 700 850 exchange notes company assumed obligation finance 405000 fwllc’s debt related carrying charges debt interest rates ranging 675 900 april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc interest rate remaining notes receivable also changed 685 per annum april 1 2003 balance note payable interest rate 675 per annum april 1 2003 september 24 2004 september 24 2004 result foster wheeler ltd equityfordebt exchange interest rate obligations assumed company changed weightedaverage rate 771107 per annum debt matures november 15 2005 11417 september 24 2011 141437 may 1 2016 47146 portion debt matured november 15 2005 11417 renegotiated currently ondemand loan interest rate 675 per annum september 24 2004 company acquired 120000 demand note receivable bears interest 1045275 affiliated company assignment fwllc exchange note company assumed obligation finance 120000 fwllc’s debt related carrying charges debt interest rate 10359 financial services sarl subsidiary notes consolidated financial statements thousands dollars 4 related party transactions continued interest income notes receivable recognized year ended december 31 2005 2004 2003 amounted 26243 16835 18320 respectively interest receivable notes amounted 45177 19050 december 31 2005 2004 respectively reflected consolidated balance sheet company reduced intercompany interest receivable us affiliates charged accumulated deficit charge accumulated deficit recorded amounts 116 31 periods ended december 31 2005 2004 respectively reflect excess interest receivable interest payable affiliates see discussion company’s credit risk interest expense notes payable recognized years ended december 31 2005 2004 2003 amounted 26127 16804 18580 respectively interest payable fwllc december 31 2005 2004 36083 12637 respectively company required fund obligations fwllc extent collects amounts due notes receivable affiliates extent amounts notes receivable become uncollectible fwllc agrees assume obligation company pursuant note transfer debt assumption agreement dated may 25 2001 addition company agrees extent obligation notes payable reduced whatever reason company’s rights notes receivable correspondingly transferred fwllc result company credit risk relating notes receivable fw hungary made investment foster wheeler licensing services gp “fwls” 190000 december 22 2000 issuance 190000 note payable fwls later assigned fwllc fwls held licensed property included intellectual property confidential information licensing rights marketing intangibles foster wheeler ltd may 18 2001 fwls dissolved fw hungary acquired licensed property exchange ownership interest transfer licensed property seen transaction entities common control result licensed property recorded carrying value zero note payable fwllc balance 167107 december 31 2005 2004 bears interest annual rate 90 years ended december 31 2005 2004 2003 interest expense 14947 15195 17000 respectively unpaid interest december 31 2005 2004 16571 10155 respectively march 2005 fw hungary entered note agreement foster wheeler italiana spa amount 4500 euros 5332 usd december 31 2005 note interest bearing note quarterend euribor plus 1 spread rate december 31 2005 34595 interest expense year ended december 31 2005 138 company also entered note agreement foster wheeler iberia sa march 2005 amount 1500 euros 1777 usd december 31 2005 note interest bearing note quarterend euribor plus 1 spread rate december 31 2005 34595 interest expense year ended december 31 2005 47 fw hungary enters licensing agreements licensor certain foreign affiliates foster wheeler ltd affiliates pay royalty fw hungary based agreed upon range 10 40 affiliates’ current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis subsequently trued upon filing affiliates statutory statements typically second third quarter next year reduction 2022 400 135 related process included royalty revenue twelve months 2005 2004 2003 respectively twelve months ended december 31 2005 2004 2003 royalty income 31069 23733 20473 respectively accounts receivable affiliates december 31 2005 2004 19321 8566 respectively represents mainly unpaid royalty fees additionally royalty fees collected due back financial services sarl subsidiary notes consolidated financial statements thousands dollars 4 related party transactions continued affiliates 29 329 december 31 2005 2004 respectively included accounts payable affiliates january 1 2001 fw hungary entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable company shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless company affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2005 2004 2003 1424 2225 532 respectively december 31 2005 december 31 2004 363 2225 respectively due affiliates pursuant agreement march 2005 fw hungary entered note agreement foster wheeler energia oy amount 6000 euros note repaid november 2005 note interest bearing note quarterend euribor plus 1 spread average rate 3147 interest income year ended december 31 2005 152 company also entered note agreement fwllc march 2005 amount 4308 december 2005 balance note 2484 note noninterest bearing october 2005 fw hungary entered note agreement foster wheeler inc amount 4772 december 31 2005 value note 4422 note noninterest bearing november 2005 fw hungary entered two additional notes foster wheeler inc valued 3746 1550 noninterest bearing payments made fourth note foster wheeler inc entered december 2005 2495 note also noninterest bearing payments made foster wheeler inc indirectly wholly owned subsidiary foster wheeler ltd acts banking agent company managing cash financing requirements needed company charges interest advances made company related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated balance sheet december 30 2005 december 31 2004 related consolidated statements operations cash flows twelve months ended december 30 2005 december 31 2004 december 26 2003 management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 5 income taxes components net earnings income taxes years 2005 2004 2003 taxed follows financial services sarl subsidiary notes consolidated financial statements thousands dollars 5 income taxes continued benefitprovision income taxes net earnings follows benefitprovision income taxes determined applying luxembourg statutory rate applicable company due enactment legislation hungarian tax rate increased 16 certain exemptions bring effective tax rate company approximately 8 effective january 1 2006 accordingly deferred tax provision includes benefit 6596 2004 reflect increase value deferred tax assets provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following fw hungary licensing limited liability company financial statements december 31 2005 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying statement financial position related statements operations cash flows member’s interest present fairly material respects financial position fw hungary licensing limited liability company “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2005 december 31 2004 results it’s operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp florham park new jersey march 3 2006 fw hungary licensing limited liability company statement operations thousands dollars see notes consolidated financial statements fw hungary licensing limited liability company statement financial position thousands dollars see notes consolidated financial statements fw hungary licensing limited liability company statement member’s interest thousands dollars 1 adjustments include excess fair value recorded amount intangible assets acquired affiliated company 190000 net tax benefit 5700 capitalization note receivable 50 see notes consolidated financial statements fw hungary licensing limited liability company statement cash flows thousands dollars see notes consolidated financial statements fw hungary licensing limited liability company notes financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries fw hungary licensing limited liability company “company” organized december 1 2000 laws hungary company december 2003 wholly owned subsidiary financial services sarl “sarl” “member” subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 08 indirectly wholly owned subsidiaries foster wheeler ltd prior december 2003 company owned fw technologies holdings llc “fwth” prior dissolution subsidiary fwllc 999 perryville 01 see note 4 principal operation company management developing licensing beneficial rights foster wheeler ltd’s intellectual property company currently licenses rights various foster wheeler affiliates outside united states company’s functional currency us dollar 2 summary significant accounting policies fiscal year company’s fiscal year ends december 31 liquidity company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 relationship company foster wheeler ltd affiliates also impact company’s continuing operations foster wheeler ltd closely monitors domestic global liquidity updates liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations nonus subsidiaries proceeds asset sales working capital needs unused credit line availability claims recoveries foster wheeler ltd’s liquidity forecasts extend twelvemonth period continue indicate sufficient liquidity available fund working capital needs period company forecasts meet obligations next twelve months use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collectibility royalty income affiliates income taxes reclassifications certain prior period financial statement amounts reclassified conform current year presentation revenue recognition revenue recognized accrual basis company’s primary source revenue royalty income related parties cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less accounts receivable affiliates accounts receivable consist solely amounts due related parties see note 3 income taxes company files tax return hungary provision made foreign income taxes payable hungary statutory rate 4 twelve months ended december 31 2005 2004 3 twelve months ended december 31 2003 hungarian legislation increased statutory rate 16 certain exemptions bring effective tax rate company approximately 8 effective january 1 2006 addition company’s royalty income foreign sources subject fw hungary licensing limited liability company notes financial statements thousands dollars 2 summary significant accounting policies continued foreign tax withholding income tax expense company’s statement operations calculated separate company basis deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described 3 related party transactions company made investment foster wheeler licensing services gp “fwls” 190000 december 22 2000 issuance 190000 note payable fwls later assigned fwllc fwls held licensed property included intellectual property confidential informational licensing rights marketing intangibles foster wheeler ltd may 18 2001 fwls dissolved company acquired licensed property exchange ownership interest transfer licensed property seen transaction entities common control result licensed property recorded carrying value zero december 1 2003 fwllc transferred 190000 note receivable company sarl transfer part reorganization company whereby portion note 50000 contributed additional membership units recorded additional capital company sarl subsequently acquired 100 interest company december 2003 note payable sarl balance 124252 december 31 2005 2004 bears interest annual rate 90 interest expense years ended december 31 2005 2004 2003 11183 11338 17000 respectively march 2005 company entered note agreement foster wheeler italiana spa amount 4500 euros 5332 usd december 31 2005 note interest bearing note quarterend euribor plus 1 spread rate december 31 2005 34595 interest expense year ended december 31 2005 138 company also entered note agreement foster wheeler iberia sa march 2005 amount 1500 euros 1777 usd december 31 2005 note interest bearing note quarterend euribor plus 1 spread rate december 31 2005 34595 interest expense year ended december 31 2005 47 company enters licensing agreements licensor certain foreign affiliates foster wheeler ltd affiliates pay royalty company based agreed upon range 10 40 affiliates’ current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis subsequently trued upon filing affiliates statutory statements typically second third quarter next year reduction 2022 400 135 related process included royalty revenue twelve months 2005 2004 2003 respectively twelve months ended december 31 2005 2004 2003 royalty income 31069 23733 20473 respectively accounts receivable affiliates december 31 2005 2004 16147 8610 respectively represents mainly unpaid royalty fees additionally royalty fees collected due back affiliates 29 329 december 31 2005 2004 respectively included accounts payable affiliates fw hungary licensing limited liability company notes financial statements thousands dollars 3 related party transactions continued january 1 2001 company entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable company shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless company affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2005 2004 2003 1424 2225 532 respectively december 31 2005 2004 363 2225 respectively due affiliates pursuant agreement march 2005 company entered note agreement foster wheeler energia oy amount 6000 euros note repaid november 2005 note interest bearing note quarterend euribor plus 1 spread average rate 3147 interest income year ended december 31 2005 152 company also entered note agreement fwllc march 2005 amount 4308 december 2005 balance note 2484 note noninterest bearing october 2005 company entered note agreement foster wheeler inc amount 4772 december 31 2005 value note 4422 note noninterest bearing november 2005 company entered two additional notes foster wheeler inc valued 3746 1550 noninterest bearing payments made fourth note foster wheeler inc entered december 2005 2495 note also noninterest bearing payments made related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated balance sheet december 30 2005 december 31 2004 related consolidated statements operations cash flows twelve months ended december 30 2005 december 31 2004 december 26 2003 management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 4 income taxes components net earnings income taxes years 2005 2004 2003 taxed follows benefitprovision income taxes net earnings follows fw hungary licensing limited liability company notes financial statements thousands dollars 4 income taxes continued deferred tax assets consist following benefitprovision income taxes determined applying hungarian statutory rate applicable company due enactment legislation hungarian tax rate increased 4 effective januayr 1 2004 16 certain exemptions bring effective tax rate company approximately 8 effective january 1 2006 accordingly deferred tax provision 2004 includes benefit 6596 reflect increase value deferred tax assets provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ltd completed integrated audits foster wheeler ltd’s “company” consolidated financial statements internal control financial reporting december 29 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position company subsidiaries december 29 2006 december 30 2005 results operations cash flows three years period ended december 29 2006 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 1 note 8 consolidated financial statements company changed manner accounts sharebased compensation pension postretirement benefits 2006 internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company’s form 10k company maintained effective internal control financial reporting december 29 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 29 2006 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 27 2007 foster wheeler ltd subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ equitydeficit thousands dollars except share data see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data continued noncash financing activities april 2006 1277900 common shares exchanged 50000 aggregate principal amount 2011 senior notes see note 6 information regarding equityfordebt exchange 2005 71289 preferred shares converted 4637949 common shares resulting 1 reduction preferred share capital 46 increase common share capital 45 reduction paidin capital august 2005 5634464 common shares exchanged 65214 trust preferred securities see note 6 information regarding equityfordebt exchange november 2005 6026981 common shares exchanged 150003 2011 senior notes see note 6 information regarding equityfordebt exchange 2004 524460 preferred shares converted 34089900 common shares resulting 5 reduction preferred share capital 341 increase common share capital 336 reduction paidin capital september 2004 3062574 common shares 599944 preferred shares warrants purchase 6994059 common shares 147130 longterm debt exchanged 593102 existing debt trust preferred securities see note 6 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations fiscal years 2006 2005 included 52 weeks fiscal year 2004 included 53 weeks revisions prior period consolidated statements operations comprehensive incomeloss revised classify annual incentive bonus expense consistent classification underlying employees’ salary expense reclassify certain overhead expenses within selling general administrative expenses rather within cost operating revenues impact net loss previously reported consolidated statements operations comprehensive incomeloss consolidated balance sheets consolidated statements cash flows result revisions summary financial statement line items affected revisions presented reclassifications certain prior period consolidated statement cash flow amounts related sharebased compensation reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value less 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred include flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts numerous contracts various stages completion contracts require estimates determine cost revenue recognition estimates may revised time additional foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” financial accounting standards board “fasb” statement financial accounting standard “sfas” 154 “accounting changes error correctionsa replacement apb opinion 20 fasb statement 3” review material contracts monthly revise estimates appropriate estimate revisions include increases decreases estimated profit result events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle result review process 29 45 54 separate projects final estimated profit revisions exceeding 1000 fiscal years 2006 2005 2004 respectively changes final estimated profits resulted net decreaseincrease accrued profits 5670 99555 37641 fiscal years 2006 2005 2004 respectively claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs record claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process december 29 2006 consolidated financial statements assumed recovery commercial claims customers 3900 recorded consolidated balance sheet similarly december 30 2005 consolidated financial statements assumed recovery commercial claims customers 5700 recorded consolidated balance sheet requests equitable adjustment “reas” represents claims defined governmental customers account reas similar account commercial claims currently reas pending submitted certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract deferred precontract costs december 29 2006 december 30 2005 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 490934 298839 maintained foreign subsidiaries december 29 2006 december 30 2005 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly portion funds may readily available repatriation us entities trade accounts receivable trade accounts receivable represents amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history general economic trends also evaluated considering necessity provision contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 9466 7921 december 29 2006 december 30 2005 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held investments advances use equity method accounting affiliates investment ownership 20 50 unless significant economic considerations indicate cost method appropriate equity method also used affiliates investment ownership foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued greater 50 controlling interest currently significant investments affiliates consolidated recorded using equity method affiliates investment ownership less 20 carried cost intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years test impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 29 2006 december 30 2005 unamortized goodwill 51573 50982 respectively increase 591 goodwill resulted changes foreign currency translation rates goodwill related global power business group 2006 fair value reporting units exceeded carrying amounts december 29 2006 december 30 2005 unamortized identifiable intangible assets 62004 64066 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations comprehensive incomeloss totaled 3580 3570 3650 fiscal years 2006 2005 2004 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued provision made federal income taxes may payable foreign subsidiary earnings extent anticipate earnings permanently reinvested unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 152800 december 29 2006 practicable estimate additional tax would incurred amounts repatriated foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage exchange rates interest rate risk use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt certain affiliates equity interest also use interest rate swap contracts manage interest rate risk associated limited recourse project debt upon entering swap contracts designate interest rate swaps cash flow hedges accordance sfas 133 “accounting derivative instruments hedging activities” assess inception ongoing basis whether interest rate swaps highly effective offsetting changes fair value project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive incomeloss december 29 2006 545 recorded comprehensive incomeloss reflecting net income swap contracts net 203 tax expense restrictions shareholders’ dividends declared paid common share dividend since july 2001 prohibited paying dividends two prior senior credit agreements current credit agreement also contains limitations payment dividends earnings per common share basic diluted earningsloss per common share computed using net incomeloss attributable common shareholders rather total net income described note 13 completed two common share purchase warrant offer transactions january 2006 increased number common shares delivered upon exercise class b warrants offer period issued 373948 additional common shares result warrant offers since warrant holders necessarily common shareholders prior warrant offers issuance additional shares considered pro rata common share dividend common shareholders rather fair value additional shares treated preferential distribution subset common shareholders accordingly required reduce net income attributable common shareholders fair value additional common shares calculating earnings per common share fair value additional shares issued 19445 determined using common share price time issuance shares basic earningsloss per common share computed dividing net incomeloss attributable common shareholders weightedaverage number common shares outstanding reporting period excluding nonvested restricted common shares 329631 1111181 december 29 2006 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued december 30 2005 respectively restricted common shares restricted common share units included weightedaverage number common shares outstanding shares vest diluted earningsloss per common share computed dividing net incomeloss attributable common shareholders combination weightedaverage number common shares outstanding reporting period impact dilutive securities outstanding stock options warrants purchase common shares nonvested portion restricted common shares restricted common share units extent securities dilutive loss periods basic diluted loss per common share identical since effect potentially dilutive securities antidilutive therefore excluded calculations outstanding stock options warrants dilutive effect treasury stock method average market price common shares period exceeds assumed proceeds warrant option assumed proceeds calculated exercise price plus amount compensation cost future service yet recognized consolidated statement operations comprehensive incomeloss amount tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase common shares current period dilutive impact nonvested portion restricted common shares restricted common share units determined using treasury stock method includes using unrecognized compensation tax benefits assumed proceeds foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued computations basic diluted earningsloss per common share follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table summarizes potentially dilutive securities excluded denominator used calculation diluted earningsloss per common share due antidilutive effect sharebased compensation plans sharebased compensation plans described note 12 adopted provisions sfas 123r “sharebased payment” december 31 2005 first day fiscal year 2006 using modified prospective transition method sharebased compensation expense recognized consolidated statement operations comprehensive incomeloss fiscal year 2006 includes compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 “accounting stockbased compensation” recognize compensation expense sharebased payment awards granted december 30 2005 based grant date fair value estimated accordance provisions sfas 123r elected use modified prospective transition method results prior periods restated prior adoption sfas 123r sharebased employee compensation expense related stock options recognized consolidated statement operations comprehensive incomeloss exercise price option least equal market price common stock grant date accordance measurement recognition provisions accounting principles board “apb” opinion 25 “accounting stock issued employees” permitted sfas 123 result recognition sharebased compensation expense generally limited expense attributed restricted stock awards accordance sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” provided pro forma net income loss net earnings loss per common share disclosures period prior adoption sfas 123r applied fair valuebased method measuring compensation expense sharebased compensation plans including stock options compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 net loss attributable foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued common shareholders basic diluted loss per common share fiscal years 2005 2004 would follows fair value option award estimated date grant using blackscholes option valuation model recognize fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common shares date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term options granted chief executive officer based combination vesting schedules life option past history estimates future exercise behavior patterns employees estimate expected term using “simplified” method outlined staff accounting bulletin 107 “topic 14 sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected life options effect time grant • dividends use expected dividend yield zero declared paid dividend since july 2001 • forfeitures estimate forfeitures time grant revise estimates subsequent periods actual forfeitures differ estimates use combination historical data demographic characteristics estimate prevesting option forfeitures record sharebased compensation expense awards expected vest purposes calculating pro forma information sfas 123 periods prior december 31 2005 accounted forfeitures occurred cumulative effect adjustment related forfeitures upon adoption sfas 123r immaterial foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued used following weightedaverage assumptions estimate fair value options granted periods indicated fair value restricted awards determined using market price common shares date grant recognize fair value restricted award compensation cost ratably using straightline attribution method service period generally vesting period recent accounting developments february 2006 fasb issued sfas 155 “accounting certain hybrid instruments” amends sfas 133 sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 allows financial instruments embedded derivatives accounted whole eliminating need bifurcate derivative host holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued fiscal years beginning september 15 2006 expect adoption new standard material impact financial position results operations cash flows july 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty tax positions requires recognize financial statements impact tax position likely sustained audit based technical merits position provisions fin 48 effective fiscal years beginning december 15 2006 cumulative effect change accounting principle recorded adjustment opening retained earnings substantially completed review impact financial statements adopting fin 48 commencing fiscal year 2007 expect record charge fiscal 2007 opening accumulated deficit approximately 3000 6000 result adoption september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective financial statements issued fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities choose measure many financial instruments certain items fair value currently required measured fair value unrealized gains losses items fair value option elected reported earnings sfas 159 affect existing accounting literature requires certain assets liabilities carried fair value sfas 159 effective fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 2 business combination april 7 2006 completed purchase remaining 51 interest mf power company 49 owned us prior acquisition 100 equity interests mf power renamed fw power srl “fw power” fw power dedicated development construction operation electric power generating wind farm projects italy accordance terms purchase agreement required pay purchase price 16393 12580 approximately 15200 exchange rate effect time payment paid closing 3813 approximately 5000 current exchange rate due upon start construction one three wind farms developed fw power purchase price also subject adjustments based receipt fw power additional grants italian government currently expecting make additional payment 3130 approximately 4100 current exchange rate acquisition accounted using purchase method accounting accordingly purchase price allocated assets acquired liabilities assumed based estimated fair value assets liabilities april 7 2006 following table summarizes fair value assets acquired liabilities assumed date acquisition inclusive previously owned 49 interest fw power pro forma financial information presented since impact acquisition fw power consolidated financial position results operations material foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 3 accounts notes receivable following table shows components trade accounts notes receivable following table shows components nontrade accounts notes receivable 4 land buildings equipment land buildings equipment stated cost set forth foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment continued depreciation expense fiscal years 2006 2005 2004 26191 23982 28447 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile two electric power generation projects italy 42 owned us wastetoenergy project 39 owned us wind farm project 50 owned us project chile 85 owned us however controlling interest chilean project following summarized financial information assuming 100 ownership interest entities equity interest share net earnings equity affiliates recorded within income consolidated statement operations comprehensive incomeloss totaled 26640 24129 20636 fiscal years 2006 2005 2004 respectively investment equity affiliates recorded within investments advances consolidated balance sheet totaled 150752 140723 december 29 2006 december 30 2005 respectively dividends 18149 18272 9221 received fiscal years 2006 2005 2004 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 equity interests continued third quarter 2006 majority owners certain build operate projects italy sold interests another thirdparty prior sale share earnings minority interests projects reported pretax basis consolidated income associated taxes reported consolidated provision income taxes partners elected passthrough taxation treatment local law direct result ownership change arising sale subject entities precluded electing passthrough taxation treatment result commencing third quarter 2006 reported share related aftertax earnings consolidated income change recorded fiscal year 2006 reduced consolidated income consolidated provision taxes 8600 also third quarter 2006 made investment specialpurpose entity italy dedicated development construction operation wind farm italy evaluated investment fasb interpretation 46r “consolidation variable interest entities” concluded entity variable interest entity primary beneficiary included share net earnings specialpurpose entity consolidated financial statements reevaluate conclusion specialpurpose entity secured project financing expected occur first second quarter 2007 future triggering event guaranteed certain performance obligations chilean project contingent obligation measured annually based operating results chilean project preceding year obligation guarantee december 29 2006 december 30 2005 obligation guarantee 460 paid 2006 also contingent guarantee supports obligations subsidiary chilean project’s operations maintenance agreement guarantee limited 20000 life operations maintenance agreement extends 2016 date amounts paid contingent guarantee addition provided 10000 debt service reserve letter credit cover debt service payments event chilean project generate sufficient cash flow make payments required maintain debt service letter credit term chilean project’s debt matures 2014 date amounts drawn reserve letter credit undistributed retained earnings equity investees amounted 57666 72407 december 29 2006 december 30 2005 respectively 6 equityfordebt exchanges april 2006 consummated offer exchange 1277900 common shares 50000 outstanding aggregate principal amount 2011 senior notes exchange reduced carrying value 2011 senior notes 51648 representing aggregate principal amount plus corresponding premium improved shareholders’ equitydeficit 50567 exchange resulted 58763 increase common stock paidin capital partially offset 8196 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange november 2005 completed offer exchange 6026981 common shares 150003 outstanding aggregate principal amount 2011 senior notes exchange reduced carrying value 2011 senior notes 155299 representing aggregate principal amount plus corresponding foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 equityfordebt exchanges continued premium improved shareholders’ equitydeficit 151076 exchange resulted 167909 increase common stock paidin capital partially offset 16833 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange concurrent exchange offer also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein august 2005 completed offer exchange common shares portion trust preferred securities trust preferred securities 2608548 tendered part exchange resulting issuance 5634464 common shares exchange reduced aggregate liquidation amount existing trust preferred securities 65214 reduced amount deferred accrued interest 26052 improved shareholders’ equitydeficit 87571 exchange resulted increase common stock paidin capital totaling 129084 partially offset 41513 charge income pretax charge substantially noncash related primarily difference carrying value trust preferred securities including deferred accrued interest market price common shares closing date exchange september 2004 consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new senior notes exchange certain outstanding debt securities trust preferred securities exchange reduced existing debt 437041 reduced deferred accrued interest 31128 improved shareholders’ equitydeficit 448136 combined proceeds issuance new senior notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 exchange offer resulted aggregate 623190 increase capital stock paidin capital partially offset 175054 charge income pretax charge substantially noncash related primarily exchange convertible notes tendered exchange offer foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt following table shows components longterm debt facilities domestic senior credit agreement october 2006 closed new 350000 fiveyear domestic senior credit agreement replaced domestic senior credit agreement arranged 2005 new domestic senior credit agreement includes 350000 letter credit facility portion letters credit issued new domestic senior credit agreement performance pricing decreased increased result improvements reductions credit rating new domestic senior credit agreement reported moody’s andor standard poors also option use 100000 350000 revolving borrowings rate equal libor plus 2 subject also performance pricing noted also 10000 sublimit swingline loans permits borrowings short notice paid 5710 fees expenses conjunction execution new senior credit agreement fourth quarter 2006 fees expenses amortized expense fiveyear term agreement commencing fourth quarter 2006 assets andor stock certain domestic foreign subsidiaries collateralize obligations new domestic senior credit agreement new domestic senior credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ltd change foster wheeler ltd’s fiscal year foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued respect foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business addition new domestic senior credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined new domestic senior credit agreement also limits aggregate amount capital expenditures single fiscal year 40000 subject certain exceptions must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions new domestic senior credit agreement 189036 letters credit outstanding agreement december 29 2006 letter credit fees range 175 210 outstanding amount funded borrowings outstanding december 29 2006 prior domestic senior credit agreement march 2005 entered fiveyear 250000 senior credit agreement noted voluntarily replaced senior credit agreement october 2006 fiscal year 2006 paid prepayment fee 5000 result early termination agreement 467 termination fees expenses addition early termination also resulted impairment 9488 unamortized fees expenses paid 2005 associated agreement total recorded charge 14955 fiscal year 2006 connection termination agreement 131642 letters credit outstanding agreement december 30 2005 funded borrowings outstanding december 30 2005 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited guaranteeing operating performance projects camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey result fw power acquisition consummated april 7 2006 consolidate specialpurpose limited recourse project debt fw power see note 2 information regarding fw power acquisition fw power debt represents borrowings two credit facilities base facility valueadded tax “vat” facility base facility bears interest variable rate based upon 6month euribor plus 15 repayable semiannually based upon predefined payment schedule june 30 2015 vat facility bears interest variable rate based upon 6month euribor plus 09 repayable semiannually based upon actual vat received commercial operation december 31 2010 notes collateralized certain revenues assets fw power owner certain electric power generating wind farms italy total borrowing capacity credit facilities 22534 approximately 29700 current exchange rate aggregate executed interest rate swap contracts effectively convert approximately 76 base facility fixed interest rate 51 swap contracts place life facility see note 1 “summary significant accounting policies interest rate risk” accounting policy related interest rate swap contracts interest rates vat facility portion base facility foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued subject interest rate swap contracts 4735 5335 respectively december 29 2006 foster wheeler coque verde debt bears interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile martinez cogen limited partnership debt represented note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varied based one several money market rates due semiannually july 30 2006 repaid note scheduled maturity date july 30 2006 capital leases entered series capital leases primarily office buildings assets capital leases summarized follows following minimum lease payments made years indicated capital lease obligations december 29 2006 subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued september 2004 completed offer exchange common shares preferred shares 93721 robbins bonds see note 6 information intermediate term loans china 603 interest “intermediate term loans” 2005 one chinese subsidiaries 52 owned us consolidate financial statements entered two intermediate term loans intermediate term loans bear interest 603 due repaid 2008 convertible subordinated notes 650 interest due june 1 2007 “convertible notes” may june 2001 issued convertible notes aggregate principal amount 210000 convertible notes due june 1 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 convertible notes subordinated right payment existing future senior indebtedness convertible notes convertible common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances september 2004 completed offer exchange common shares preferred shares 206930 convertible notes see note 6 information june 2006 executed open market purchase 1000 outstanding aggregate principal amount convertible notes senior notes 10359 interest due september 15 2011 series “2011 senior notes” 2004 issued 261471 aggregate principal amount 2011 senior notes bearing interest fixed rate 10359 per annum payable semiannually arrears maturing september 15 2011 conjunction issuance 2011 senior notes recorded premium 5659 since fair value 2011 senior notes 104 principal result premium effective interest rate 2011 senior notes 95602 november 2005 completed offer exchange common shares 150003 outstanding aggregate principal amount 2011 senior notes reduced aggregate carrying value 2011 senior notes 155299 april 2006 consummated another exchange common shares 50000 outstanding aggregate principal amount 2011 senior notes reduced aggregate carrying value 2011 senior notes 51648 see note 6 information related exchange offers may 2006 redeemed cash remaining 61468 outstanding aggregate principal amount 2011 senior notes recorded net charge 3914 redemption transaction fiscal year 2006 resulting primarily makewhole payment 5613 writeoff deferred charges 307 partially offset writeoff unamortized premium 2006 subordinated deferrable interest debentures 1999 fw preferred capital trust “capital trust” 100 indirectlyowned finance subsidiary foster wheeler ltd consummated 175000 public offering 7000000 trust preferred securities capital trust invested proceeds sale trust preferred securities equal principal amount 9 subordinated deferrable interest debentures foster wheeler llc due january 15 2029 september 2004 completed offer exchange common shares preferred shares warrants purchase common shares 103823 trust preferred securities 31128 accrued unpaid interest subsequently august 2005 completed another offer exchange common shares 65214 trust preferred securities 26052 accrued unpaid interest see note 6 information related exchange offers foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued may 2006 redeemed remaining 5963 outstanding aggregate principal amount trust preferred securities paid accrued unpaid interest 3029 recorded net charge 200 redemption transaction fiscal year 2006 resulting writeoff deferred charges exchange transactions redemption resulted corresponding reduction outstanding subordinated deferrable interest debentures deferred accrued interest costs interest costs incurred fiscal years 2006 2005 2004 24944 50618 94622 respectively aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows 8 pensions postretirement benefits defined benefit pension plans united states united kingdom canada finland france postretirement benefit plans health care life insurance benefits united states canada also defined contribution plans united states united kingdom finally certain benefit plans including government mandated postretirement programs adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 required us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet december 29 2006 sfas 158 also requires us recognize gains losses arise future periods recognized component annual service cost component comprehensive incomeloss net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset component accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans cover certain fulltime employees plans retirement benefits primarily function years service level foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued compensation us plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory defined benefit pension obligation funded status following table shows components defined benefit pension obligation defined benefit pension obligation recognized consolidated balance sheet part prior adoption sfas 158 recorded estimated employer contributions paid next twelve months current portion net pension obligation upon adoption sfas 158 current portion underfunded plans united states united kingdom canada zero since foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued actuarial present value benefits included net pension obligation next twelve months exceed fair value plan assets underfunded plans accordance adoption sfas 158 recorded funded status defined benefit pension plans consolidated balance sheet december 29 2006 december 29 2006 net actuarial losses 393718 prior service costs 38631 net transition asset 85 recognized accumulated comprehensive loss net taxes 108752 consolidated balance sheet also net actuarial losses 672 related pension plan equity investee recognized accumulated comprehensive loss net 0 taxes consolidated balance sheet december 29 2006 estimated net actuarial loss prior service cost net transition asset amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 20704 5103 23 respectively provisions sfas 158 could applied retrospectively following items reconcile funded status defined benefit pension plans december 30 2005 amount recorded consolidated balance sheet accumulated benefit obligation aggregated accumulated benefit obligation defined benefit pension plans 1134254 992023 december 29 2006 december 30 2005 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued components net periodic benefit cost following table shows components net periodic benefit cost charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement obligations former employees united kingdom canada 297 2006 settlement obligations former employees finland former executives supplemental executive retirement plan “serp” 290 2005 settlement obligations former executives serp 1390 2004 investment policy defined benefit pension plans united states united kingdom canada governed written investment policy investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 625 775 equities 225 325 bonds 0 5 cash currently reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments investment policy uk plans designed improve ongoing funding level plans gradually time changing mix investment allocation equities bonds fully match liabilities plans bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash pension plans finland france plan assets longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 75 72 past three years contributions expect contribute total approximately 20400 us pension plans approximately 33400 foreign pension plans 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued estimated future benefit payments expect make following benefit payments defined benefit pension plans postretirement benefit plans certain employees united states canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined pension plan working foster wheeler certain benefits provided insurance companies additionally one subsidiaries united states also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan accounted sfas 112 “employer’s accounting postemployment benefits” closed new entrants since 1988 total liabilities sip 16383 23300 december 29 2006 december 30 2005 respectively reflected postretirement benefit obligation funded status information obligation measured using provisions sfas 106 “employers’ accounting postretirement benefits pensions” amended sfas 158 benefit assets sip reflect cash surrender value insurance polices purchased cover obligations sip totaled 5135 5285 december 29 2006 december 30 2005 respectively benefit assets recorded assets consolidated balance sheet reflected postretirement benefit obligation funded status information foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued postretirement benefit obligation funded status following table shows components postretirement benefit obligation postretirement benefit obligation recognized consolidated balance sheet part noted accordance adoption sfas 158 recorded funded status postretirement benefit plans consolidated balance sheet december 29 2006 december 29 2006 net actuarial losses 25253 prior service credits 48309 recognized accumulated comprehensive loss net 0 taxes consolidated balance sheet estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 1630 4760 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued provisions sfas 158 could applied retrospectively following items reconcile funded status defined postretirement benefit plans december 30 2005 amount recorded consolidated balance sheet components net periodic postretirement benefit cost following table shows components net periodic postretirement benefit cost assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued contributions expect contribute total approximately 8631 postretirement benefit plans 2007 net health care subsidy estimated future postretirement benefit payments expect make following postretirement benefit payments impact adoption sfas 158 following table summarizes impact adoption sfas 158 december 29 2006 consolidated balance sheet defined contribution plans us subsidiaries 401k plan salaried employees contribute 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit 401k plan also provision discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors fiscal year 2006 us subsidiaries paid discretionary employer contribution 401k plan total us subsidiaries contributed 4325 2813 3317 401k plan fiscal years 2006 2005 2004 respectively effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years’ membership fund matched employee termination two years’ service employee may receive balance foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 1179 479 205 fiscal years 2006 2005 2004 respectively defined contribution plan benefits certain foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 30001 25529 recorded within pension postretirement employee benefits consolidated balance sheet december 29 2006 december 30 2005 respectively related benefits 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification provide warranty reserves certain longterm contracts generally warranty reserves accrued life contract sufficient balance maintained cover exposures conclusion project 10 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash restricted cash shortterm investments carrying value cash restricted cash shortterm investments approximates fair value shortterm maturity instruments longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency contracts estimate fair value foreign currency contracts used hedging purposes obtaining quotes financial institutions foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 financial instruments risk management continued interest rate swaps estimate fair value interest rate swaps based quoted market prices carrying amounts fair values estimated fair values financial instruments follows contingently liable performance standby letters credit bank guarantees surety bonds totaling 646700 551900 december 29 2006 december 30 2005 respectively balances include standby letters credit issued senior credit agreement discussed note 7 facilities worldwide based upon past experience material claims made financial instruments expect material losses result offbalancesheet instruments therefore believe fair value instruments zero december 29 2006 228943 foreign currency contracts outstanding foreign currency contracts mature 2007 2009 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 29 2006 december 30 2005 significant concentrations credit risk provided thirdparty financial guarantee totaling 2500 2750 december 29 2006 december 30 2005 respectively respect partnership interest commercial real estate project 11 preferred shares issued 599944 preferred shares connection 2004 equityfordebt exchange approximately 3658 preferred shares outstanding december 29 2006 preferred share convertible holder’s option 65 common shares approximately 238265 additional common shares outstanding preferred shares converted preferred shareholders voting rights except certain limited circumstances preferred shares right receive dividends distributions including liquidating distributions asconverted basis declared paid common shares preferred shares 001 liquidation preference per share foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans sharebased compensation plans include restricted stock awards stock option awards compensation cost sharebased plans 16474 8919 1724 charged income fiscal years 2006 2005 2004 respectively related income tax benefit recognized consolidated statement operations comprehensive incomeloss 323 348 72 fiscal years 2006 2005 2004 respectively received 17595 1200 cash option exercises sharebased compensation plans fiscal years 2006 2005 respectively options exercised fiscal year 2004 may 9 2006 shareholders approved new omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted stock units performancecontingent shares performancecontingent units cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaces prior stock plans options equitybased awards granted sharebased compensation plans noted maximum number shares stock options restricted stock awards may granted omnibus plan 4780000 shares plus shares become available issuance pursuant terms awards previously granted noted compensation plans except inducement awards outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 5000000 shares awarded pursuant omnibus plan issued authorized unissued common shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards issued omnibus plan temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance fasb emerging issues task force topic d98 “classification measurement redeemable securities” adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity stock option awards september 2004 board directors adopted 2004 stock option plan “2004 plan” reserved 3667365 common shares issuance 2004 plan provided shares issued come authorized unissued common shares board directors determined price options granted pursuant 2004 plan options granted 2004 plan expire maximum three years date granted noted awards granted 2004 plan october 2001 granted 65000 inducement options exercise price 9970 per share chief executive officer connection employment agreement september 2002 granted 50000 options exercise price 3280 per share based upon amendment employment agreement options granted 2001 vested 20 year term agreement options granted 2002 vested onefortyeighth 148 date grant 148 first day successive month thereafter price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued november 2002 granted 12750 inducement options exercise price 2980 per share former president chief executive officer foster wheeler north america corp connection employment agreement december 2003 granted 5000 inducement options exercise price 2410 per share inducement options granted 2002 vest ratably five years inducement options granted 2003 vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted connection departure foster wheeler 5100 inducement options granted 2002 2500 inducement options granted 2003 canceled effective june 16 2006 april 1995 shareholders approved 1995 stock option plan “1995 plan” 1995 plan amended april 1999 may 2002 reserved 265000 common shares issuance 1995 plan provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant 1995 plan could exercised within one year date grant option exercised ten years date granted noted awards granted 1995 plan april 1990 shareholders approved stock option plan directors foster wheeler “directors plan” april 29 1997 shareholders approved amendment directors plan authorized granting options purchase 20000 shares common stock nonemployee directors foster wheeler directors plan provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant directors plan could exercised within one year date grant option exercised ten years date granted noted awards granted directors plan summary stock option activity fiscal years 2006 2005 2004 presented foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued following table summarizes outstanding stock options december 29 2006 following table summarizes exercisable stock options december 29 2006 calculated intrinsic value options exercise price lower market price common shares december 29 2006 aggregate intrinsic value outstanding options exercisable options december 29 2006 calculated difference market price common shares exercise price underlying options exercise price lower market price common shares date total intrinsic value options exercised fiscal years 2006 2005 49601 2793 determined date exercise options exercised fiscal year 2004 december 29 2006 8332 total unrecognized compensation cost related stock options cost expected recognized weightedaverage period approximately 33 months restricted stock awards september 2004 board directors adopted management restricted stock plan “restricted stock plan” reserved 1958634 common shares issuance restricted awards granted pursuant restricted stock plan could form restricted common shares restricted foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued share units restricted shares immediate voting rights restricted share units gave holders voting rights upon vesting restricted awards provided issued shares may sold otherwise transferred restrictions lapse restricted stock plan provides shares issued come authorized unissued common shares board directors determined terms conditions awards granted pursuant restricted stock plan noted awards granted restricted stock plan summary restricted common share activity fiscal years 2006 2005 2004 presented summary restricted share unit activity fiscal years 2006 2005 2004 presented december 29 2006 9136 total unrecognized compensation cost related restricted awards cost expected recognized weightedaverage period approximately 33 months total fair value restricted awards vested fiscal years 2006 2005 47085 7309 respectively restricted awards vested fiscal year 2004 impact adoption sfas 123r adopted provisions sfas 123r december 31 2005 first day fiscal year 2006 see note 1 information regarding adoption sfas 123r following table summarizes foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued sharebased compensation expense stock options recorded accordance sfas 123r fiscal year 2006 prior adoption sfas 123r presented unearned compensation separate component shareholders’ equitydeficit accordance provisions sfas 123r reclassified balance unearned compensation paidin capital consolidated balance sheet december 31 2005 prior adoption sfas 123r presented tax benefits deductions resulting exercise stock options operating cash inflows statement cash flows sfas 123r requires cash flows resulting tax benefits tax deductions excess compensation expense recorded options classified financing cash inflows accordingly classified 2796 excess tax benefits financing cash inflows rather operating cash inflows consolidated statement cash flows fiscal year 2006 13 common share purchase warrants connection equityfordebt exchange consummated 2004 issued 4152914 class common share purchase warrants 40771560 class b common share purchase warrants class warrant entitles owner purchase 16841 common shares exercise price 9378 per common share thereunder subject terms warrant agreement warrant agent us class warrants exercisable september 24 2009 class b warrant entitles owner purchase 00723 common shares exercise price 9378 per common share thereunder subject terms conditions warrant agreement warrant agent us class b warrants exercisable september 24 2007 january 2006 completed transactions increased number common shares delivered upon exercise class b common share purchase warrants offer period raised 75336 net proceeds exercise price per warrant increased offers holders approximately 95 class warrants 57 class b warrants participated offers resulting aggregate issuance approximately 8403500 common shares including abovenoted warrant transactions 3944296 class warrants 26308941 class b warrants exercised 8918886 common shares aggregate december 29 2006 number common shares issuable upon exercise remaining outstanding class warrants class b warrants approximately 1396981 december 29 2006 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 common share purchase warrants continued holders class b warrants entitled vote receive dividends exercise rights common shareholders purpose warrants duly exercised currently maintain intend continue maintain times warrants exercisable “shelf” registration statement relating issuance common shares underlying warrants benefit warrant holders subject terms registration rights agreement registration statement became effective december 28 2005 14 accumulated comprehensive loss components accumulated comprehensive loss 15 income taxes components incomeloss income taxes fiscal years 2006 2005 2004 following tax jurisdictions foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued provision income taxes follows deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire 2012 reflected recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued carryforward period changed prior periods reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely deferred tax assets would realized fourth quarter 2006 reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized jurisdictions improved operational performance us net asbestosrelated gains resulted reduction less full reversal valuation allowance however reduction offset need increase valuation allowance primarily deferred state income taxes us addition increased valuation allowance certain nonus jurisdictions continue experience evidence deferred tax assets may realized result valuation allowance increased 52861 2006 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws part overall reorganization took place may 2001 transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however transfer subject tax us required sfas 109 us tax charge gain reported deferred charge assets consolidated balance sheet amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 16 derivative financial instruments maintain foreign currency riskmanagement strategy uses foreign exchange contracts protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates functional currencies subsidiaries underlying foreign currency exposure utilize foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 fiscal years 2006 2005 2004 meet requirements deferral foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 derivative financial instruments continued sfas 133 accordingly recorded pretax foreign exchange gain 7610 fiscal year 2006 pretax foreign exchange losses 3933 2900 fiscal years 2005 2004 respectively amounts recorded following line items consolidated statement operations comprehensive incomeloss periods indicated mark market adjustments foreign exchange contracts unrealized gains losses recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet fiscal years 2006 2005 2004 included cash inflows realized gains derivatives 2035 707 18013 respectively within increase decrease contracts process operating activities section consolidated statement cash flows exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 29 2006 94551 owed us counterparties 134392 owed us counterparties maximum term hedging exposure variability cash flows 12 months 17 business segments operate two business groups also constitute separate reportable segments global engineering construction group refer global ec group global power group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology healthcare facilities related infrastructure including power generation distribution facilities global ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers contractors global ec group owns one leading refinery residue upgrading technologies hydrogen production process used oil refineries petrochemical plants additionally global ec group experience able work wide range processes owned others global ec group performs environmental remediation services together related technical engineering design regulatory services global ec group also involved development engineering construction ownership power generation wastetoenergy facilities italy global ec group generates revenues engineering construction activities pursuant contracts spanning four years duration operating activities pursuant longterm sale project outputs electricity returns equity investments various production facilities global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial facilities worldwide steam generating equipment includes full range technologies offering utility industrial clients highvalue solutions economically converting wide range fuels including coal petroleum coke oil gas biomass municipal solid foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued waste steam power circulating fluidizedbed boiler technology refer cfb ideally suited burning wide range fuels including lowquality fuels high moisture content “wastetype” fuels recognized one cleanest solidfuel steam generating technologies world utility cfb pulverized coal boilers offer supercritical oncethroughunit technology option ultraclean applications oncethrough supercritical boilers operate higher temperatures pressures traditional plants results higher efficiencies lower emissions auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners also provide broad range site services relating products including construction erection services maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group generates revenues engineering activities equipment supply construction contracts royalties licensing technology operating activities pursuant longterm sale project outputs electricity steam operating maintenance agreements returns equity investments various production facilities addition corporate center expenses corporate debt expenses corporate expenses related certain legacy liabilities asbestos reported independently corporate finance group “cf group” conduct business global basis global ec group accounted largest portion operating revenues last ten years fiscal year 2006 global ec group accounted 63 total operating revenues global power group accounted 37 total operating revenues geographic dispersion operating revenues fiscal year 2006 based upon project executed follows use several financial metrics measure performance business segments ebitda primary earnings measure used chief decision makers except one client accounted approximately 13 consolidated revenues fiscal year 2006 single client accounted ten percent consolidated revenues fiscal years 2006 2005 2004 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate insurance receivables 1 includes general corporate income expense captive insurance operation eliminations 2 includes fiscal year 2006 decreasedincreased contract profit 5670 regular reevaluation contract profit estimates 14720 global ec group 20390 global power foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued group net asbestosrelated gains 100131 recorded cf group aggregate charge 14955 recorded cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12483 recorded cf group conjunction debt reduction initiatives completed april may 2006 3 includes fiscal year 2005 increased contract profit 99555 regular reevaluation contract profit estimates 66274 global ec group 33281 global power group charge 113680 cf group revaluation estimated asbestos liability asbestos insurance receivable credit agreement costs cf group associated prior senior credit facility 3500 aggregate charge 58346 cf group recorded conjunction exchange offers trust preferred securities 2011 senior notes exchange offers 4 includes fiscal year 2004 increaseddecreased contract profit 37641 regular reevaluation contract profit estimates 83231 global ec group 45590 global power group gain 19200 global ec group sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 global ec group sale 10 equity interest wastetoenergy project italy charge 75800 cf group revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf group settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf group net charge 175054 cf group recorded conjunction 2004 equityfordebt exchange charges severance cost 5700 2900 global ec group 1900 global power group 900 cf group revenues presented based country contracting subsidiary located location client job site foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued longlived assets presented based country contracting subsidiary located operating revenues industry follows 18 sale certain business assets 2004 sold domestic corporate office building net cash proceeds 16400 approximated carrying value amount 50 prepaid previous senior credit facility’s lenders second quarter 2004 previously recorded impairment loss 15100 building 2003 anticipation sale accordance sfas 144 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 18 sale certain business assets continued 2004 sold minority equity interests specialpurpose companies established develop power plant projects europe recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 also entered binding agreement sell 10 equity interest wastetoenergy project italy sale closed april 2005 recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss 19 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases 37634 32601 34048 fiscal years 2006 2005 2004 respectively future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4168 4124 4135 fiscal years 2006 2005 2004 respectively december 29 2006 december 30 2005 balance deferred gains 68331 64255 respectively included longterm liabilities consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 20 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued united states summary us claim activity follows 1 claims resolved fiscal year 2006 include court dismissals without payment mass claim filings approximating 22900 claims 2 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items 135890 claims subsidiaries respondents approximately 33095 open administrative claims named defendants lawsuits involving approximately 102795 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis open lawsuits approximately 79 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed approximately 7 request damages ranging 10 50 approximately 11 request damages ranging 51 1000 approximately 2 request damages ranging 1001 10000 remaining 1 request damages ranging 10001 small number cases 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated yearend 2021 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued since yearend 2004 worked analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs following 15year period set forth arpc reviews asbestos indemnity payments defense costs claims activity previous year compares 15year forecast prepared previous yearend based review arpc may recommend assumptions used estimate future asbestos liability following 15year period updated appropriate amount spent asbestos litigation defense case resolution 83300 83800 100200 fiscal years 2006 2005 2004 respectively december 29 2006 total cumulative indemnity costs paid approximately 574600 total cumulative defense costs paid approximately 212400 overall average combined indemnity defense cost per resolved claim approximately 24 average cost per resolved claim increasing believe continue increase future december 29 2006 total asbestosrelated liabilities comprised estimated liability 203500 relating open outstanding claims valued estimated liability 262500 relating future unasserted claims yearend 2021 2006 average indemnity amounts paid mesothelioma lung cancer claims higher forecast amounts paid disease claims lower forecast factors increased indemnity costs offset higher forecasted rates dismissals claims zero indemnity payments based review fiscal year 2006 activity arpc recommended assumptions used estimate future asbestos liability following 15 years updated yearend 2006 accordingly worked arpc develop revised estimate indemnity defense costs yearend 2021 fourth quarter 2006 increased liability asbestos indemnity defense costs yearend 2021 466000 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 15600 fourth quarter 2006 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability includes estimate forecasted indemnity amounts forecasted defense costs total estimated defense costs indemnity liability estimated incurred year 2021 period new claims foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued forecasted decline year believe likely new claims filed 2021 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2021 historically defense costs represented approximately 27 total defense indemnity costs asbestosrelated asset amount recorded within accounts notes receivable december 29 2006 reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements amount recorded asbestosrelated insurance recovery receivable includes estimate recoveries unsettled insurers insurance coverage litigation referred based upon assumptions relating cost allocation application new jersey law certain insurance coverage issues factors well estimate amount recoveries existing settlements insurers since yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimate allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset yearend 2006 utilized analysis determine estimate value unsettled insurance asset december 29 2006 estimated value asbestos insurance asset contested subsidiaries’ insurers ongoing litigation 32700 litigation relates amounts insurance coverage available asbestosrelated claims new york state court proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred second quarter 2006 subsidiaries reached agreement settle disputed asbestos silicarelated insurance coverage one insurers settlement generally provides payments 25year period exchange release subsidiaries past present future asbestos silicarelated claims insurer’s policies agreement subsidiaries dismiss insurer coverage litigation agreement subsidiaries indemnify insurer claims asserted released claims third quarter 2006 also settled three additional insurers result settlements recorded gain 96200 fiscal year 2006 fiscal year 2006 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers result increased insurance asset recorded gain 19500 fiscal year 2006 february 13 2007 subsidiaries’ insurers granted permission appellate court appeal decision favor new york court appeal foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued intend continue attempt negotiate additional settlements achievable reasonable basis order minimize amount future costs would required fund cash flow generated operations unless settle remaining unsettled insurance recoveries available amounts significantly excess current estimate likely amount insurance settlements cover future asbestosrelated costs required fund portion future costs reduce cash flow working capital even coverage litigation resolved manner favorable us insurance recoveries litigation settlements may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers also may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving material amounts insurers could material adverse effect financial condition cash flow increase 25 average indemnity settlement amount would increase liability 81200 impact expense would dependent upon available insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 60 70 increase liability longterm cash flow would ultimately change amount increase estimated liability excess 25 percentage insurance recovery decline net positive cash inflow 6500 fiscal year 2006 asbestos management program net cash inflow represents excess cash receipts existing insurance settlements indemnity payments defense costs expect fund 32300 asbestos liability indemnity defense costs cash flow fiscal year 2007 net cash expected received existing insurance settlements estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestos insurance liability asbestos insurance receivable recorded balance sheet decrease asbestos trust fund legislation proposed us senate last congressional session proposed legislation reintroduced current us congress become law forecasted payment obligations would change would receive payments future costs insurance settlement agreements could used us contributions trust fund recent form legislation considered senate 2006 annual contributions national trust fund 30 years lieu liability asbestos claims would limited would contribute lesser 5 annual adjusted cash flow defined legislation subject certain aggregate caps minimums 19250 estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 824 claims brought uk subsidiaries 330 remained open december 29 2006 none settled claims resulted material costs us december 29 2006 recorded total liabilities 35800 comprised estimated liability relating open outstanding claims 6600 estimated liability relating future unasserted claims yearend 2021 29200 total 2200 recorded accrued expenses 33600 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 2200 recorded accounts notes receivableother 33600 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability asset estimates based uk court appeal ruling pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed asbestos liability asset recorded uk would approximate 57600 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur writedown charge earnings extent reserve established matter accounts addition matters described arbitration commenced us arising compact circulating fluidizedbed boiler engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations us relief granted could compelled reimburse client purchase price paid 25700 addition damages yet quantified vigorously defending case counterclaimed unpaid receivables 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration procedurally liability damages portions case separated hearing liability portion concluded june 2006 posthearing briefs followed oral argument taken place parties awaiting decision liability case dismissed following arbitration panel’s liability determination final award expected 2008 premature predict outcome proceeding arbitration also commenced us respect thermal electric power plant south america designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 arbitration hearing currently underway vigorously defending claim premature predict outcome matter foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued commenced arbitration client connection two power plants designed built eastern europe dispute primarily concerns whether liquidated damages “lds” due client contract delayed completion projects client contends owed lds limited contract approximately 37600 approximately 49600 current exchange rate retaining security lds approximately 22000 approximately 29000 current exchange rate contract payments otherwise due us work performed client contends owed additional 6900 approximately 9100 current exchange rate cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects cost various warranty repairs punch list work seeking payment 22000 approximately 29000 current exchange rate recorded within contracts process consolidated balance sheet retention held client lds plus approximately 4900 approximately 6500 current exchange rate interest retained funds well approximately 9100 approximately 12000 current exchange rate additional compensation extra work performed beyond original scope contracts client’s failure procure required property insurance project provided coverage damages incurred project related turbine repairs matter early stages accordingly premature predict outcome matter also dispute arisen client arising material corrosion occurring two power plants designed built ireland boilers plants designed burn milled peat primary fuel supplied different local sources calcium peat supplied exceeds range specified contract position outofspecification fuel causing corrosion boiler tubes working client identified technical solution designed ameliorate corrosive effects outofspecification fuel process implementing advised client intend submit claim cost corrective work address corrosion resulting outofspecification fuel also advised client responsible availability guaranty expressly subject client’s provision specified fuel liquidated damages associated problem could amount contract cap lds 17500 approximately 23100 current exchange rate corrective work plants conducted mutual reservation rights client addition lds event availability either plants average best two first three years operation 80 client may entitled certain remedies significant would right reject plants seek reimbursement 351000 contract price paid plants approximately 463300 current exchange rate plus restoration costs sites client alleged least one plants failed meet availability guarantee first year operation disputed calculation parties agreed defer discussion commercial issues pertaining problem event parties able resolve issues amicably contract provides arbitration conducted institution engineers ireland arbitration procedure also corrosion occurring subcontractorprovided emissions control equipment induction fans back end power plants cause back end corrosion investigation currently believe principally due low design set point temperature emissions control equipment fixed subcontractor believe subcontractor would responsible although may direct responsibility client epc contract extent incur costs correcting issues intend pursue claims subcontractor believe back end corrective work impact availability guaranty client foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued additional defects discovered conveyor equipment plants undertaking necessary corrective actions believe subcontractor provided equipment responsible defects investigation continuing fourth quarter 2006 established contingency 25000 relation project performance subsidiary executing contract ireland guaranteed parent company foster wheeler ltd unable estimate additional amount range probable loss amounts recorded financial statements disputes consequence amounts ultimately realized paid us could differ materially balances included financial statements resulting charge earnings could also materially impact financial position cash flows camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” pollution control finance authority camden county “pcfa” issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances impacted facilities also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities four subsidiaries’ former facilities addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated investigation among things attempt identify sources tce residential wells although fwec believes available evidence sufficient support conclusion prp tce residential wells fwec october 2004 began providing potentially affected residences bottled water thereafter arranged installation maintenance testing filters remove tce august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay hookup public water affected residences involves extension water main installation laterals main affected residences foregoing hookup mostly complete hookups completed fwec ceases andor cease providing bottled water filters fwec incurring costs related public outreach communications affected area fwec may required pay agencies’ costs overseeing responding situation also possibility fwec would incur costs conduct investigation regarding tce finally fwec defendant litigation described fwec accrued best estimate cost related foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related litigation described beyond accruals made costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items one third parties determined source tce fwec evaluate options regarding recovery costs fwec incurred options could include seeking recover costs determined source march 2006 complaint filed action entitled sarah martin jeffrey martin v foster wheeler energy corporation case 337606 court common pleas luzerne county pennsylvania subsequently removed united states district court middle district pennsylvania complaint alleges filed behalf martins 25 others similarly situated whose wells contaminated hazardous substance tce released fwec’s site complaint seeks recover costs environmental remediation continued environmental monitoring alleged class members’ property diminution property value costs associated obtaining healthy water establishment medical monitoring trust fund statutory treble punitive damages interest costs suit fwec reached agreement principle representatives alleged class settle action fwec accrued best estimate cost settlement april 2006 complaint filed action entitled donna rose cunningham michael cunningham v foster wheeler energy corporation united states district court middle district pennsylvania complaint’s allegations generally similar martin case except complaint foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 litigation uncertainties continued behalf cunninghams alleged class except cunninghams included claim embarrassment humiliation emotional distress may 2006 complaint filed action entitled gary prezkop personal representative estate mary prezkop deceased gary prezkop right v foster wheeler energy corporation leonard lulis case 000545 court common pleas philadelphia county pennsylvania complaint’s allegations generally similar martin cunningham cases also include claims mary prezkop’s wrongful death based upon investigation proceedings date fwec vigorously defend unsettled claims brought proceedings however premature predict ultimate outcome proceedings environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated ccera project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment even equipment installed ccera believes project’s sponsor would responsible pay equipment however sponsor may sufficient funds preliminary budgetary estimates cost installing additional control equipment approximately 24000 based upon 2006 pricing foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 21 quarterly financial data unaudited impact potentially dilutive securities outstanding stock options warrants purchase common shares nonvested portion restricted common shares restricted common share units included calculation diluted earningsloss per common share due antidilutive effect foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 21 quarterly financial data unaudited continued 1 discussed “revisions” section note 1 previously reported contract profit reduced 1707 3513 6123 three months ended march 31 2006 june 30 2006 september 29 2006 respectively 2 discussed “earnings per common share” section note 1 fair value additional shares issued part warrant offer transactions consummated january 2006 reduced net income attributable common shareholders calculating earningsloss per common share fair value additional shares issued 19445 3 discussed “revisions” section note 1 previously reported contract profit reduced 4506 4250 3974 6775 three months ended april 1 2005 july 1 2005 september 30 2005 december 30 2005 respectively 4 discussed “revisions” section note 1 previously reported contract profit increased 816 5 includes charge 113680 revaluation estimated asbestos liability asbestos insurance receivable charge 16800 recorded conjunction 2011 senior notes exchange offer charge 1400 related common share purchase warrants offers commenced december 2005 foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ltd subsidiaries “the company” december 26 2008 december 28 2007 results operations cash flows three fiscal years period ended december 26 2008 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 26 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 8 consolidated financial statements company changed manner accounts pension postretirement benefits fiscal year 2006 discussed note 1 note 15 consolidated financial statements company changed manner accounts uncertain tax positions fiscal year 2007 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 24 2009 foster wheeler ltd subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ equity thousands dollars except share data see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement comprehensive income thousands dollars see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data continued noncash financing activities april 2006 2555800 common shares exchanged 50000 aggregate principal amount 2011 senior notes see note 6 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation consolidated financial statements include financial position foster wheeler ltd bermuda corporation subsidiaries december 26 2008 december 28 2007 results operations cash flows fiscal years 2008 2007 2006 subsequent fiscal year ended december 26 2008 special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag swiss corporation foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred throughout notes consolidated financial statements “redomestication” effectively changed place incorporation bermuda canton zug switzerland please see note 21 information related redomestication including summary pro forma financial information december 26 2008 principles consolidation consolidated financial statements include accounts foster wheeler ltd significant us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december us operations december 31 nonus operations us operations fiscal years 2008 2007 2006 included 52 weeks see note 21 information related redomestication capital alterations see “ basis presentation” note 21 information related redomestication january 8 2008 shareholders approved increase authorized share capital special general meeting common shareholders increase authorized share capital necessary order effect twoforone stock split common shares approved board directors november 6 2007 stock split effected january 22 2008 form stock dividend common shareholders record close business january 8 2008 ratio one additional foster wheeler ltd common share respect common share outstanding result references share capital number shares stock options restricted awards per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect stock split retroactive basis use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs customer vendor claims employee benefit plan obligations sharebased compensation plans uncertain tax positions deferred taxes asbestos liabilities expected recoveries among others revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued progress towards completion fixed price contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total estimated contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 33 38 29 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 fiscal years 2008 2007 2006 respectively changes final estimated contract profits resulted net increasedecrease 26720 35150 5670 reported contract profit fiscal years 2008 2007 2006 respectively relating revaluation work performed contracts prior periods please see note 17 information related changes final estimated contract profits claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims accordance paragraph 65 statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated sop 811 two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process december 26 2008 consolidated financial statements assumed recovery commercial claims 11200 expended december 28 2007 consolidated financial statements assumed recovery commercial claims 22200 3700 yet expended certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract deferred precontract costs december 26 2008 december 28 2007 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives corresponding service contracts cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less cash equivalents 622907 800036 maintained nonus subsidiaries december 26 2008 december 28 2007 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly portion funds may readily available repatriation us entities shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost approximates fair value trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities consolidated balance sheet respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 15142 15861 december 26 2008 december 28 2007 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently significant investments affiliates consolidated recorded using equity method affiliates investment ownership less 20 unable exert significant influence carried cost intangible assets intangible assets consist principally goodwill trademarks patents goodwill allocated reporting units relative fair value basis time original purchase price allocation patents trademarks amortized straightline basis periods 3 40 years customer relationships backlog amortized straightline basis periods 1 12 years test goodwill impairment reporting unit level defined statement financial accounting standards “sfas” 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value estimated based discounted future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter fiscal year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” july 2008 acquired majority assets work force engineering design company engineering center kolkata india conjunction acquisition recorded 6610 goodwill 330 identifiable intangible assets please see note 2 information related acquisition foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued february 2008 acquired biopharmaceutical engineering company based philadelphia pennsylvania conjunction acquisition recorded 5523 goodwill 3600 identifiable intangible assets please see note 2 information related acquisition total net goodwill 62165 53345 december 26 2008 december 28 2007 respectively 62165 goodwill december 26 2008 50876 related global power business group 11289 related global engineering construction group increase goodwill 8820 resulted increase 12133 related acquisitions 3313 changes foreign currency exchange rates fiscal year 2008 fair value reporting units exceeded carrying amounts fiscal year 2007 fair value reporting units exceeded carrying amounts except us reporting unit goodwill impairment charge 2401 recorded related winding certain operations total unamortized identifiable intangible assets 59874 61190 december 26 2008 december 28 2007 respectively 59874 identifiable intangible assets december 26 2008 56743 related global power business group 3131 related global engineering construction business group following table details amounts relating identifiable intangible assets amortization expense related identifiable intangible assets recorded within cost operating revenues consolidated statement operations totaled 4716 3649 3581 fiscal years 2008 2007 2006 respectively amortization expense expected approximately 4600 fiscal year 2009 approximately 4300 fiscal years 2010 2013 income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment make provision us federal income taxes nonus subsidiary earnings expect earnings permanently reinvested outside united states unremitted earnings nonus subsidiaries intended permanently reinvested federal income tax provided aggregated 197352 december 26 2008 practicable estimate additional tax would incurred amounts repatriated june 2006 financial accounting standards board “fasb” issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109 fin 48” addresses determination whether tax benefits claimed expected claimed tax return recorded financial statements fin 48 recognize tax benefit uncertain foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement fin 48 also provides guidance derecognition benefit uncertain tax position classification unrecognized tax benefits balance sheet accounting classification interest penalties income tax uncertainties accounting interim periods disclosures recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations foreign currency functional currency nonus operations local currency country domicile assets liabilities nonus subsidiaries translated us dollars periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses fiscal years 2008 2007 2006 follows interest rate risk use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt certain affiliates equity interest also use interest rate swap contracts manage interest rate risk associated limited recourse project debt upon entering swap contracts designate interest rate swaps cash flow hedges accordance sfas 133 “accounting derivative instruments hedging activities” assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income consolidated statement comprehensive income december 26 2008 december 28 2007 net lossesgains swap contracts 6972 1673 respectively recorded net tax benefitprovision 2645 635 respectively included accumulated comprehensive loss consolidated balance sheet fair value measurements fiscal year 2008 adopted sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard effective financial assets liabilities well assets liabilities required measured fair value recurring basis february 2008 fasb issued partial oneyear deferral sfas 157 nonfinancial assets liabilities subject fair value measurement nonrecurring basis elected defer application sfas 157 nonfinancial assets liabilities measured fair value nonrecurring basis fiscal year beginning december 27 2008 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued financial assets liabilities recorded fair value consist primarily assets liabilities arising derivative financial instruments sfas 157 defines fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date utilize market data assumptions believe market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable sfas 157 establishes fair value hierarchy prioritizes inputs used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs three levels fair value hierarchy defined sfas 157 follows • level 1 quoted prices available active markets identical assets liabilities reporting date • level 2 pricing inputs quoted prices active markets included level 1 may include quoted prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations whose inputs observable whose significant value drivers observable either directly indirectly market corroboration substantially full term financial instrument level 2 instruments valued based pricing inputs reporting date • level 3 pricing inputs include significant inputs generally less observable objective sources inputs may used internally developed methodologies result management’s best estimate fair value perspective market participant maintain foreign currency riskmanagement strategy uses foreign currency forward contracts protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates also use interest rate swap contracts manage interest rate risk associated variable rate debt foreign currency forward contracts interest rate swap contracts valued using broker quotations market transactions either listed overthecounter markets derivative instruments classified within level 2 following table sets forth financial assets liabilities accounted fair value recurring basis december 26 2008 external legal fees incurred external legal fees including related project claims 23100 20504 17328 fiscal years 2008 2007 2006 respectively recorded deductions net consolidated statement operations legal fees except associated asbestosrelated liability expensed incurred foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments retirement common shares common share repurchase program september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding common shares connection redomestication foster wheeler ag adopted share repurchase program pursuant authorized repurchase 264800 outstanding registered shares designate repurchased shares cancellation amount authorized repurchase registered shares foster wheeler ag program equal amount remained available repurchases foster wheeler ltd program february 9 2009 date completion redomestication foster wheeler ag program replaces foster wheeler ltd program repurchases made foster wheeler ltd program repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number common shares program expiration date may suspended discontinued time common shares acquired common share repurchase program immediately retired upon purchase common share value consolidated balance sheet reduced par value retired common shares paidin capital consolidated balance sheet reduced excess fair value related fees paid par value common shares acquired common shares retired common share repurchase program reduce weightedaverage number common shares outstanding reporting period calculating earnings per common share described earnings per common share basic diluted earnings per common share computed using net income attributable common shareholders rather total net income described note 13 completed two common share purchase warrant offer transactions january 2006 increased number common shares delivered upon exercise class b warrants offer period issued 747896 additional common shares result warrant offers since warrant holders necessarily common shareholders prior warrant offers issuance additional shares considered pro rata common share dividend common shareholders rather fair value additional shares treated preferential distribution subset common shareholders accordingly required reduce net income attributable common shareholders fair value additional common shares calculating earnings per common share fiscal year 2006 fair value additional shares issued 19445 determined using common share price time issuance shares basic earnings per common share computed dividing net income attributable common shareholders weightedaverage number common shares outstanding reporting period excluding nonvested restricted shares 82980 165960 659262 december 26 2008 december 28 2007 december 29 2006 respectively restricted shares restricted share units collectively “restricted awards” included weightedaverage number common shares outstanding restricted awards vest diluted earnings per common share computed dividing net income attributable common shareholders combination weightedaverage number common shares outstanding foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued reporting period impact dilutive securities outstanding stock options warrants purchase common shares nonvested portion restricted awards extent securities dilutive profitable periods outstanding stock options warrants dilutive effect treasury stock method average common share price period exceeds assumed proceeds exercise warrant option assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase common shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds computations basic diluted earnings per common share follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table summarizes common share equivalent potentially dilutive securities excluded denominator used calculation diluted earnings per common share due antidilutive effect sharebased compensation plans sharebased compensation plans described note 12 adopted provisions sfas 123r “sharebased payment” december 31 2005 first day fiscal year 2006 using modified prospective transition method sharebased compensation expense recognized consolidated statement operations fiscal years 2008 2007 2006 includes compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 “accounting stockbased compensation” recognize compensation expense sharebased payment awards granted december 30 2005 based grant date fair value estimated accordance provisions sfas 123r estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted awards using market price common shares date grant recognize fair value restricted award compensation cost ratably using straightline attribution method service period generally vesting period foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest recent accounting developments september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard effective financial assets liabilities well assets liabilities required measured fair value recurring basis financial statements fiscal years beginning november 15 2007 february 2008 fasb issued partial oneyear deferral sfas 157 nonfinancial assets liabilities subject fair value measurement nonrecurring basis elected defer application sfas 157 nonfinancial assets liabilities measured fair value nonrecurring basis fiscal year beginning december 27 2008 process assessing impact financial position results operations related assets liabilities financial assets liabilities recorded fair value consist primarily assets liabilities arising derivative financial instruments adoption sfas 157 material effect financial position results operations december 2007 fasb issued sfas 141 revised 2007 “business combinations” sfas 141r replaces sfas 141 “business combinations” changes accounting treatment business acquisitions sfas 141r requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed business combination certain provisions standard among things impact determination acquisitiondate fair value consideration paid business combination including contingent consideration exclude transaction costs acquisition accounting change accounting practices acquired contingencies acquisitionrelated restructuring costs inprocess research development indemnification assets tax benefits provisions sfas 141r apply prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 early adoption permitted based acquisitions completed past adoption sfas 141r material impact financial position results operations future make material acquisitions sfas 141r may material impact financial position results operations december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 amends accounting reporting standards noncontrolling interest subsidiary often referred “minority interest” deconsolidation subsidiary sfas 160 noncontrolling interest subsidiary reported equity parent company’s consolidated financial statements sfas 160 also requires parent company’s consolidated statement operations include parent noncontrolling interest share subsidiary’s statement operations formerly noncontrolling interest share shown reduction income parent’s consolidated statement operations sfas 160 effective fiscal years interim periods within fiscal years beginning december 15 2008 sfas 160 applied prospectively beginning fiscal year statement initially applied however presentation disclosure requirements shall applied retrospectively periods presented upon adoption sfas 160 beginning fiscal year 2009 reclassify minority interest liability separate section entitled “noncontrolling interests” within total equity consolidated balance sheet increase total equity 28700 31800 29900 december 26 2008 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued december 28 2007 december 29 2006 respectively ii remove minority interest expense determination total net income consolidated statement operations increase total net income 7200 5600 4800 fiscal years ended december 26 2008 december 28 2007 december 29 2006 respectively iii include minority interest expense determination net income attributable foster wheeler ag successor parent foster wheeler ltd please see note 21 information related redomestication earnings per registered share formerly earnings per common share consolidated financial statements foster wheeler ltd consolidated statement operations correspond net income earnings per common share figures previously reported march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities” sfas 161 requires enhanced disclosures enable investors better understand effects derivative instruments hedging activities entity’s financial position financial performance cash flows sfas 161 changes disclosure requirements location amounts derivative instruments entity’s financial statements derivative instruments related hedged items accounted sfas 133 derivative instruments related hedged items affect company’s financial position financial performance cash flows additionally sfas 161 requires disclosure fair values derivative instruments gains losses tabular format sfas 161 also requires information entity’s liquidity requiring disclosure derivative features credit riskrelated finally sfas 161 requires crossreferencing within footnotes enable financial statement users locate important information derivative instruments sfas 161 effective financial statements issued fiscal years interim periods beginning november 15 2008 early application encouraged currently assessing impact sfas 161 may financial statement disclosures december 2008 fasb issued fasb staff position fspfas 132r1 “employers’ disclosures postretirement benefit plan assets” fsp fas 132r1 fsp fas 132r1 expand disclosures regarding investments held employersponsored defined benefit pension plans postretirement plans purpose providing additional information related valuation methodologies assets similar valuation methodologies defined sfas 157 additionally fsp fas 132r1 require disclosures investment allocation decisions made well significant concentrations risk within plan assets fsp fas 132r1 effective financial statements issued fiscal years ending december 15 2009 amend disclosures accordingly 2009 consolidated financial statements 2 business combinations july 2008 acquired majority assets work force engineering design company 6500 plus 1500 paid certain performance milestones met following two years company engineering center kolkata india provides engineering services petrochemical refining upstream oil gas power industries purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global engineering construction business segment february 2008 acquired outstanding capital stock biopharmaceutical engineering company based philadelphia pennsylvania 8545 plus 3638 paid following three years certain conditions met plus additional 8700 paid certain performance milestones met following three years company provides design engineering manufacture installation validation startupcommissioning services life sciences industry purchase price allocation foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 2 business combinations continued pro forma information acquisition material consolidated financial statements company’s financial results included within global engineering construction business segment february 2007 purchased stock finnish company owns patented coal flow measuring technology purchase price net cash acquired 1112 approximately 1473 exchange rate effect time acquisition purchase price allocation pro forma financial information acquisition material consolidated financial statements company’s financial results included within global power business segment february 2009 entered agreement acquire substantially assets offshore engineering division ope holdings ltd canadian company listed tsx venture exchange refer ope purchase price 9000 purchase price may increased 500 ope meets certain performance targets first year closing date addition right acquire ope’s interest ope malaysia period 90 days closing exercise price 2000 acquisition subject certain customary closing conditions including approval ope’s shareholders tsx venture exchange company included within global engineering construction business segment 3 accounts notes receivable following table shows components trade accounts notes receivable following table shows components accounts notes receivable net foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment land buildings equipment stated cost set forth depreciation expense fiscal years 2008 2007 2006 39271 34576 26191 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile also 50 noncontrolling equity interest italian project generates earnings royalty payments linked price natural gas two electric power generation projects italy 42 owned us wastetoenergy project 39 owned us wind farm project 50 owned us project chile 85 owned us however controlling interest chilean project result participating rights held minority shareholder account investments italy chile equity method following summarized financial information entities whole equity interest foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 equity interests continued share equity net earnings partiallyowned affiliates recorded within income net consolidated statement operations totaled 33905 36445 26640 fiscal years 2008 2007 2006 respectively investment equity affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet totaled 200352 190887 december 26 2008 december 28 2007 respectively distributions 24452 23784 18149 received fiscal years 2008 2007 2006 respectively guaranteed certain performance obligations chilean project contingent obligation measured annually based operating results chilean project preceding year current payment obligation guarantee december 26 2008 also guaranteed obligations subsidiary chilean project’s operations maintenance agreement guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee addition provided 10000 debt service reserve letter credit cover debt service payments event chilean project generate sufficient cash flows make payments required maintain debt service reserve letter credit term chilean project’s debt matures 2014 december 26 2008 amounts drawn letter credit chilean project’s operations maintenance agreement subsidiary provides services management operation maintenance refineryelectric power generation facility fees services 9312 8309 8276 fiscal years 2008 2007 2006 respectively recorded operating revenues consolidated statement operations receivable partiallyowned affiliate chile 12615 6168 recorded trade accounts notes receivable net consolidated balance sheet december 26 2008 december 28 2007 respectively share undistributed retained earnings equity investees amounted 107271 87206 december 26 2008 december 28 2007 respectively 6 equityfordebt exchanges april 2006 consummated offer exchange 2555800 common shares 50000 outstanding aggregate principal amount 2011 senior notes exchange reduced carrying value 2011 senior notes 51648 representing aggregate principal amount plus corresponding premium improved shareholders’ equity 50567 exchange resulted 58763 increase common stock paidin capital partially offset 8196 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt following table shows components longterm debt domestic senior credit agreement october 2006 executed fiveyear domestic senior credit agreement used us nonus operations senior credit agreement amended provides facility 450000 includes provision permits future incremental increases 100000 total availability facility issue 450000 letter credit facility portion letters credit issued domestic senior credit agreement performance pricing decreased increased result improvements reductions credit rating domestic senior credit agreement reported moody’s investors service andor standard poor’s “sp” also option use 100000 450000 revolving borrowings rate equal adjusted libor plus 150 subject also performance pricing noted result improvement sp credit rating march 2007 achieved lowest possible pricing performance pricing provisions domestic senior credit agreement maintained performance pricing subsequent credit rating changes effective september 29 2008 requisite lenders domestic senior credit agreement amended domestic senior credit agreement 1 allow us use cash 750000 repurchase outstanding common shares common share repurchase program subject certain conditions 2 increase aggregate amount permissible capital expenditures 40000 80000 fiscal year 2008 70000 fiscal years thereafter subject certain adjustments reflected domestic senior credit agreement since original execution september 2006 including among items exclusion related capital expenditures financed specialpurpose project debt foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued december 18 2008 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered amendment domestic senior credit agreement amendment includes consent lenders credit agreement redomestication addition amendment reflects addition foster wheeler ag guarantor obligations credit agreement reflects changes relating foster wheeler ag becoming ultimate parent foster wheeler ltd subsidiaries upon completion redomestication amendment became effective upon consummation redomestication february 9 2009 paid 5710 fees expenses conjunction execution domestic senior credit agreement fourth quarter fiscal year 2006 fees expenses amortized expense fiveyear term agreement commencing fourth quarter fiscal year 2006 assets andor stock certain us nonus subsidiaries collateralize obligations domestic senior credit agreement domestic senior credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ltd change foster wheeler ltd’s fiscal year respect foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business addition domestic senior credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined domestic senior credit agreement must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions domestic senior credit agreement 273463 245765 letters credit outstanding agreement december 26 2008 december 28 2007 respectively letter credit fees ranged 150 160 outstanding amount excluding fronting fee 0125 per annum funded borrowings agreement december 26 2008 december 28 2007 prior domestic senior credit agreement march 2005 entered fiveyear 250000 senior credit agreement used us nonus operations voluntarily replaced senior credit agreement october 2006 fiscal year 2006 recorded charge 14955 connection termination agreement capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued following minimum lease payments made years indicated capital lease obligations december 26 2008 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facilities wastetoenergy wind farm projects majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance chilean project camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey fw power srl owner certain electric power generating wind farms italy project financing wind farm project base facility valueadded tax “vat” facility base facility variable interest rate based upon 6month euribor plus 15 repayable semiannually based upon predefined payment schedule june 30 2015 vat facility variable interest rate based upon 6month euribor plus 09 repayable semiannually based upon actual vat received commercial operation december 31 2010 december 2007 fw power srl refinanced original base vat facilities new base vat facilities also secured new base vat facilities second wind farm project new base facilities bear interest variable rates based upon 6month euribor plus spread varying 08 11 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2019 new vat facilities bear interest based upon 6month euribor plus spread 05 repayable semiannually based upon actual vat received commercial operation june 30 2010 december 31 2013 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75350 approximately 105686 exchange rate december 26 2008 executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 1 “summary significant accounting policies interest rate risk” foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 3937 3537 respectively december 26 2008 energia holdings llc debt bears interest 11443 due annually matures april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois assumed certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 october 3 2008 acquired 19208 1999c bonds due 2024 19016 cash plus accrued unpaid interest date conjunction acquisition recorded gain acquisition 192 income net fiscal fourth quarter 2008 intermediate term loans china 702 interest “intermediate term loans” fiscal year 2005 one chinese subsidiaries 52 owned us consolidate financial statements entered two intermediate term loans intermediate term loans repaid respective scheduled maturity dates fiscal year 2008 term loans china 657 interest “china term loan” fiscal year 2008 chinese subsidiaries noted entered term loan interest rate 657 maturity date december 29 2008 subsequent fiscal year ended december 26 2008 term loan repaid scheduled maturity date also subsequent fiscal year ended december 26 2008 chinese subsidiaries entered new term loan 20 million cny approximately 2930 exchange rate effect inception term loan interest rate 486 matures july 6 2009 convertible subordinated notes 650 interest due june 1 2007 “convertible notes” 2001 issued convertible notes aggregate principal amount 210000 september 2004 completed offer exchange common shares preferred shares 206930 convertible notes june 2006 executed open market purchase 1000 outstanding aggregate principal amount convertible notes repaid remaining 2070 convertible notes scheduled maturity date june 1 2007 interest costs interest costs incurred fiscal years 2008 2007 2006 16462 18603 24944 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows 8 pensions postretirement benefits defined benefit pension plans united states united kingdom france canada finland postretirement benefit plans health care life insurance benefits united states canada also defined contribution plans united states united kingdom finally certain benefit plans including government mandated postretirement programs adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 requires us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet sfas 158 also requires us recognize gains losses recognized component annual service cost component comprehensive income net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset net charge accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans cover certain fulltime employees plans retirement benefits primarily function years service level compensation us pension plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued defined benefit pension obligations funded status recognized funded status defined benefit pension plans consolidated balance sheet part foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued recognized following amounts accumulated comprehensive loss estimated net actuarial loss prior service cost net transition asset amortized accumulated comprehensive loss net periodic benefit cost next fiscal year approximately 20300 7300 40 respectively accumulated benefit obligation aggregated accumulated benefit obligation defined benefit pension plans 886259 1093005 december 26 2008 december 28 2007 respectively information defined benefit pension plans accumulated benefit obligation excess plan assets 1 balances fiscal years ended december 26 2008 december 28 2007 include information one united kingdom plans since plan assets plan exceeded accumulated benefit obligation 2 balances fiscal year ended december 28 2007 include information us plans since plan assets plans exceeded accumulated benefit obligation foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued components net periodic benefit cost changes recognized comprehensive incomeloss na applicable plan frozen future salary levels affect benefits payable charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement obligations former employees united kingdom canada 886 fiscal year 2008 united kingdom canada 297 fiscal year 2006 investment policy defined benefit pension plans united states united kingdom canada governed written investment policy pension plans finland france plan assets investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 675 775 equities 225 325 bonds 0 5 cash continually reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments investment policy uk plans designed respond changes funding levels bond equity allocations currently range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 50 equities 45 bonds 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 72 73 past three years contributions based minimum statutory funding requirements fiscal year 2009 required make mandatory contributions us pension plans based minimum statutory funding requirements fiscal year 2009 expect contribute total mandatory contributions approximately 24700 nonus pension plans foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued estimated future benefit payments expect make following benefit payments defined benefit pension plans postretirement benefit plans certain employees united states canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined us canadian pension plans working us additionally one subsidiaries united states also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan accounted sfas 112 “employer’s accounting postemployment benefits amendment fasb statements 5 43” closed new entrants since 1988 total liabilities sip 14590 14948 december 26 2008 december 28 2007 respectively reflected postretirement benefit obligation funded status information obligation measured using provisions sfas 106 “employers’ accounting postretirement benefits pensions” amended sfas 158 benefit assets sip reflect cash surrender value insurance polices purchased cover obligations sip totaled 5633 5302 december 26 2008 december 28 2007 respectively benefit assets recorded assets consolidated balance sheet reflected postretirement benefit obligation funded status information foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued postretirement benefit obligation funded status recognized funded status postretirement benefit plans consolidated balance sheet part recognized following amounts accumulated comprehensive loss foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year approximately 1000 4600 respectively components net periodic postretirement benefit cost changes recognized comprehensive incomeloss assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued contributions expect contribute total approximately 6669 postretirement benefit plans fiscal year 2009 estimated future postretirement benefit payments expect make following postretirement benefit payments defined contribution plans us subsidiaries 401k plan salaried employees fiscal year 2008 matched 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code fiscal year 2007 matched 100 first 3 50 next 3 base pay employee contributions subject annual internal revenue code limit fiscal year 2007 prior 401k plan also provided discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors discretionary employer 401k contribution paid fiscal years 2007 2006 discretionary employer contribution discontinued fiscal year 2008 connection adoption new contribution match eligible base pay limits described total us subsidiaries contributed 8980 5570 4325 401k plan fiscal years 2008 2007 2006 respectively beginning fiscal year 2008 us subsidiaries also roth 401k plan salaried employees effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 3449 2561 1179 fiscal years 2008 2007 2006 respectively defined contribution plan benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 26563 37811 recorded within pension postretirement employee benefits consolidated balance sheet december 26 2008 december 28 2007 respectively related benefits foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable performance standby letters credit bank guarantees surety bonds totaling 914500 818600 december 26 2008 december 28 2007 respectively balances include standby letters credit issued domestic senior credit agreement discussed note 7 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations chilean refineryelectric power generation project hold noncontrolling equity interest see note 5 information 10 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value shortterm maturity instruments shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost approximates fair value foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 financial instruments risk management continued longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency forward contracts estimate fair value foreign currency forward contracts used solely hedging purposes obtaining quotes financial institutions interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions carrying amounts fair values estimated fair values financial instruments follows december 26 2008 376331 foreign currency forward exchange contracts outstanding foreign currency forward exchange contracts mature 2009 2011 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations thirdparties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 26 2008 december 28 2007 significant concentrations credit risk 11 preferred shares issued 599944 preferred shares connection 2004 equityfordebt exchange 1079 preferred shares outstanding december 26 2008 preferred share convertible holder’s option 130 common shares approximately 140323 additional common shares outstanding preferred shares december 26 2008 converted preferred shareholders voting rights except certain limited circumstances preferred shares right receive dividends distributions including liquidating distributions asifconverted basis declared paid common shares preferred shares 001 liquidation preference per share connection redomestication february 9 2009 holders preferred shares received number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional shares otherwise issuable see note 21 information related redomestication 12 sharebased compensation plans sharebased compensation plans include restricted awards stock option awards compensation cost sharebased plans 15766 7095 16474 charged income fiscal foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued years 2008 2007 2006 respectively related income tax benefit recognized consolidated statements operations comprehensive income 332 246 323 fiscal years 2008 2007 2006 respectively received 2791 18076 17595 cash option exercises sharebased compensation plans fiscal years 2008 2007 2006 respectively december 26 2008 20833 21817 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized expense weightedaverage period approximately 30 months omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted stock units performancecontingent shares performancecontingent units cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaces prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued authorized unissued common shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards issued omnibus plan temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance fasb emerging issues task force topic d98 “classification measurement redeemable securities” adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity prior sharebased compensation plans september 2004 board directors adopted 2004 stock option plan “2004 plan” reserved 7334730 common shares issuance 2004 plan provided shares issued come authorized unissued common shares board directors determined price options granted pursuant 2004 plan options granted 2004 plan expire maximum three years date granted noted awards granted 2004 plan october 2001 granted 130000 inducement options exercise price 4985 per share chief executive officer connection employment agreement options vested 20 year term agreement price options granted pursuant agreements fair market value date grant options granted agreement expire ten years date granted april 1995 shareholders approved 1995 stock option plan “1995 plan” 1995 plan amended april 1999 may 2002 reserved 530000 common shares issuance 1995 plan foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant 1995 plan could exercised within one year date grant option exercised ten years date granted noted awards granted 1995 plan april 1990 shareholders approved stock option plan directors foster wheeler “directors plan” april 29 1997 shareholders approved amendment directors plan authorized granting options purchase 40000 shares common stock nonemployee directors foster wheeler directors plan provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant directors plan could exercised within one year date grant option exercised ten years date granted noted awards granted directors plan connection redomestication foster wheeler ag assumed foster wheeler ltd’s existing obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards see note 21 information related redomestication stock option awards summary stock option activity fiscal years 2008 2007 2006 presented foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued following table summarizes outstanding stock options december 26 2008 following table summarizes exercisable stock options december 26 2008 calculated intrinsic value options exercise price lower market price common shares december 26 2008 aggregate intrinsic value outstanding options exercisable options december 26 2008 calculated difference market price common shares exercise price underlying options exercise price lower market price common shares date total intrinsic value options exercised fiscal years 2008 2007 2006 7320 88828 49601 determined date exercise december 26 2008 20833 total unrecognized compensation cost related stock options cost expected recognized expense weightedaverage period approximately 30 months foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued restricted awards summary restricted share activity fiscal years 2008 2007 2006 presented summary restricted share unit activity fiscal years 2008 2007 2006 presented december 26 2008 21817 total unrecognized compensation cost related restricted awards cost expected recognized weightedaverage period approximately 29 months total fair value restricted awards vested fiscal years 2008 2007 2006 8946 33408 47085 respectively 13 common share purchase warrants connection equityfordebt exchange consummated 2004 issued 4152914 class common share purchase warrants 40771560 class b common share purchase warrants class warrant entitles owner purchase 33682 common shares exercise price 4689 per common share thereunder subject terms warrant agreement warrant agent us connection redomestication accordance terms warrant agreement extended expiration date class warrants september 24 2009 october 2 2009 result periods january 27 2009 january 30 2009 february 3 2009 february 6 2009 warrants exercisable class b warrant entitled owner purchase 01446 common shares exercise price 4689 per common share thereunder subject terms conditions warrant agreement warrant agent us class b warrants exercisable september 24 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 common share purchase warrants continued january 2006 completed transactions increased number common shares delivered upon exercise class b common share purchase warrants offer period raised 75336 net proceeds exercise price per warrant increased offers holders approximately 95 class warrants 57 class b warrants participated offers resulting aggregate issuance approximately 16807000 common shares cumulatively december 26 2008 3971940 class warrants 38730407 class b warrants exercised 19728294 common shares number common shares issuable upon exercise remaining outstanding class warrants approximately 609557 december 26 2008 remaining outstanding class b warrants expired september 24 2007 holders class warrants entitled vote receive dividends exercise rights common shareholders purpose warrants duly exercised currently maintain intend continue maintain times warrants exercisable “shelf” registration statement relating issuance common shares underlying warrants benefit warrant holders subject terms registration rights agreement initial registration statement became effective december 28 2005 replacement registration statement filed became effective december 5 2008 also connection equityfordebt exchange consummated 2004 entered registration rights agreement certain selling security holders agreed file registration statement cover resales securities held immediately following exchange offer filed registration statement accordance agreement october 29 2004 registration statement initially became effective december 23 2004 must remain effect december 23 2009 unless certain events occur terminate obligations registration rights agreement prior date fail maintain registration statement required becomes unavailable two 45day periods consecutive 12month period required pay damages rate 137 per day registration statement effective december 26 2008 maximum exposure provision approximately 3700 incurred expect incur damages registration rights agreement connection redomestication foster wheeler ag assumed foster wheeler ltd’s obligations warrant agreement agreed issue registered shares foster wheeler ag upon exercise outstanding warrants accordance stated terms see note 21 information related redomestication foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 accumulated comprehensive loss components accumulated comprehensive loss tax effect related pension postretirement benefit plan adjustments benefit 104395 96117 108752 december 26 2008 december 28 2007 december 29 2006 respectively tax effect related lossesgains derivatives designated cash flow hedges benefit 2645 december 26 2008 provisions 635 203 december 28 2007 december 29 2006 respectively accumulated foreign currency translation adjustments currently adjusted income taxes relate permanent investments international subsidiaries 15 income taxes components income taxes fiscal years 2008 2007 2006 following tax jurisdictions foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued provision income taxes follows deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus tax benefits valuation allowance based consideration available evidence indicates likely deferred tax assets realized fiscal year 2008 reversed valuation allowance previously established one nonus operating units due improved operational performance positive evidence indicates likely deferred tax assets jurisdiction realized valuation allowance reduction offset need increase valuation allowance related deferred tax assets certain jurisdictions overall basis valuation allowance increased 24436 fiscal year 2008 primarily result increase deferred tax asset related us pension liability recognized comprehensive income partially offset net valuation allowance reversals described statutory purposes majority deferred tax assets valuation allowance provided begin expiring fiscal year 2024 later based current tax laws subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies various jurisdictions operate number jurisdictions file tax returns given year statute limitations certain jurisdictions may expire without examination within 12month period balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2003 fiscal year 2008 settled tax audit asia pacific region resulted 3200 reduction unrecognized tax benefits corresponding reduction provision income taxes number tax years also audit relevant state nonus tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2009 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate impact change time adopted provisions fin 48 december 30 2006 first day fiscal year 2007 result adoption fin 48 recognized 4356 reduction opening balance shareholders’ equity resulted changes amount tax benefits recognized related uncertain tax positions accrual interest penalties foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued reconciliation beginning ending amount unrecognized tax benefit follows december 26 2008 48742 unrecognized tax benefits 48398 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations recorded net interest expense net penalties totaling 1193 2700 fiscal years 2008 2007 respectively net penalties fiscal year 2008 net 4958 previously accrued tax penalties ultimately assessed december 26 2008 21540 accrued payment interest penalties provision income taxes differs amount income tax determined applying applicable us statutory rate income taxes result following 16 derivative financial instruments maintain foreign currency riskmanagement strategy uses foreign currency forward contracts protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates functional currencies subsidiaries foreign currencies operating purchases sales denominated utilize contracts solely hedge specific foreign currency exposures whether qualify hedge accounting sfas 133 nearly foreign currency forward contracts used hedge foreign currency exposures longterm contracts recognize revenues costs profits percentageofcompletion method fiscal years foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 derivative financial instruments continued 2008 2007 2006 none foreign currency forward contracts met requirements hedge accounting sfas 133 required sfas 133 fair values foreign currency forward contracts recognized assets liabilities consolidated balance sheet gain loss portion marktomarket adjustment related completed portion underlying contract included cost operating revenues time underlying foreign currency cash flows occur gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying contract reflected directly consolidated statement operations period marktomarket adjustment occurs incremental gain loss remaining uncompleted portion contracts amounted foreign exchange lossesgains 11863 324 7610 fiscal years 2008 2007 2006 respectively recorded following line items consolidated statement operations marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet fiscal years 2008 2007 2006 included net cash outflowsinflows settlement derivatives 8410 5253 2035 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 26 2008 based notional amounts forward contracts 203384 owed us counterparties 172947 owed us counterparties maximum term hedging exposure variability cash flows approximately 42 months use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt certain affiliates equity interest also use interest rate swap contracts manage interest rate risk associated limited recourse project debt see notes 1 7 information regarding interest rate swap contracts 17 business segments operate two business groups global engineering construction group “global ec group” global power group foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued global engineering construction group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels global ec group generates revenues engineering procurement construction project management activities pursuant contracts spanning approximately four years duration returns equity investments various power production facilities global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • development engineering procurement construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe global power group global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial facilities worldwide owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments several power production facilities global power group’s steam generating equipment includes full range technologies offering independent power producers utilities industrial clients highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas biomass municipal solid waste steam used power generation district heating industrial processes global power group offers several products services related steam generators • designs manufactures installs auxiliary replacement equipment utility power industrial facilities including surface condensers feed water heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • nitrogenoxide “nox” reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • broad range site services including construction erection services maintenance engineering steam generator upgrading life extension plant repowering foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries corporate finance group addition two business groups also represent operating segments financial reporting purposes report corporate center expenses related certain legacy liabilities asbestos corporate finance group “cf group” also treat operating segment financial reporting purposes conduct business global basis global ec group accounted largest portion operating revenues last ten years fiscal year 2008 global ec group accounted 75 total operating revenues global power group accounted 25 total operating revenues geographic dispersion operating revenues fiscal year 2008 based upon project executed follows australasia primarily represents australia new zealand pacific islands ebitda primary measure operating performance used chief operating decision maker one client accounted approximately 24 12 13 consolidated operating revenues inclusive flowthrough revenues fiscal years 2008 2007 2006 respectively however associated flowthrough revenues included percentages accounted approximately 20 9 11 consolidated operating revenues fiscal years 2008 2007 2006 respectively single client accounted ten percent consolidated revenues fiscal years 2008 2007 2006 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate insurance receivables foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 includes fiscal year 2008 increaseddecreased contract profit 26720 regular reevaluation final estimated contract profits 46260 global ec group 19540 global power group charge 9000 global power group primarily severancerelated postemployment foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued benefits accordance sfas 112 net charge 6607 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 42727 offset gains 36120 settlement coverage litigation certain insurance carriers 3 includes fiscal year 2007 increaseddecreased contract profit 35150 regular reevaluation final estimated contract profits 54520 global ec group 19370 global power group gain 13519 cf group settlement coverage litigation certain asbestos insurance carriers charge 7374 cf group revaluation asbestos liability related asset 4 includes fiscal year 2006 decreasedincreased contract profit 5670 regular reevaluation final estimated contract profits 14720 global ec group 20390 global power group net asbestosrelated gains 115664 cf group primarily related settlement coverage litigation certain asbestos insurance carriers charge 15533 cf group revaluation asbestos liability related asset aggregate charge 14955 cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12483 cf group conjunction debt reduction initiatives completed april may 2006 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profits accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site australasia primarily represents australia new zealand pacific islands fiscal years 2008 2007 2006 generated thirdparty revenues determined based upon location contracting subsidiary 1308255 1109862 594305 respectively united kingdom 1170601 462533 341404 respectively australia 694847 384135 144489 respectively singapore 501436 538600 463804 respectively italy 2716 2885 3273 switzerland foster wheeler ag country domicile longlived assets presented based geographic region contracting subsidiary located australasia primarily represents australia new zealand pacific islands december 26 2008 december 28 2007 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 20 24 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued operating revenues industry follows 18 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases 65644 54293 37634 fiscal years 2008 2007 2006 respectively future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4575 4602 4168 fiscal years 2008 2007 2006 respectively december 26 2008 december 28 2007 balance deferred gains 47477 66226 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 19 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims resolved fiscal year 2006 include court dismissals without payment mass claim filings approximating 22900 claims 2 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items approximately 130760 open claims subsidiaries respondents approximately 30400 open claims wherein administrative agreements named defendants lawsuits involving approximately 100360 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 62 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed approximately 11 request damages ranging 1 50 approximately 20 request damages ranging 51 1000 approximately 6 request damages ranging 1001 10000 remaining 1 request damages ranging 10001 small number cases 50000 majority requests monetary damages asserted multiple named defendants single complaint foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated year 2023 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date since fiscal yearend 2004 worked analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2008 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal yearend 2008 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2023 considering advice arpc fiscal year 2008 revalued liability asbestos indemnity defense costs fiscal year 2023 385300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 42700 fiscal year 2008 resulting primarily increased asbestos defense costs projected yearend 2023 amount paid asbestos litigation defense case resolution 70600 86700 83300 fiscal years 2008 2007 2006 respectively fiscal year 2008 proceeds settlements insurers exceeded payments made 16800 december 26 2008 total cumulative indemnity costs paid approximately 658000 total cumulative defense costs paid approximately 286300 december 26 2008 total asbestosrelated liabilities comprised estimated liability 158000 relating open outstanding claims valued estimated liability 227300 relating future unasserted claims fiscal yearend 2023 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2023 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2023 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued might incurred fiscal year 2023 historically defense costs represented approximately 30 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 26 2008 approximately 27 average cost per resolved claim increasing believe continue increase future asbestosrelated asset recorded within accounts notes receivableother december 26 2008 reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements recorded asbestosrelated insurance recovery receivable includes estimate recoveries insurers unsettled insurance coverage litigation referred based upon application new jersey law certain insurance coverage issues assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since fiscal yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset december 26 2008 utilized analysis determine estimate value unsettled insurance asset december 26 2008 december 26 2008 estimated value unsettled asbestos insurance asset related ongoing litigation new york state court subsidiaries’ insurers 24800 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred fiscal year 2006 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage four insurers primarily result insurance settlements recorded gain 96200 fiscal year 2006 fiscal year 2007 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage four additional insurers including two fourth fiscal quarter result settlements recorded gain 4900 fourth fiscal quarter 13500 fiscal year 2007 fiscal year 2008 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage three additional insurers result settlements recorded gain 36100 fiscal year 2008 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued intend continue attempt negotiate additional settlements insurers achievable reasonable basis order minimize amount future costs would required fund cash flows generated operations unless settle remaining insurers recovery amounts significantly excess current estimate likely amount insurance settlements cover future asbestosrelated costs required fund portion future costs reduce cash flows working capital fiscal year 2006 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers result increased insurance asset recorded gain 19500 february 13 2007 subsidiaries’ insurers granted permission appellate court appeal decision new york court appeals state’s highest court october 11 2007 new york court appeals upheld appellate court decision favor even coverage litigation resolved manner favorable us insurance recoveries litigation settlements may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving material amounts insurers could material adverse effect financial condition cash flows based fiscal yearend 2008 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 59800 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline net cash inflows 16800 result insurance settlement proceeds excess asbestos liability indemnity payments defense costs fiscal year 2008 expect fund total 26500 asbestos liability indemnity defense costs cash flows fiscal year 2009 net cash expected received existing insurance settlements estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 904 claims brought uk subsidiaries 357 remained open december 26 2008 none settled claims resulted material costs us december 26 2008 recorded total liabilities 37800 comprised estimated liability relating open outstanding claims 8400 estimated liability relating future unasserted claims year 2023 29400 total 2800 recorded accrued expenses 35000 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 2800 recorded accounts notes receivableother 35000 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability related asset recorded uk would approximately 51500 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims described herein amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows power plant arbitration eastern europe june 2006 commenced arbitration client seeking final payment services connection two power plants designed built eastern europe dispute primarily concerns whether liable client liquidated damages “lds” contract delayed completion projects client contends owed lds limited contract approximately 37600 approximately 52700 exchange rate effect december 26 2008 retaining security lds approximately 22000 approximately 30900 exchange rate effect december 26 2008 contract payments otherwise due us work performed client contends owed additional 6900 approximately 9700 exchange rate effect december 26 2008 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects cost various warranty repairs punch list work seeking payment 22000 approximately 30900 exchange rate effect december 26 2008 recorded within contracts process consolidated balance sheet retention held client lds plus approximately 4900 approximately 6900 exchange rate effect december 26 2008 interest retained funds well approximately 9100 approximately 12800 exchange rate effect foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued december 26 2008 additional compensation extra work performed beyond original scope contracts client’s failure procure required property insurance project provided coverage damages incurred project related turbine repairs october 2008 liability award arbitration panel favor received award includes amounts “fixed” amounts require substantiation hearing damages yet scheduled panel estimated interest awarded damages hearing believe fixed amount awarded line previously estimated recovery power plant dispute ireland 2006 dispute arose client material corrosion occurring two power plants designed built ireland began operation december 2005 june 2006 boilers plants designed burn milled peat primary fuel supplied different local sources alkali halides corrosion affecting boiler tubes fuel related also corrosion occurring subcontractorprovided emissions control equipment induction fans backend power plants corrosion due principally low set point temperature design emissions control equipment set subcontractor identified technical solutions resolve boiler tube corrosion emissions control equipment corrosion fourth fiscal quarter 2008 entered settlement client implement technical solutions exchange full release claims related corrosion including release client’s right original contract reject plants availability guaranty client’s agreement share cost ameliorative work related boiler tube corrosion accordingly client withdrawn notice arbitration originally filed may 2008 right pursue claim subcontractor emissions control equipment corrosion preserved settlement due potential magnitude amounts involved however assurance collect amounts subcontractor may determined liable event elect proceed claim therefore reflected assumed recovery fiscal fourth quarter 2006 established contingency 25000 relation project primarily result discovery fiscal second quarter 2007 extensive backend corrosion contingency increased 30000 fiscal second quarter 2007 charge amount 6700 taken fourth quarter 2008 result settlement described camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” pollution control finance authority camden county “pcfa” issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities four subsidiaries’ former facilities addition sometimes engage foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated investigation among things attempt identify sources tce residential wells although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec october 2004 began providing potentially affected residences bottled water thereafter arranged installation maintenance testing filters remove tce water drawn wells august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay hookup public water affected residences involved extension water main installation laterals main affected residences foregoing hookups completed may limited number additional hookups future residences hooked fwec ceased providing bottled water filters fwec incurring costs related public outreach communications affected area fwec may required pay agencies’ costs overseeing responding situation fwec likely incur costs connection remedial investigation feasibility study well costs continuing monitor groundwater area affected residences fwec accrued best estimate cost foregoing reviews estimate quarterly basis foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source september 2008 fwec notified potential new claim personal injuries allegedly related exposure tce affected area first quarter fiscal year 2009 fwec resolved claim amount material impact financial position results operations cash flows environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated ccera project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment even equipment installed ccera believes project’s sponsor would responsible pay equipment however sponsor may sufficient funds may assert responsible estimates cost installing additional control equipment approximately 30000 based last assessment foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 quarterly financial data unaudited 1 net income fiscal quarter ended december 26 2008 included increaseddecreased contract profit 1750 regular reevaluation final estimated contract profits 6540 global ec group 8290 global power group charge 9000 global power group primarily severancerelated postemployment benefits accordance sfas 112 net charge 37345 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2023 benefit 24100 related net impact deferred tax valuation allowance adjustments two nonus subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 quarterly financial data unaudited continued 2 net income quarter ended december 28 2007 included increaseddecreased contract profit 3310 regular reevaluation final estimated contract profits 3750 global ec group 7060 global power group charge 7374 cf group reflecting revaluation asbestos liability related asset net gain 4886 cf group settlement coverage litigation certain asbestos insurance carriers please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profits 21 redomestication foster wheeler ag incorporated laws switzerland november 18 2008 registered commercial register canton zug switzerland november 25 2008 whollyowned subsidiary foster wheeler ltd subsequent fiscal year ended december 26 2008 special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things holder whole common shares foster wheeler ltd par value 001 per share outstanding immediately transaction effected received registered shares foster wheeler ag par value chf 300 per share approximately 258 based exchange rate february 9 2009 date redomestication defined completed oneforone basis respect outstanding foster wheeler ltd common shares case fractional shares foster wheeler ltd cash fractional shares lieu registered shares foster wheeler ag additional paidin capital decreased amount scheme arrangement effectively changed place incorporation bermuda canton zug switzerland scheme arrangement approved common shareholders foster wheeler ltd january 27 2009 sanctioned supreme court bermuda january 30 2009 february 9 2009 following steps occurred pursuant scheme arrangement 1 fractional common shares foster wheeler ltd cancelled foster wheeler ltd paid holder fractional shares cancelled amount based average high low trading prices foster wheeler ltd common shares nasdaq global select market february 5 2009 business day immediately preceding effectiveness scheme arrangement 2 previously outstanding whole common shares foster wheeler ltd cancelled 3 foster wheeler ltd acting behalf shareholders issued 1000 common shares constituted foster wheeler ltd’s common shares time foster wheeler ag 4 foster wheeler ag increased share capital filed amended articles association reflecting share capital increase swiss commercial register 5 foster wheeler ag issued registered shares holders whole foster wheeler ltd common shares cancelled result scheme arrangement common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 21 redomestication continued connection consummation scheme arrangement • concurrently issuance registered shares holders whole foster wheeler ltd common shares foster wheeler ag issued holders preferred shares number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional common shares otherwise issuable • foster wheeler ag executed supplemental warrant agreement pursuant assumed foster wheeler ltd’s obligations warrant agreement agreed issue registered shares foster wheeler ag upon exercise warrants accordance terms • foster wheeler ag assumed foster wheeler ltd’s existing obligations connection awards granted foster wheeler ltd’s incentive plans similar employee awards refer foregoing transactions together steps scheme arrangement “redomestication” foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 21 redomestication continued following unaudited pro forma financial information presents consolidated shareholders’ equity december 26 2008 actual foster wheeler ltd adjusted foster wheeler ag redomestication completed december 26 2008 pro forma adjustments reflect completion redomestication including increase par value corresponding decrease additional paidin capital 28 payment cash fractional shares using foreign exchange rate chf 11618 100 exchange rate effect february 9 2009 fiscal year foster wheeler ltd 52 53week annual accounting period ending last friday december us operations december 31 nonus operations fiscal year foster wheeler ag ends december 31 calendar year result redomestication fiscal year purposes financial statement reporting filing obligations securities exchange commission changed foster wheeler ag foster wheeler ag’s fiscal quarters end last day march june september foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ag subsidiaries “the company” december 31 2009 december 26 2008 results operations cash flows three fiscal years period ended december 31 2009 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 14 consolidated financial statements company changed manner accounts uncertain tax positions fiscal year 2007 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 25 2010 foster wheeler ag subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement changes equity thousands dollars except share data see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag swiss corporation foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred throughout notes consolidated financial statements “redomestication” effectively changed place incorporation bermuda canton zug switzerland please see note 19 information related redomestication fiscal year foster wheeler ag ends december 31 calendar year foster wheeler ag’s fiscal quarters end last day march june september fiscal year foster wheeler ltd parent company prior redomestication 52 53week annual accounting period ending last friday december us operations december 31 nonus operations ended december 26 2008 fiscal year 2008 foster wheeler ag consolidated financial results represent period december 27 2008 december 31 2009 december 29 2007 december 26 2008 december 30 2006 december 28 2007 fiscal years 2009 2008 2007 respectively consolidated financial results include us operations fiscal year 52 53week annual accounting period ending last friday december nonus operations fiscal year ending december 31 although fiscal year parent company december 31 fiscal year fiscal quarter ending dates us nonus operations impacted redomestication evaluated subsequent events adjustment disclosure consolidated financial statements issuance consolidated financial statements february 25 2010 july 2009 financial accounting standards board “fasb” issued fasb accounting standards codificationtm “fasb asc” 10510 “the fasb accounting standards codificationtm hierarchy generally accepted accounting principles replacement fasb statement 162” fasb asc 10510 effective financial statements issued interim annual periods ended september 15 2009 established fasb asc sole source authoritative us generally accepted accounting principles “us gaap” recognized fasb applied nongovernmental entities rules interpretive releases securities exchange commission “sec” authority federal securities laws also sources authoritative us gaap sec registrants fasb asc supersedes nonsec accounting reporting standards amended references us gaap disclosures accordingly consolidated financial statements included annual report form 10k certain prior period amounts reclassified conform current year presentation principles consolidation consolidated financial statements include accounts foster wheeler ag significant us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated adopted statement financial accounting standards “sfas” 160 “noncontrolling interests consolidated financial statements amendment arb 51” codified fasb asc 8101065 beginning fiscal year 2009 fasb asc 8101065 amends accounting reporting standards foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued noncontrolling interest subsidiary formerly referred “minority interest” deconsolidation subsidiary fasb asc 8101065 noncontrolling interest subsidiary reported equity parent company’s consolidated financial statements fasb asc 8101065 also requires parent company’s consolidated statement operations include parent noncontrolling interest share subsidiary’s statement operations formerly noncontrolling interest share shown reduction income parent’s consolidated statement operations fasb asc 8101065 applied prospectively beginning fiscal year however presentation disclosure requirements applied retrospectively periods presented upon adoption fasb asc 8101065 reclassified minority interest liability separate section entitled “noncontrolling interests” within total equity consolidated balance sheet increased total equity 28718 december 26 2008 ii removed minority interest expense determination total net income consolidated statement operations increased total net income 7249 5577 fiscal years ended december 26 2008 december 28 2007 respectively iii included reduction net income attributable noncontrolling interests determination net income attributable foster wheeler ag successor foster wheeler ltd please see note 19 information related redomestication earnings per share consolidated statement operations correspond net income earnings per share figures previously reported capital alterations see “ basis presentation” note 19 information related redomestication january 8 2008 shareholders approved increase authorized share capital special general meeting common shareholders increase authorized share capital necessary order effect twoforone stock split common shares approved board directors november 6 2007 stock split effected january 22 2008 form stock dividend common shareholders record close business january 8 2008 ratio one additional foster wheeler ltd common share respect common share outstanding result references share capital number shares stock options restricted awards per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect stock split retroactive basis use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs progress toward completion customer vendor claims employee benefit plan obligations sharebased compensation plans addition also use estimates accounting uncertain tax positions deferred taxes asbestos liabilities expected recoveries assessing goodwill impairment among others revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total estimated contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change 43 33 38 separate projects final estimated contract profit revisions whose impact contract profit exceeded 1000 fiscal years 2009 2008 2007 respectively changes final estimated contract profit resulted net increase 69010 26720 35150 reported contract profit fiscal years 2009 2008 2007 respectively relating revaluation work performed contracts prior periods changes fiscal year 2009 included 24300 positive settlements two projects global engineering construction group “global ec group” 14800 associated receipt payment long outstanding arbitration award please see note 15 information related changes final estimated contract profit impact business segment results claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims additional contract revenue probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process december 31 2009 consolidated financial statements assumed recovery commercial claims 18700 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued 1200 yet expended december 26 2008 consolidated financial statements assumed recovery commercial claims 11200 expended certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract 1200 deferred precontract costs december 31 2009 deferred precontract costs december 26 2008 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives corresponding service contracts cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less date acquisition cash equivalents 772565 622907 maintained nonus entities december 31 2009 december 26 2008 respectively entities require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly portion funds may readily available repatriation us entities shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost plus accrued interest approximates fair value trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity relevant industry accounting standards however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively consolidated balance sheet inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 9636 15142 december 31 2009 december 26 2008 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued restricted cash following table details restricted cash held investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently investments affiliates investment ownership 20 greater consolidated recorded using equity method affiliates investment ownership less 20 carried cost intangible assets intangible assets consist principally goodwill trademarks patents goodwill allocated reporting units relative fair value basis time original purchase price allocation patents trademarks amortized straightline basis periods 3 40 years customer relationships pipeline backlog amortized straightline basis periods 1 13 years following table provides rollforward goodwill balances foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table provides net carrying amount goodwill geographic region reporting units located test goodwill impairment reporting unit level defined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists two reporting units one within global power group business segment one within global ec group business segment goodwill impairment test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter fiscal year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill tracked accumulated goodwill impairments since december 29 2001 first day fiscal year 2002 date adoption sfas 142 “goodwill intangible assets” codified fasb asc 35020 december 31 2009 december 26 2008 estimated fair value reporting units sufficiently excess carrying values even conducting various sensitivity analyses key assumptions adjustment carrying values goodwill required april 2009 acquired substantially assets offshore engineering division ope holdings ltd conjunction acquisition recorded 6433 goodwill 2450 identifiable intangible assets october 2009 acquired substantially assets houston operations atlas engineering inc conjunction acquisition recorded 15872 goodwill 14446 identifiable intangible assets july 2008 acquired majority assets work force engineering design company engineering center kolkata india conjunction acquisition recorded 6610 goodwill 330 identifiable intangible assets february 2008 acquired biopharmaceutical engineering company based philadelphia pennsylvania conjunction acquisition recorded 5523 goodwill 3600 identifiable intangible assets please see note 2 information related acquisitions intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued net unamortized identifiable intangible assets 73029 59874 december 31 2009 december 26 2008 respectively 73029 identifiable intangible assets december 31 2009 53265 related global power group 19764 related global ec group following table details amounts relating identifiable intangible assets amortization expense related identifiable intangible assets recorded within cost operating revenues consolidated statement operations totaled 5640 4716 3649 fiscal years 2009 2008 2007 respectively following table shows approximate amortization expense next five years income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions make provision incremental income taxes subsidiary earnings retained subsidiary’s country domicile expect earnings indefinitely reinvested jurisdiction unremitted earnings subsidiaries intended permanently reinvested incremental income tax provided aggregated 296154 december 31 2009 practicable estimate additional tax would incurred amounts repatriated foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement recognize interest accrued potential tax liability related unrecognized tax benefits interest expense recognize potential penalties deductions net consolidated statement operations foreign currency functional currency nonus operations typically local currency country domicile assets liabilities nonus subsidiaries translated us dollars periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses fiscal years 2009 2008 2007 follows fair value measurements fiscal year 2008 adopted sfas 157 codified fasb asc 82010 “fair value measurements disclosures” except nonfinancial assets liabilities recognized disclosed fair value nonrecurring basis date adoption beginning first fiscal quarter 2009 fasb asc 82010 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements fair value defined price would received sell asset paid transfer liability orderly transaction market participants measurement date fasb asc 82010 establishes fair value hierarchy prioritizes inputs used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs financial assets liabilities recorded fair value recurring basis consist primarily assets liabilities arising derivative financial instruments defined benefit pension plan assets value derivative financial instruments using broker quotations market transactions either listed overthecounter markets resulting fair value measurements using level 2 inputs defined fair value hierarchy see note 9 information regarding derivative financial instruments following methods assumptions used estimate fair value class financial instruments practicable estimate fair value financial instruments valued independent fair value hierarchy • cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value demand nature many deposits shortterm maturity instruments foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued financial instruments valued within level 2 fair value hierarchy • shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost plus accrued interest approximates fair value • longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities • foreign currency forward contracts estimate fair value foreign currency forward contracts obtaining quotes financial institutions market transactions either listed overthecounter markets corroborate observable market data • interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions corroborate observable market data • defined benefit pension plan assets estimate fair value defined benefit pension plan assets based quotes obtained financial institutions corroborate observable market data external legal fees external legal fees expensed incurred recorded deductions net consolidated statement operations exception external legal fees associated asbestos defense costs please see note 17 information related accounting asbestos defense costs incurred external legal fees excluding asbestos defense costs 16400 23100 20504 fiscal years 2009 2008 2007 respectively include external legal fees related project claims restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments retirement registered shares registered share repurchase program september 12 2008 announced share repurchase program pursuant foster wheeler ltd’s board directors authorized repurchase 750000 foster wheeler ltd’s outstanding common shares connection redomestication foster wheeler ag adopted share repurchase program pursuant authorized repurchase 264800 outstanding registered shares designate repurchased shares cancellation amount authorized repurchase registered shares foster wheeler ag program equal amount remained available repurchases foster wheeler ltd program february 9 2009 date completion redomestication foster wheeler ag program replaces foster wheeler ltd program repurchases made foster wheeler ltd program repurchases made discretion open market privately negotiated transactions compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number registered shares program expiration date may suspended discontinued time registered shares acquired registered share repurchase program immediately retired upon purchase registered share value consolidated balance sheet reduced par value retired registered shares paidin capital consolidated balance sheet reduced excess fair value related fees paid par value registered shares acquired foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued registered shares retired registered share repurchase program reduce weightedaverage number registered shares outstanding reporting period calculating earnings per share described earnings per share basic earnings per share computed dividing net income attributable foster wheeler ag weightedaverage number shares outstanding reporting period excluding nonvested restricted shares nonvested restricted shares december 31 2009 82980 165960 december 26 2008 december 28 2007 respectively restricted shares restricted share units collectively “restricted awards” included weightedaverage number shares outstanding restricted awards vest diluted earnings per share computed dividing net income attributable foster wheeler ag combination weightedaverage number shares outstanding reporting period impact dilutive securities outstanding stock options warrants purchase shares nonvested portion restricted awards extent securities dilutive profitable periods outstanding stock options warrants dilutive effect treasury stock method average share price period exceeds assumed proceeds exercise warrant option assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds computations basic diluted earnings per share follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table summarizes share equivalent potentially dilutive securities excluded denominator used calculation diluted earnings per share due antidilutive effect sharebased compensation plans estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted awards using market price shares date grant recognize fair value restricted award compensation cost ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest recent accounting developments june 2009 fasb issued authoritative guidance requires enterprise qualitatively assess determination primary beneficiary “consolidator” variable interest entity “vie” based whether entity 1 power direct matters foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued significantly impact activities vie 2 obligation absorb losses right receive benefits vie could potentially significant vie guidance changes consideration kickout rights ability remove enterprise power direct activities vie determining entity vie may cause certain additional entities considered vies contrast prior authoritative guidance new guidance requires ongoing reconsideration primary beneficiary also amends events trigger reassessment whether entity vie guidance effective financial statements issued fiscal years beginning november 15 2009 currently assessing impact guidance may consolidated financial statements disclosures 2 business combinations october 2009 acquired substantially assets houston operations atlas engineering inc privately held company purchase price approximately 21000 purchase price may increased estimated 12000 contingent consideration depending acquired company’s ebitda first three years closing date recorded liability 9318 consolidated balance sheet estimated fair value contingent consideration acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment april 2009 acquired substantially assets offshore engineering division ope holdings ltd canadian company listed tsx venture exchange refer ope purchase price approximately 8900 purchase price may increased 500 acquired company meets certain performance targets first year closing date acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment july 2008 acquired majority assets work force engineering design company 6500 plus 1500 paid certain performance milestones met following two years company engineering center kolkata india provides engineering services petrochemical refining upstream oil gas power industries purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment february 2008 acquired outstanding capital stock biopharmaceutical engineering company based philadelphia pennsylvania 8545 plus 3638 paid following three years certain conditions met plus additional 8700 paid certain performance milestones met following three years company provides design engineering manufacture installation validation startupcommissioning services life sciences industry purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment february 2007 purchased stock finnish company owns patented coal flow measuring technology purchase price net cash acquired 1112 approximately 1473 exchange rate effect time acquisition purchase price allocation pro forma financial information acquisition material consolidated financial statements company’s financial results included within global power group business segment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued 3 accounts notes receivable following table shows components trade accounts notes receivable following table shows components accounts notes receivable net 4 land buildings equipment land buildings equipment stated cost set forth depreciation expense fiscal years 2009 2008 2007 39357 39271 34576 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment continued certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 equity interests noncontrolling equity interest two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile also 50 noncontrolling equity interest project based italy generates earnings royalty payments linked price natural gas two electric power generation projects italy 42 owned us wastetoenergy project 39 owned us wind farm project 50 owned us project chile 85 owned us however controlling interest project result participating rights held minority shareholder account investments italy chile equity method following summarized financial information entities whole equity interest equity net earnings partiallyowned affiliates recorded within income net consolidated statement operations totaled 34953 33905 36445 fiscal years 2009 2008 2007 respectively investment equity affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet totaled 215280 200352 december 31 2009 december 26 2008 respectively distributions 25486 24452 23784 received fiscal years 2009 2008 2007 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 equity interests continued guaranteed certain performance obligations chile based project contingent obligation measured annually based operating results chile based project preceding year current payment obligation guarantee december 31 2009 also guaranteed obligations subsidiary chile based project’s operations maintenance agreement guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee addition provided 10000 debt service reserve letter credit cover debt service payments event chile based project generate sufficient cash flows make payments required maintain debt service reserve letter credit term chile based project’s debt matures 2014 december 31 2009 amounts drawn letter credit chile based project’s operations maintenance agreement subsidiary provides services management operation maintenance refineryelectric power generation facility fees services 8464 9312 8309 fiscal years 2009 2008 2007 respectively recorded operating revenues consolidated statement operations receivable partiallyowned affiliate chile 4916 12615 recorded trade accounts notes receivable net consolidated balance sheet december 31 2009 december 26 2008 respectively share undistributed retained earnings equity investees amounted 122337 107271 december 31 2009 december 26 2008 respectively 6 longterm debt following table shows components longterm debt foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 longterm debt continued us senior credit agreement october 2006 executed fiveyear us senior credit agreement used us nonus operations senior credit agreement amended may 2007 provides facility 450000 includes provision permits future incremental increases 100000 total availability facility issue 450000 letter credit facility portion letters credit issued us senior credit agreement performance pricing decreased increased result improvements reductions credit rating us senior credit agreement reported moody’s investors service andor standard poor’s “sp” also option use 100000 450000 revolving borrowings rate equal adjusted libor plus 150 subject also performance pricing noted result improvement sp credit rating march 2007 achieved continue maintain lowest possible pricing performance pricing provisions us senior credit agreement december 18 2008 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered additional amendment us senior credit agreement amendment includes consent lenders credit agreement redomestication addition amendment reflects addition foster wheeler ag guarantor obligations credit agreement reflects changes relating foster wheeler ag becoming ultimate parent foster wheeler ltd subsidiaries upon completion redomestication amendment became effective upon consummation redomestication february 9 2009 assets andor stock certain us nonus subsidiaries collateralize obligations us senior credit agreement us senior credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ag change foster wheeler ag’s fiscal year respect foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business addition us senior credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined us senior credit agreement must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions us senior credit agreement approximately 308000 273500 letters credit outstanding agreement december 31 2009 december 26 2008 respectively letter credit fees ranged 150 160 outstanding amount excluding fronting fee 0125 per annum funded borrowings agreement december 31 2009 december 26 2008 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 longterm debt continued capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows following minimum lease payments made years indicated capital lease obligations december 31 2009 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facilities wastetoenergy wind farm projects majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance chile based project camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located camden new jersey united states fw power srl owner certain electric power generating wind farms italy project financing wind farm project base facility valueadded tax “vat” facility base facility variable interest rate based upon 6month euribor plus 15 repayable semiannually based upon predefined payment schedule june 30 2015 vat facility variable interest rate based upon 6month euribor plus 09 repayable semiannually based upon actual vat received commercial operation december 31 2010 december 2007 fw power srl refinanced original base vat facilities new base vat facilities also secured new base vat facilities second wind farm project new base facilities bear interest variable rates based upon 6month euribor plus spread varying 08 11 throughout life debt repayable semiannually based upon predefined payment schedule foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 longterm debt continued december 31 2019 new vat facilities bear interest based upon 6month euribor plus spread 05 repayable semiannually based upon actual vat received commercial operation june 30 2010 december 31 2013 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75300 approximately 108500 exchange rate december 31 2009 executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 9 “derivative financial instruments interest rate risk” accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 1493 1893 respectively december 31 2009 energia holdings llc debt bears interest 11443 due annually matures april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois us assumed certain subordinated obligations subordinated obligations included 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999d bonds paid full scheduled maturity dates 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date october 3 2008 acquired 19208 1999c bonds due 2024 19016 cash plus accrued unpaid interest date term loans china fiscal year 2008 one china based subsidiaries entered term loan interest rate 657 maturity date december 29 2008 fiscal year 2009 term loan repaid scheduled maturity date also fiscal year 2009 china based subsidiary entered new term loan 20 million chinese yuan renminbi approximately 2926 exchange rate effect inception term loan interest rate 4374 new term loan matured january 8 2010 china based subsidiary enter new term loan estimated fair values estimated fair values longterm debt 222165 227866 december 31 2009 december 26 2008 respectively estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities interest costs interest costs incurred fiscal years 2009 2008 2007 17167 16462 18603 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 longterm debt continued aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows 7 pensions postretirement benefits defined benefit pension plans united states united kingdom france canada finland postretirement benefit plans health care life insurance benefits united states canada also defined contribution plans united states united kingdom finally certain benefit plans including government mandated postretirement programs recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet recognize gains losses recognized component annual service cost component comprehensive income net tax record net actuarial losses prior service costcredits net transition obligationsassets within accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans cover certain fulltime employees plans retirement benefits primarily function years service level compensation us pension plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued defined benefit pension obligations funded status recognized funded status defined benefit pension plans consolidated balance sheet part foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued recognized following amounts consolidated balance sheet estimated net actuarial loss prior service credit net transition obligation amortized accumulated comprehensive loss net periodic benefit cost next fiscal year approximately 23100 300 100 respectively accumulated benefit obligation aggregated accumulated benefit obligation defined benefit pension plans 1016944 886259 december 31 2009 december 26 2008 respectively information defined benefit pension plans accumulated benefit obligation excess plan assets 1 balances fiscal year ended december 31 2009 include information two united kingdom plans since plan assets plans exceeded accumulated benefit obligation 2 balances fiscal year ended december 26 2008 include information one united kingdom plans since plan assets plan exceeded accumulated benefit obligation foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued components net periodic benefit costincome changes recognized comprehensive income na applicable plan frozen future salary levels affect benefits payable chargesgains recorded related settlement pension obligations former employees fiscal year 2009 united kingdom canada finland totaling net charge 243 fiscal year 2008 united kingdom canada totaling charge 886 longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 69 73 past three years plan assets defined benefit pension plans united states united kingdom canada governed written investment policy pension plans finland france plan assets foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class current investment policy us plan includes allocation among asset classes follows 60 equities 40 fixed income 0 cash equivalents subject range 10 exception plan contributions temporarily awaiting longerterm investment policy uk plans designed respond changes funding levels currently asset mix 60 bonds 40 equities target 50 bonds 50 equities depending timing plan contributions investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 50 equities 45 bonds 5 cash minimum maximum allocations 40 60 equities 40 50 bonds 0 10 cash investments exposed various risks interest rate market credit risks due level uncertainty related certain investment securities least reasonably possible changes values investment securities occur near term changes could materially affect fair value defined benefit plan assets turn would result change net pension benefit liability consolidated balance sheet accordingly valuation investments fiscal year end may indicative future valuations amounts could realized upon future liquidation develop investment policies plans take risks account continually review investment policies ensure investment strategy aligned plan liabilities projected plan benefit payments based current holdings believe individual pension plans exposed significant concentration risk particular sector asset class plan assets valued established framework measuring fair value accordance us generally accepted accounting principles see note 1 information regarding measurement fair value us generally accepted accounting principles accounting policy plan assets measured within fair value framework consist comingled funds equity securities quoted prices active markets used value investments available investments valued closing price available last reported bid price comingled funds valued net asset value underlying securities valued quoted prices active markets using observable prices market transactions involving identical comparable securities foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued fair values defined benefit pension plan assets december 31 2009 asset category follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued 1 primarily us equity securities focus longterm returns 2 primarily global equity securities focus longterm returns 3 primarily corporate fixed income securities focus intermediateterm longterm maturities 4 primarily us government investmentgrade fixedincome securities focus current income capital preservation 5 publicly traded uk based equity securities 6 primarily uk equity securities focus longterm returns 7 primarily us equity securities focus tax efficient returns 8 primarily investmentgrade corporate bonds focus maturities 15 years longer 9 primarily uk government fixed income securities focus maturities five years longer 10 primarily uk government fixed income securities focus maturities 15 years longer 11 primarily shortterm maturities two years less various issuers focus preservation capital 12 primarily canadian equity securities focus longterm returns 13 primarily canadian government investmentgrade fixedincome securities focus current income capital preservation 14 primarily canadian government corporate fixed income securities investments comingled bond funds focus current income contributions based minimum statutory funding requirements fiscal year 2010 required make mandatory contributions us pension plans based minimum statutory funding requirements fiscal year 2010 expect contribute total mandatory contributions approximately 33700 nonus pension plans estimated future benefit payments expect make following benefit payments defined benefit pension plans postretirement benefit plans certain employees united states canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined us canadian pension plans working us foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued additionally one subsidiaries united states also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities sip 15904 14590 december 31 2009 december 26 2008 respectively reflected postretirement benefit obligation funded status information assets held fund benefits provided sip reflect cash surrender value insurance polices purchased cover obligations sip totaled 5201 5633 december 31 2009 december 26 2008 respectively assets recorded assets consolidated balance sheet reflected postretirement benefit obligation funded status information postretirement benefit obligation funded status recognized funded status postretirement benefit plans consolidated balance sheet part foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued recognized following amounts accumulated comprehensive loss estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year approximately 200 4000 respectively components net periodic postretirement benefit cost changes recognized comprehensive income foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects contributions expect contribute total approximately 6700 postretirement benefit plans fiscal year 2010 estimated future postretirement benefit payments expect make following postretirement benefit payments defined contribution plans us subsidiaries 401k plan salaried employees fiscal years 2009 2008 matched 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code fiscal year 2007 matched 100 first 3 50 next 3 base pay employee contributions subject annual internal revenue code limit fiscal year 2007 prior 401k plan also provided discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors discretionary employer 401k contribution paid fiscal year 2007 discretionary employer contribution discontinued fiscal year 2008 connection adoption new contribution match eligible base pay limits described total us subsidiaries contributed approximately 7800 9000 5600 401k plan fiscal years 2009 2008 2007 respectively beginning fiscal year 2008 us subsidiaries also roth 401k plan salaried employees effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed approximately 4900 3400 2600 fiscal years 2009 2008 2007 respectively defined contribution plan foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 pensions postretirement benefits continued benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 24954 26563 recorded within pension postretirement employee benefits consolidated balance sheet december 31 2009 december 26 2008 respectively related benefits 8 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable standby letters credit bank guarantees surety bonds totaling 943100 914500 december 31 2009 december 26 2008 respectively primarily performance guarantees balances include standby letters credit issued us senior credit agreement discussed note 6 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations refineryelectric power generation project based chile hold noncontrolling equity interest see note 5 information 9 derivative financial instruments exposed certain risks relating ongoing business operations risks managed using derivative financial instruments relate primarily foreign currency exchange rate risk significantly foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 derivative financial instruments continued lesser extent interest rate risk derivative financial instruments recognized assets liabilities fair value consolidated balance sheet foreign currency exchange rate risk operate worldwide basis substantial operations europe subject us dollar translation risk mainly relative euro british pound risk management policies hedge translation risk exposure activities nonus affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 derivative financial instruments continued notional amount provides one measure transaction volume outstanding balance sheet date amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature fiscal years 2010 2011 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains gain loss portion marktomarket adjustment related completed portion underlying contract included cost operating revenues time underlying foreign currency exposure occurs gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying contract reflected directly cost operating revenues period foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 derivative financial instruments continued marktomarket adjustment occurs incremental gain loss remaining uncompleted portion contracts follows marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses primarily recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet fiscal years 2009 2008 2007 included net cash outflowsinflows settlement derivatives 10600 8410 5253 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows interest rate risk use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt aggregate notional amount receivevariablepayfixed interest rate swaps 85100 december 31 2009 upon entering swap contracts designate interest rate swaps cash flow hedges assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income see note 13 related tax benefits cash flow hedges recognized comprehensive income fiscal years ended december 31 2009 december 26 2008 december 28 2007 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 preferred shares issued 599944 preferred shares connection 2004 equityfordebt exchange convertible holder’s option 130 common shares foster wheeler ltd connection redomestication february 9 2009 holders preferred shares received number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional shares otherwise issuable see note 19 information related redomestication 11 sharebased compensation plans sharebased compensation plans include restricted awards stock option awards compensation cost sharebased plans 22781 15766 7095 charged income fiscal years 2009 2008 2007 respectively related income tax benefit recognized consolidated statement operations 448 332 246 fiscal years 2009 2008 2007 respectively received 546 2791 18076 cash option exercises sharebased compensation plans fiscal years 2009 2008 2007 respectively december 31 2009 18344 17451 total unrecognized compensation cost related stock options restricted awards respectively costs expected recognized expense weightedaverage period approximately 26 months omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted stock units performancecontingent shares performancecontingent units cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaces prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued authorized unissued shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance fasb asc 48010s993a formerly eitf topic d98 “classification measurement redeemable securities” adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued reconciliation temporary equity fiscal years ended december 31 2009 december 26 2008 follows articles association provide conditional capital 63207957 registered shares issuance registered shares sharebased compensation plans outstanding share purchase warrants convertible securities may issue future conditional capital decreases upon issuance registered shares connection exercise outstanding stock options vesting restricted stock units offsetting increase issued share capital december 31 2009 remaining available conditional capital 62181928 shares prior sharebased compensation plans connection redomestication foster wheeler ag assumed foster wheeler ltd’s obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards see note 19 information related redomestication september 2004 board directors adopted 2004 stock option plan “2004 plan” reserved 7334730 shares issuance 2004 plan provided shares issued come authorized unissued shares board directors determined price options granted pursuant 2004 plan options granted 2004 plan expire maximum three years date granted noted awards granted 2004 plan october 2001 granted 130000 inducement options exercise price 4985 per share chief executive officer connection employment agreement options vested 20 year term agreement price options granted pursuant agreements fair market value date grant options granted agreement expire ten years date granted april 1995 shareholders approved 1995 stock option plan “1995 plan” 1995 plan amended april 1999 may 2002 reserved 530000 shares issuance 1995 plan provided shares issued come authorized unissued reacquired shares price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant 1995 plan could exercised within one year date grant option exercised ten years date granted noted awards granted 1995 plan april 1990 shareholders approved stock option plan directors foster wheeler “directors plan” april 29 1997 shareholders approved amendment directors plan authorized granting options purchase 40000 shares nonemployee directors foster wheeler directors plan provided shares issued come authorized unissued reacquired shares price options granted pursuant plan could less 100 fair market value foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued shares date grant options granted pursuant directors plan could exercised within one year date grant option exercised ten years date granted noted awards granted directors plan stock option awards summary stock option activity fiscal years 2009 2008 2007 presented following table summarizes outstanding stock options december 31 2009 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued following table summarizes exercisable stock options december 31 2009 calculated intrinsic value options exercise price lower market price shares december 31 2009 aggregate intrinsic value outstanding options exercisable options december 31 2009 calculated difference market price shares exercise price underlying options exercise price lower market price shares date total intrinsic value options exercised fiscal years 2009 2008 2007 483 7320 88828 respectively determined date exercise december 31 2009 18334 total unrecognized compensation cost related stock options cost expected recognized expense weightedaverage period approximately 27 months restricted awards restricted awards consist restricted shares restricted share units summary restricted share activity fiscal years 2009 2008 2007 presented december 31 2009 restricted shares outstanding foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued summary restricted share unit activity fiscal years 2009 2008 2007 presented december 31 2009 17451 total unrecognized compensation cost related restricted awards cost expected recognized weightedaverage period approximately 26 months total fair value restricted awards vested fiscal years 2009 2008 2007 16043 8946 33408 respectively 12 share purchase warrants connection equityfordebt exchange consummated 2004 foster wheeler ltd issued 4152914 class common share purchase warrants 40771560 class b common share purchase warrants connection redomestication foster wheeler ag assumed foster wheeler ltd’s obligations related warrant agreement agreed issue registered shares foster wheeler ag upon exercise outstanding warrants accordance stated terms see note 19 information related redomestication class warrant entitled owner purchase 33682 registered shares exercise price 4689 per registered share thereunder subject terms warrant agreement warrant agent us connection redomestication accordance terms warrant agreement extended expiration date class warrants september 24 2009 october 2 2009 “extended maturity date” result periods january 27 2009 january 30 2009 february 3 2009 february 6 2009 warrants exercisable class b warrant entitled owner purchase 01446 common shares exercise price 4689 per common share thereunder subject terms conditions warrant agreement warrant agent foster wheeler ltd remaining outstanding class warrants expired extended maturity date class b warrants expired september 24 2007 cumulatively december 31 2009 4148983 class warrants 38730407 class b warrants exercised 20324595 shares also connection equityfordebt exchange consummated 2004 entered registration rights agreement certain selling security holders agreed file registration statement cover resales securities held immediately following exchange offer filed registration statement accordance agreement october 29 2004 registration statement initially became effective december 23 2004 subject selling security holders providing us necessary information accordance registration rights agreement required keep effective registration statement covering resales security holders december 23 2009 unless certain events occurred terminate obligations registration rights agreement prior date failed maintain registration statement required became unavailable two 45day periods foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 share purchase warrants continued consecutive 12month period required pay damages rate 137 per day registration statement effective incur damages registration rights agreement 13 comprehensive income adjustments included total comprehensive income foreign currency translation net gainloss cash flow hedges pension postretirement benefits related tax provisionbenefit balances attributable noncontrolling interests foster wheeler ag tax currently provided foreign currency translation adjustments comprehensive income relate earnings indefinitely reinvested subsidiary’s country domicile components accumulated comprehensive loss foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 income taxes components incomeloss income taxes fiscal years 2009 2008 2007 following tax jurisdictions provision income taxes follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 income taxes continued deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus tax benefits valuation allowance based consideration available evidence indicates likely deferred tax assets realized fiscal year 2009 valuation allowance increased 14118 primarily result increase tax rates various jurisdictions particularly several states within us resulting increase deferred assets full valuation allowance provided increase partially offset net valuation allowance reduction due increased earnings jurisdictions full valuation allowance previously recorded fiscal year 2008 reversed valuation allowance previously established one nonus operating units due improved operational performance positive evidence indicates likely deferred tax assets jurisdiction realized valuation allowance reduction offset need increase valuation allowance related deferred tax assets certain jurisdictions statutory purposes majority deferred tax assets valuation allowance provided begin expiring fiscal year 2025 later based current tax laws foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 income taxes continued subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2005 fiscal year 2008 settled tax audit asia pacific region resulted 3200 reduction unrecognized tax benefits corresponding reduction provision income taxes number tax years audit relevant state nonus tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2010 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time adopted new guidance related accounting uncertain tax positions december 30 2006 first day fiscal year 2007 result adoption recognized 4356 reduction opening balance shareholders’ equity resulted changes amount tax benefits recognized related uncertain tax positions accrual interest penalties reconciliation beginning ending amount unrecognized tax benefit follows december 31 2009 58846 unrecognized tax benefits 58267 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations fiscal year 2009 recorded net reduction interest expense 3046 included 5060 previously accrued interest expense ultimately assessed net penalties unrecognized tax benefits 2481 included 2706 previously accrued tax penalties ultimately assessed fiscal year 2008 recorded interest expense unrecognized tax benefits 1158 net reduction penalties unrecognized tax benefits 2351 net previously accrued tax penalties ultimately assessed 5000 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 income taxes continued fiscal year 2007 recorded interest expense unrecognized tax benefits 1252 penalties unrecognized tax benefits 1485 net previously accrued tax penalties ultimately assessed 5000 provision income taxes differs amount income tax determined applying applicable us statutory rate income taxes result following 15 business segments operate two business groups global ec group global power group global ec group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels global ec group generates revenues engineering procurement construction project management activities pursuant contracts spanning approximately four years duration returns equity investments various power production facilities global ec group provides following services • design engineering project management construction management services including procurement equipment materials services thirdparty suppliers contractors • environmental remediation services together related technical engineering design regulatory services • development engineering procurement construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe • design supply directfired furnaces used wide range refining petrochemical chemical oil gas processes including fired heaters waste heat recovery units addition global ec group also designs supplies fired heaters form integral part proprietary delayed coking hydrogen production technologies foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued global power group global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial facilities worldwide owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments several power production facilities global power group’s steam generating equipment includes full range technologies offering independent power producers utilities industrial clients highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste steam used power generation district heating industrial processes global power group offers several products services related steam generators • designs manufactures installs auxiliary replacement equipment utility power industrial facilities including surface condensers feed water heaters coal pulverizers steam generator coils panels biomass gasifiers replacement parts steam generators • nitrogenoxide “nox” reduction systems components pulverized coal steam generators selective catalytic reduction systems low nox combustion systems low nox burners primary combustion overfire air systems components fuel combustion air measuring control systems components • broad range site services including construction erection services maintenance engineering steam generator upgrading life extension plant repowering • research development areas combustion fluid gas dynamics heat transfer materials solid mechanics • technology licenses steam generator suppliers select countries corporate finance group addition two business groups also represent operating segments financial reporting purposes report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group “cf group” also treat operating segment financial reporting purposes conduct business global basis global ec group accounted largest portion operating revenues last ten years fiscal year 2009 global ec group accounted 80 total operating revenues global power group accounted 20 total operating revenues foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued geographic dispersion operating revenues fiscal year 2009 based upon project executed follows australasia primarily represents australia south africa new zealand pacific islands one client accounted approximately 24 12 consolidated operating revenues inclusive flowthrough revenues fiscal years 2009 2008 2007 respectively however associated flowthrough revenues included percentages accounted approximately 22 20 9 consolidated operating revenues fiscal years 2009 2008 2007 respectively single client accounted ten percent consolidated revenues fiscal years 2009 2008 2007 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate insurance receivables foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued ebitda primary measure operating performance used chief operating decision maker define ebitda net income attributable foster wheeler ag interest expense income taxes depreciation amortization reconciliation ebitda net income attributable foster wheeler ag shown foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 includes fiscal year 2009 increased contract profit 69010 regular revaluation final estimated contract profit 66700 global ec group 2310 global power group charge 12400 severancerelated postemployment benefits 8700 global ec group 3700 cf group net charge 26365 cf group revaluation asbestos liability related asset primarily resulting increased asbestos defense costs projected fiscal year 2024 rolling 15year asbestos liability estimate 3 includes fiscal year 2008 increaseddecreased contract profit 26720 regular revaluation final estimated contract profit 46260 global ec group 19540 global power group charge 9000 global power group primarily severancerelated postemployment benefits net charge 6607 cf group revaluation asbestos liability related asset resulting charge 42727 primarily related increased asbestos defense costs projected fiscal year 2023 partially offset gain 36120 settlement coverage litigation certain asbestos insurance carriers 4 includes fiscal year 2007 increaseddecreased contract profit 35150 regular revaluation final estimated contract profit 54520 global ec group 19370 global power group net gain 6145 cf group revaluation asbestos liability related asset resulting gain 13519 settlement coverage litigation certain asbestos insurance carriers partially offset charge 7374 primarily rolling 15year asbestos liability estimate please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site australasia primarily represents australia south africa new zealand pacific islands thirdparty revenues determined based upon location contracting subsidiary presented switzerland country domicile foster wheeler ag foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 business segments continued longlived assets presented based geographic region contracting subsidiary located australasia primarily represents australia south africa new zealand pacific islands december 31 2009 december 26 2008 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 1065 20 respectively operating revenues industry follows 16 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 operating leases continued 65570 65644 54293 fiscal years 2009 2008 2007 respectively future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4036 4575 4602 fiscal years 2009 2008 2007 respectively december 31 2009 december 26 2008 balance deferred gains 47691 47477 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 17 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued approximately 125100 open claims subsidiaries respondents approximately 30400 open claims wherein administrative agreements named defendants lawsuits involving approximately 94700 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 61 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed approximately 10 request damages ranging 1 50 approximately 22 request damages ranging 51 1000 approximately 6 request damages ranging 1001 10000 remaining 1 request damages ranging 10001 small number cases 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated fiscal year 2024 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date since fiscal yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2009 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal year 2009 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2024 considering advice arpc fiscal year 2009 revalued liability asbestos indemnity defense costs fiscal year 2024 376500 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 26400 fiscal year 2009 primarily increased asbestos defense costs projected fiscal year 2024 rolling 15year asbestos liability estimate amount paid asbestos litigation defense case resolution 63500 70600 86700 fiscal years 2009 2008 2007 respectively fiscal year 2009 payments made exceeded proceeds foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued settlements insurers 24400 december 31 2009 total cumulative indemnity costs paid approximately 692300 total cumulative defense costs paid approximately 315600 december 31 2009 total asbestosrelated liabilities comprised estimated liability 141600 relating open outstanding claims valued estimated liability 234900 relating future unasserted claims fiscal year2024 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2024 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2024 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred fiscal year 2024 historically defense costs represented approximately 31 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 31 2009 approximately 28 average cost per resolved claim increasing believe continue increase future asbestosrelated asset recorded within accounts notes receivableother december 31 2009 reflects amounts due next 12 months executed settlement agreements insurers includes estimate future settlement recorded asbestosrelated insurance recovery receivable includes estimate recoveries insurers unsettled insurance coverage litigation referred based upon application new jersey law certain insurance coverage issues assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since fiscal yearend 2005 worked peterson risk consulting llc nationally recognized experts united states respect estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting llc provided analysis unsettled insurance asset december 31 2009 utilized analysis determine estimate value unsettled insurance asset december 31 2009 december 31 2009 estimated value unsettled asbestos insurance asset related ongoing litigation new york state court subsidiaries’ insurers 43500 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred fiscal year 2007 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage four insurers including two fourth fiscal quarter result settlements recorded gain 13500 fiscal year 2007 fiscal year 2008 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage three additional insurers result settlements recorded gain 36100 fiscal year 2008 intend continue attempt negotiate additional settlements insurers achievable reasonable basis order minimize amount future costs would required fund cash flows generated operations unless settle remaining insurers recovery amounts significantly excess current estimate likely amount insurance settlements cover future asbestosrelated costs required fund portion future costs reduce cash flows working capital fiscal year 2006 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers result increased insurance asset recorded gain 19500 february 13 2007 subsidiaries’ insurers granted permission appellate court appeal decision new york court appeals state’s highest court october 11 2007 new york court appeals upheld appellate court decision favor even coverage litigation resolved manner favorable us insurance recoveries litigation settlements may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving material amounts insurers could material adverse effect financial condition cash flows based fiscal yearend 2009 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 57500 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline fiscal year 2009 net cash outflows 24400 result payments related asbestos liability indemnity defense costs excess insurance settlement proceeds received fiscal year 2010 expect net cash outflows approximately 23900 assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 932 claims brought uk subsidiaries 373 remained open december 31 2009 none settled claims resulted material costs us december 31 2009 recorded total liabilities 39300 comprised estimated liability relating open outstanding claims 10300 estimated liability relating future unasserted claims fiscal year 2024 29000 total 3500 recorded accrued expenses 35800 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 3500 recorded accounts notes receivableother 35800 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability related asset recorded uk would approximately 57900 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims described herein amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows power plant arbitration eastern europe june 2006 commenced arbitration client seeking final payment services connection two power plants designed built eastern europe dispute primarily concerns whether liable client liquidated damages “lds” contract delayed completion projects client contends owed lds limited contract approximately 37600 approximately 54200 exchange rate effect december 31 2009 retaining security lds approximately 22000 approximately 31700 exchange rate foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued effect december 31 2009 contract payments otherwise due us work performed client contends owed additional 6900 approximately 9900 exchange rate effect december 31 2009 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects cost various warranty repairs punch list work seeking payment 22000 approximately 31700 exchange rate effect december 31 2009 recorded within contracts process consolidated balance sheet retention held client lds plus approximately 4900 approximately 7100 exchange rate effect december 31 2009 interest retained funds well approximately 9100 approximately 13100 exchange rate effect december 31 2009 additional compensation extra work performed beyond original scope contracts client’s failure procure required property insurance project provided coverage damages incurred project related turbine repairs october 2008 liability award arbitration panel favor received award includes amounts “fixed” amounts require substantiation hearing damages damage hearing took place september 2009 february 2010 received arbitration panel’s award amount awarded approximately 2000 approximately 2900 exchange rate effect december 31 2009 lower estimate financial statements reflect revised estimate power plant dispute ireland 2006 dispute arose client material corrosion occurred two power plants designed built ireland began operation december 2005 june 2006 also corrosion occurred subcontractorprovided emissions control equipment induction fans backend power plants due principally low set point temperature design emissions control equipment set subcontractor identified technical solutions resolve boiler tube corrosion emissions control equipment corrosion fiscal fourth quarter 2008 entered settlement client implementing technical solutions exchange full release claims related corrosion including release client’s right original contract reject plants availability guaranty client’s agreement share cost ameliorative work related boiler tube corrosion accordingly client withdrew notice arbitration originally filed may 2008 fiscal year 2006 end fiscal year 2008 recorded charges totaling 61700 relation project implementation technical solutions anticipated completed 2011 power plant arbitration north america january 2010 commenced arbitration client connection power plant project louisiana seeking among relief declaration rights purchase order respect 17800 retention monies 82000 letter credit held client purchase order supply two boilers ancillary equipment project substantially completed released commercial operation february 2010 client project’s engineering procurement construction contractor terms purchase order significant reductions retention letter credit monies occur upon project’s achievement substantial completion delayed due failures client’s part properly manage execute project client taken position responsible project’s delays subsequent service arbitration demand served arbitration demand seeking assess us associated late substantial completion liquidated damages purchase order together liquidated damages alleged late foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued material equipment deliveries backcharges corrective work damages arising allegedly defective materials equipment delivered us client contends owed excess 50000 purchase order result alleged failures risk client attempt call part letter credit pendency proceeding opinion call would wrongful entitle us seek return funds damages arising call cannot predict ultimate outcome dispute time camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” pollution control finance authority camden county “pcfa” issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities two subsidiaries’ former facilities including mountain top described addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose wells contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated responding foregoing although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec immediately provided affected residences bottled water followed water filters pursuant settlement agreement usepa hooked public water system pursuant amendment settlement agreement fwec subsequently agreed usepa arrange pay hookup approximately five additional residences even though tce detected wells residences fwec incurring costs related public outreach communications affected area may required pay agencies’ costs overseeing responding situation fwec incur costs connection remedial investigation feasibility study “rifs” march 2009 agreed conduct rifs likely include among things continuing monitor groundwater area affected residences april 2009 usepa proposed listing national priorities list “npl” area consisting former manufacturing facility affected residences also stated proposed listing may finalized fwec complies agreement conduct rifs fwec submitted comments opposing proposed listing fwec accrued best estimate cost foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated ccera project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 litigation uncertainties continued installing additional control equipment even equipment installed ccera could assert project’s sponsor would responsible pay equipment however sponsor may sufficient funds may assert responsible estimates cost installing additional control equipment approximately 30000 based last assessment 18 quarterly financial data unaudited foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 18 quarterly financial data unaudited continued 1 net income quarter ended december 31 2009 included increaseddecreased contract profit 9900 regular revaluation final estimated contract profit 13990 global ec group 4090 global power group charge 9800 severancerelated postemployment benefits 6100 global ec group 3700 cf group charge 21114 cf group revaluation asbestos liability related asset primarily resulting increased asbestos defense costs projected fiscal year 2024 rolling 15year asbestos liability estimate 2 net income fiscal quarter ended december 26 2008 included increaseddecreased contract profit 1750 regular revaluation final estimated contract profit 6540 global ec group 8290 global power group charge 9000 global power group primarily severancerelated postemployment benefits net charge 37345 cf group revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected fiscal year 2023 benefit 24100 related net impact deferred tax valuation allowance adjustments two nonus subsidiaries please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 19 redomestication foster wheeler ag incorporated laws switzerland november 18 2008 registered commercial register canton zug switzerland november 25 2008 whollyowned subsidiary foster wheeler ltd special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things holder whole common shares foster wheeler ltd par value 001 per share outstanding immediately transaction effected received registered shares foster wheeler ag par value chf 300 per share approximately 258 based exchange rate february 9 2009 date redomestication completed oneforone basis respect outstanding foster wheeler ltd common shares case fractional shares foster wheeler ltd cash fractional shares lieu registered shares foster wheeler ag additional paidin capital decreased amount scheme arrangement effectively changed place incorporation bermuda canton zug switzerland scheme arrangement approved common shareholders foster wheeler ltd january 27 2009 sanctioned supreme court bermuda january 30 2009 february 9 2009 following steps occurred pursuant scheme arrangement 1 fractional common shares foster wheeler ltd totaling approximately 1336 shares cancelled foster wheeler ltd paid holder fractional shares cancelled amount based average high low trading prices foster wheeler ltd common shares nasdaq global select market february 5 2009 2063 business day immediately preceding effectiveness scheme arrangement 2 previously outstanding whole common shares foster wheeler ltd totaling 126276112 whole shares cancelled 3 foster wheeler ltd acting behalf shareholders issued 1000 common shares constituted foster wheeler ltd’s common shares time foster wheeler ag foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 redomestication continued 4 foster wheeler ag increased share capital filed amended articles association reflecting share capital increase swiss commercial register 5 foster wheeler ag issued aggregate 126276112 registered shares holders whole foster wheeler ltd common shares cancelled result scheme arrangement common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies connection consummation scheme arrangement • concurrently issuance registered shares holders whole foster wheeler ltd common shares foster wheeler ag issued holders preferred shares aggregate 139802 registered shares number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional common shares otherwise issuable totaling approximately one share • foster wheeler ag executed supplemental warrant agreement pursuant assumed foster wheeler ltd’s obligations warrant agreement agreed issue registered shares foster wheeler ag upon exercise warrants accordance terms • foster wheeler ag assumed foster wheeler ltd’s existing obligations connection awards granted foster wheeler ltd’s incentive plans similar employee awards refer foregoing transactions together steps scheme arrangement “redomestication” january 2010 relocated principal executive offices geneva switzerland foster wheeler ag schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ag subsidiaries “the company” december 31 2012 2011 results operations comprehensive income cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp florham park new jersey march 1 2013 foster wheeler ag subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement comprehensive income thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement changes equity thousands dollars except share data see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation fiscal year foster wheeler ag ends december 31 calendar year foster wheeler ag’s fiscal quarters end last day march june september fiscal years nonus operations parent’s fiscal year us operations 52 53week annual accounting period ending last friday december certain prior period amounts reclassified conform current year presentation principles consolidation consolidated financial statements include accounts foster wheeler ag us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated see “variable interest entities” information related consolidation variable interest entities use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs progress toward completion customer vendor claims employee benefit plan obligations sharebased compensation plans addition also use estimates accounting uncertain tax positions deferred taxes asbestos liabilities expected recoveries assessing goodwill impairment among others revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion time numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change following table summarizes number separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 relating revaluation work performed prior periods changes final estimated contract profit revisions global power group increased 2012 favorable settlement subcontractor approximately 6900 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global engineering construction group “global ec group” global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements please see note 14 information related changes final estimated contract profit impact business segment results claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims additional contract revenue probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process consolidated financial statements included commercial claims 8800 6700 december 31 2012 2011 respectively substantially costs incurred respective date certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract deferred precontract costs inconsequential december 31 2012 2011 certain specialpurpose subsidiaries global power group business segment reimbursed customers costs building operating certain facilities lives corresponding service contracts depending specific legal rights obligations arrangements cases reimbursements treated operating revenues gross value cases reduction cost foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less date acquisition dependent cash repatriations subsidiaries cover payments expenses parent holding company switzerland cover cash needs related asbestosrelated liability overhead expenses us discretion specific liquidity needs funding acquisitions share repurchase program cash equivalents 470546 588307 held nonus entities december 31 2012 2011 respectively entities require portion funds support liquidity working capital needs well comply required minimum capitalization requirements cases contractual restrictions accordingly portion funds may readily available repatriation entities switzerland us trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed refer retention receivables final payment retention receivables might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet please see note 3 detailed information regarding retention receivable balances trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity relevant industry accounting standards however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively consolidated balance sheet inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 18414 16738 december 31 2012 2011 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment depreciation expense allocated cost operating revenues selling general administrative expenses based manner underlying assets deployed expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued restricted cash following table details restricted cash balances held entities investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently investments affiliates investment ownership 20 greater consolidated recorded using equity method affiliates investment ownership less 20 carried cost variable interest entities sometimes form separate legal entities corporations partnerships limited liability companies connection execution single contract project upon formation separate legal entity perform evaluation determine whether new entity variable interest entity vie whether primary beneficiary new entity would require us consolidate new entity financial results reassess initial determination whether entity vie upon occurrence certain events whether primary beneficiary outlined current accounting guidelines entity vie determine accounting entity voting interest accounting guidelines entity determined vie either total equity investment sufficient entity finance activities without additional subordinated financial support b characteristics controlling financial interest missing ability make decisions voting rights obligation absorb losses right receive benefits c voting rights equity holders proportional obligations absorb losses entity andor rights receive benefits entity substantially entity’s activities either involve conducted behalf investor disproportionately voting rights december 31 2012 2011 participated certain entities determined vies including gasfired cogeneration facility martinez california refineryelectric power generation project chile consolidate operations martinez project record participation project chile equity method accounting please see note 5 information regarding participation projects goodwill intangible assets goodwill arising business acquisitions allocated appropriate reporting unit relative fair value basis time acquisition intangible assets consist principally patents trademarks customer relationships pipeline backlog technology amortized respective estimated useful lives reviewed impairment together tangible longlived foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued assets whenever events circumstances indicate impairment may exist estimated remaining useful lives intangible assets december 31 2012 ranged patents 4 11 years trademarks 2 23 years customer relationships pipeline backlog 3 15 years technology 6 years test goodwill impairment reporting unit level determined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists four reporting units one within global power group business segment three within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed reporting units case perform goodwill impairment test first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step compares implied fair value reporting unit’s goodwill based hypothetical purchase price allocation carrying amount goodwill fourth quarter year evaluate goodwill reporting unit based assumptions used estimate fair value reporting units assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill december 31 2012 2011 estimated fair value reporting units sufficiently excess carrying values even conducting various sensitivity analyses key assumptions adjustment carrying values goodwill required intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions make provision incremental income taxes subsidiary earnings retained subsidiary’s country domicile expect earnings indefinitely reinvested jurisdiction unremitted earnings subsidiaries intended permanently reinvested incremental income tax provided aggregated 288000 december 31 2012 practicable estimate additional tax would incurred amounts repatriated recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement recognize interest accrued potential tax liability related unrecognized tax benefits interest expense recognize potential penalties deductions net consolidated statement operations foreign currency functional currency foster wheeler ag us dollar functional currency nonus operations typically local currency country domicile assets liabilities nonus entities translated us dollars reporting currency periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses 2012 2011 2010 follows fair value measurements fair value defined price would received sell asset paid transfer liability orderly transaction market participants measurement date financial accounting standards board accounting standards codification fasb asc 82010 defines fair value establishes three level fair value hierarchy prioritizes inputs used measure fair value provides guidance required disclosures fair value measurements fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs financial assets liabilities recorded fair value recurring basis consist primarily assets liabilities arising derivative financial instruments defined benefit pension plan assets see note 10 information regarding derivative financial instruments note 8 information regarding defined benefit pension plan assets following methods assumptions used estimate fair value class financial instruments practicable estimate fair value financial instruments valued independent fair value hierarchy • cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value demand nature many deposits shortterm maturity instruments financial instruments valued within fair value hierarchy • shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost plus accrued interest approximates fair value foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued • longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities using level 2 inputs • foreign currency forward contracts estimate fair value foreign currency forward contracts obtaining quotes financial institutions market transactions either listed overthecounter markets estimate fair value foreign currency forward contracts also includes assessment nonperformance counterparties corroborate valuations observable market data using level 2 inputs • interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions corroborate observable market data using level 2 inputs • defined benefit pension plan assets estimate fair value investments equity securities yearend based quotes obtained financial institutions fair value investments commingled funds invested primarily debt equity securities based net asset values communicated respective asset manager corroborate valuations observable market data using level 1 2 inputs additionally hold investments private investment funds valued net asset value communicated asset manager using level 3 unobservable market data inputs external legal fees external legal fees expensed incurred recorded deductions net consolidated statement operations exception external legal fees associated asbestos defense costs please refer note 16 information related accounting asbestos defense costs incurred external legal fees excluding asbestos defense costs approximately 16100 17800 2012 2011 2010 respectively include external legal fees related project claims restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current senior unsecured credit agreement contains limitations cash dividend payments retirement shares share repurchase program swiss law cancellation shares previously repurchased share repurchase program must approved shareholders repurchased shares remain treasury shares balance sheet cancellation repurchases made discretion compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time treasury shares carried cost consolidated balance sheet cancellation shares approved shareholders cancellation registered commercial register canton zug switzerland upon effectiveness cancellation shares cost shares cancelled removed treasury shares consolidated balance sheet par value cancelled shares removed registered shares consolidated balance sheet excess cost treasury shares par value removed paidin capital consolidated balance sheet repurchased treasury shares longer considered outstanding results reduction weightedaverage number shares outstanding reporting period calculating earnings per share described foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued earnings per share basic earnings per share amounts computed based weightedaverage number shares outstanding reporting period diluted earnings per share amounts based combination weightedaverage number shares outstanding reporting period impact dilutive securities outstanding stock options nonvested portion restricted stock units performancebased restricted stock units collectively “restricted awards” extent securities dilutive profitable periods outstanding stock options dilutive effect treasury stock method average share price period exceeds assumed proceeds exercise option assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option exercised treasury stock method assumed proceeds assumed used repurchase shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds computations basic diluted earnings per share follows following table summarizes options included calculation diluted earnings per share assumed proceeds options per share basis greater average share price period would result antidilutive effect diluted earnings per share 2 business combinations subsequent 2012 fiscal yearend us operations acquired usbased firm specializes management construction commissioning pharmaceutical biotech facilities also capabilities manage full engineering procurement construction management facilities addition acquired business ability provide modular project delivery services worldwide basis participation projectservices partnership closing paid 25500 cash consideration subject customary working capital adjustments specified sale purchase agreement sale purchase agreement also included earnout provision additional consideration esti foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 2 business combinations continued mated maximum approximately 6600 depending acquired company’s performance defined sale purchase agreement period approximately 5 years subsequent acquisition date earnout reported compensation expense periods subsequent acquisition rather part purchase price business purchase price allocation pro forma information acquisition anticipated significant consolidated financial statements first quarter 2013 expect record aggregate increase goodwill intangible assets approximately 25000 connection acquisition assets liabilities results operations acquired business included within global ec group business segment november 2012 acquired outstanding shares privately held multidiscipline full service engineering procurement construction management company located north america cash consideration paid closing 68800 subject customary working capital adjustments specified sale purchase agreement sale purchase agreement also included earnout provision additional consideration estimated maximum approximately 20000 depending acquired company’s performance defined sale purchase agreement period approximately 5 years subsequent acquisition date earnout reported compensation expense periods subsequent acquisition rather part purchase price business preliminary purchase price allocation included balance sheet december 31 2012 results operations since acquisition date significant consolidated financial statements pro forma impact assuming acquisition occurred beginning year assets liabilities results operations acquired business included within global ec group business segment december 2011 acquired stock grafwulff gmbh company based germany purchase price approximately 22300 approximately 29400 exchange rate date acquisition net cash acquired company designs manufactures installs equipment utilizes circulating dry ash flue gas scrubbing technology types steam generators power industrial sectors purchase price allocation pro forma information acquisition significant consolidated financial statements company’s financial results included within global power group business segment december 2010 acquired assets proprietary sulfur recovery technology business 1000 sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct acquisition included patents knowhow skilled personnel purchase price allocation pro forma information acquisition significant consolidated financial statements company’s financial results included within global ec group business segment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 3 accounts notes receivable net following table shows components trade accounts notes receivable recorded provision outstanding retention receivable balances december 31 2012 2011 following table shows components accounts notes receivable net 4 land buildings equipment land buildings equipment stated cost set forth foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment continued depreciation expense 2012 2011 2010 54310 42073 46833 respectively 2012 recorded impairment charge 11455 recognized connection camden new jersey wastetoenergy facility within global power group business segment impairment charge included estimates related continued operation facility potential sale facility recorded depreciation expense within cost operating revenues consolidated statement operations recording impairment charge carrying value facility’s fixed assets approximated fair value certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 investments investment unconsolidated affiliates noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project located italy refineryelectric power generation project located chile also 50 noncontrolling interest project italy generates earnings royalty payments linked price natural gas based outstanding equity interests entities 4165 two electric power generation projects italy 39 wastetoenergy project 50 wind farm project notional 85 equity interest project chile however primary beneficiary result participation rights held minority shareholder determining primary beneficiary considered minority shareholder’s right approve activities project significantly impact project’s economic performance include right approve reject annual financial capital operating budget annual operating plan right approve reject appointment general manager senior management approval rights respect capital expenditures beyond included annual budget february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s facility chile result damage project’s facility suspended normal operating activities date subsequently filed claim insurance carrier property damage business interruption recoveries property damage business interruption insurance recoveries sufficient cover costs repairing facility substantially compensate unconsolidated affiliate loss profits facility suspended normal operating activities unconsolidated affiliate collected substantially remaining amounts due property damage business interruption insurance claims third quarter 2012 facility achieved normal operating activities third quarter 2011 summarized financial information presented project chile includes estimated recovery property damage insurance policy estimated recovery business interruption insurance policy balance sheet data december 31 2011 income statement data years 2011 2010 estimates include estimated recovery property damage insurance policy sufficient cover foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued costs incurred repair facility estimated recovery business interruption insurance policy fixed costs along estimated recovery lost profits period facility suspended normal operating activities noted substantially remaining amounts due unconsolidated affiliate’s property damage business interruption insurance claims collected third quarter 2012 covered estimated recoveries property damage business interruption insurance claims account investments italy chile equity method following summarized financial information entities whole based projects located investment unconsolidated affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet equity net earnings unconsolidated affiliates recorded within income net consolidated statement operations investments equity earnings unconsolidated affiliates italy chile included global ec group global power group business segments respectively consolidated financial statements reflect following amounts related unconsolidated affiliates italy chile foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued share undistributed retained earnings equity investees amounted approximately 110200 118800 december 31 2012 2011 respectively equity earnings projects italy 2725 9744 2339 2012 2011 2010 respectively equity earnings 2012 compared 2011 unfavorably impacted results one projects italy recorded charge establish reserve receivable balance emission rights earned prior 2012 decreased earnings result extended facility maintenance shutdown 2012 2010 two equity interest investments electric power generation projects italy centro energia teverola spa cet centro energia ferrara spa cef hold 4165 shares company terminated longterm incentivized power offtake agreements place authority energy light termination power offtake agreements respective partners cet cef reviewed economic viability plant result decision made shut cet plant effective january 1 2011 following termination power offtake agreement partner cef decided continue operate cef plant least temporarily merchant basis considered possible sale plant result foregoing operating decisions cet cef recorded impairment charges fourth quarter 2010 write fixed assets fair value financial statements additionally fourth quarter 2010 investments cet cef reduced equity losses based cet’s cef’s 2010 financial results inclusive respective impairment charges result foregoing carrying value cet cef investments approximated fair value december 31 2010 partner cef concluded continue operate plant continuing consider longterm economic viability plant potential disposal options equity earnings cet cef investments 2012 2011 insignificant equity loss cet cef investments 2010 totaled 8200 inclusive 2010 impairment charges totaling 13200 equity earnings project chile 20287 30871 20670 2012 2011 2010 respectively decrease equity earnings 2012 compared 2011 primarily driven impact lower marginal rates electrical power generation impact higher statutory tax rate chile partially offset increase project’s volume electricity produced 2012 equity earnings 2011 2010 included equity interest tax estimated recovery project chile’s business interruption insurance policy covered period date earthquake period facility resumed normal operating activities guaranteed certain performance obligations project chile contingent obligation measured annually based operating results project chile preceding year shared equally minority interest partner current payment obligation guarantee december 31 2012 addition provided 10000 debt service reserve letter credit cover debt service payments event project chile generate sufficient cash flows make payments required maintain debt service reserve letter credit term project chile’s debt matures 2014 december 31 2012 amounts drawn letter credit anticipate amounts drawn letter credit foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued also whollyowned subsidiary provides operations maintenance services project chile included assessing damage caused earthquake related repair facility suspended normal operating activities record fees operations maintenance services operating revenues consolidated statement operations corresponding receivable trade accounts notes receivable consolidated balance sheet consolidated financial statements include following balances related project chile also guaranteed performance obligations whollyowned subsidiary operations maintenance agreement governing project chile guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee investments majority equity partner general partner gasfired cogeneration project martinez california determined vie december 31 2012 2011 primary beneficiary vie since power direct activities significantly impact vie’s performance activities include operations maintenance facilities accordingly primary beneficiary vie consolidated entity aggregate net assets entity presented 6 goodwill intangible assets tracked accumulated goodwill impairments since december 29 2001 first day fiscal year 2002 date adoption accounting guidelines related assessment goodwill impairment accumulated goodwill impairment losses date foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 goodwill intangible assets continued following table provides rollforward goodwill balances december 2012 acquired multidiscipline full service engineering procurement construction management company located north america included within global ec group business segment december 2011 acquired company based germany designs manufactures installs circulating dry ash flue gas scrubbing technology types steam generators included within global power group business segment please refer note 2 information regarding acquisitions following table provides net carrying amount goodwill geographic region reporting units located foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 goodwill intangible assets continued following table sets forth amounts relating identifiable intangible assets december 31 2012 net carrying amounts identifiable intangible assets 50647 global power group 54453 global ec group amortization expense related identifiable intangible assets recorded within cost operating revenues consolidated statement operations amortization expense related assets identifiable intangible assets material 2012 2011 2010 following table details amortization expense related identifiable intangible assets period foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings following table shows components longterm debt interest costs interest costs incurred 2012 2011 2010 10894 12859 14842 respectively capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows following minimum lease payments made years indicated capital lease obligations december 31 2012 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facility wind farm projects owner majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance project chile described note 5 fw power srl owner certain electric power generating wind farms italy project financing two wind farm projects base facilities valueadded tax “vat” facilities base facilities bear interest variable rates based upon 6month euribor plus spread varying 09 10 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2022 vat facilities bear interest based upon 6month euribor plus spread 05 repayable semiannually based upon actual vat received commercial operation december 31 2013 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75300 approximately 99300 exchange rate december 31 2012 executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 10 “derivative financial instruments interest rate risk” accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 082 112 respectively december 31 2012 energia holdings llc notes collateralized certain revenues assets specialpurpose subsidiary indirect ownership interest project chile described note 5 subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois us assumed certain subordinated obligations 1999c bonds due october 15 2024 “1999c bonds” robbins bonds outstanding december 31 2012 remaining subordinated obligations paid full scheduled maturity dates 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date october 3 2008 acquired portion 1999c bonds plus accrued unpaid interest date aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued senior credit agreements august 3 2012 entered new fiveyear senior unsecured credit agreement replaced amended restated senior unsecured credit agreement july 2010 new senior credit agreement provides unsecured revolving line credit 750000 contains increase option permitting us subject certain requirements arrange existing lenders andor new lenders provide aggregate 300000 additional commitments term senior credit agreement may request subject certain requirements two oneyear extensions contractual termination date issue 750000 letter credit portion facility letters credit issued new senior credit agreement performance pricing decreased increased result improvements reductions corporate credit ratings defined senior credit agreement based current credit ratings letter credit fees performance nonperformance letters credit issued new senior credit agreement 075 150 per annum outstanding amount respectively excluding nominal fronting fee also option use 250000 750000 revolving borrowings rate equal adjusted libor defined senior credit agreement plus 150 subject also performance pricing noted fees expenses incurred conjunction execution new senior credit agreement approximately 4000 along portion remaining unamortized fees july 2010 agreement amortized expense fiveyear term agreement commenced third quarter 2012 also recorded 800 charge 2012 writeoff portion unamortized fees expenses paid conjunction july 2010 agreement new senior credit agreement contains various customary restrictive covenants addition new senior credit agreement contains financial covenants relating leverage interest coverage ratios total leverage ratio compares total indebtedness ebitda total interest coverage ratio compares ebitda interest expense leverage interest coverage ratios measured quarterly addition leverage ratio measured date determination certain significant events terms defined new senior credit agreement compliance financial covenants provisions august 2012 july 2010 senior credit agreements respective agreements effect year ended december 31 2012 2011 approximately 250600 225600 letters credit outstanding senior credit agreements effect december 31 2012 2011 respectively letter credit fees senior credit agreements effect december 31 2012 2011 ranged 075 150 100 200 respectively outstanding amount excluding fronting fees funded borrowings outstanding senior credit agreements effect december 31 2012 2011 8 pensions postretirement benefits defined benefit pension plans united states us united kingdom uk canada finland france india south africa postretirement benefit plans refer opeb plans health care life insurance benefits us canada also defined contribution retirement plans us uk finally certain benefit plans including government mandated postretirement programs recognize funded status defined benefit pension opeb plans consolidated balance sheet recognize gains losses recognized component annual service cost foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued component comprehensive income net tax record net actuarial losses prior service costcredits net transition obligationsassets within accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans effective march 31 2010 closed uk pension plan future defined benefit accrual result uk plan closure recognized pretax curtailment gain statement operations 2010 approximately £13300 approximately 20100 exchange rate effect time pension plan closure result change uk governmental standard 2011 uk pension plan adopted use uk consumer prices index basis inflationary increases calculation pension benefits uk retail prices index former uk governmental standard used uk pension plan accounted change plan amendment may 31 2011 based remeasurement obligation time recognized decrease pension plan liability consolidated balance sheet corresponding pretax prior service credit comprehensive income 2011 approximately £29600 approximately 48100 exchange rate effect time change postretirement benefit plans certain employees us canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined us canada pension plans working us foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued additionally one subsidiaries us also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities sip 18273 17539 december 31 2012 2011 respectively reflected postretirement benefit obligation funded status information assets held fund benefits provided sip reflect cash surrender value insurance policies purchased cover obligations sip totaled 6033 5703 december 31 2012 2011 respectively assets recorded assets consolidated balance sheet reflected opeb funded status information components net periodic benefit costcredit changes recognized comprehensive income include 1 2010 curtailment gain resulted closure uk pension plan future benefit accrual charges incurred related settlement pension obligations former employees canada pension plan 2 2011 uk pension plan adopted use uk consumer prices index basis inflationary increases calculation pension benefits accounted plan amendment 3 please refer note 12 related tax effect recognized comprehensive income components net periodic benefit costcredit recognized within cost operating revenues selling general administrative expenses consolidated statement operations please refer note 1 discussion timing items cost operating revenues recognized con foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued solidated statement operations accounting policy revenue recognition longterm contracts utilizes percentageofcompletion method following summary net periodic benefit costcredit defined benefit pension plan uk pension plan closed future benefit accrual effective march 31 2010 estimated amortization expense recognized net periodic benefit cost next year includes following table summarizes weightedaverage assumptions used estimate net periodic benefit cost projected benefit obligation year salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 59 71 past three years foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued assumed healthcare cost trend rates postretirement benefit plans assumed healthcare cost trend rates significant effect costs obligations reported postretirement benefit plans onepercentagepoint change assumed healthcare cost trend rates would following effects foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued projected benefit obligations funded status years ended december 31 2012 2011 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued defined benefit pension plans accumulated benefit obligation excess plan assets balances years ended december 31 2012 2011 include information plans united kingdom south africa since plan assets plans exceeded accumulated benefit obligation contributions based minimum statutory funding requirements 2013 mandatory contributions us pension plans insignificant based minimum statutory funding requirements 2013 expect contribute total mandatory contributions approximately 21900 nonus pension plans approximately 5200 postretirement benefit plans estimated future benefit payments expect make following benefit payments plan assets defined benefit pension plans us uk canada india south africa governed written investment policy pension plans finland france plan assets investment policy pension plans allocates assets accordance policy guidelines identify target andor maximum minimum allocations asset class guidelines vary pension plan asset class generally range 40 65 equities 35 60 fixed income 0 10 cash exception plan contributions temporarily awaiting longerterm investment guidelines expressly endorse ranges generally 10 less investments exposed various risks interest rate market credit risks due level uncertainty related certain investment securities least reasonably possible changes values investment securities occur near term changes could materially affect fair value defined benefit plan assets turn would result change net pension benefit liability consolidated balance sheet accordingly valuation investments year end may indicative future valuations amounts could realized upon future liquidation develop investment policies pension plans take risks account continually review investment policies ensure investment strategy aligned pension plan liabilities projected pension plan benefit payments based current holdings believe individual pension plans exposed significant concentration risk particular sector asset class foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued pension plan assets valued established framework measuring fair value accordance us generally accepted accounting principles see note 1 information regarding measurement fair value us generally accepted accounting principles accounting policy pension plan assets measured within fair value framework consist investments equity securities commingled funds investments debt equity securities private investment fund assets quoted prices active markets used value investments available investments valued closing price available last reported bid price accordance current accounting guidance valuations include use funds’ reported net asset values commingled fund investments private investment funds commingled funds valued net asset value underlying securities corroborate valuations observable market data using level 1 2 inputs within fair value framework fair value private investment fund assets based net asset value investments funds including hedge funds communicated asset manager net asset values underlying funds turn valued based net asset values investments equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles investments private investment fund assets valued using level 3 unobservable market data inputs fair values defined benefit pension plan assets december 31 2012 2011 asset category follows 1 publicly traded equity securities 2 primarily equity securities focus longterm returns 3 primarily corporate fixed income securities focus intermediateterm longterm maturities 4 primarily government fixedincome securities focus current income capital preservation varying maturities 5 primarily shortterm maturities two years less various issuers focus preservation capital 6 private investment funds primarily invest funds including hedge funds turn invest equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued level 3 gains losses table provides summary changes fair value level 3 plan assets 2012 2011 2010 defined contribution plans us subsidiaries 401k plan salaried employees match 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code total us subsidiaries contributed approximately 10900 9400 7000 401k plan 2012 2011 2010 respectively us subsidiaries also roth 401k plan salaried employees uk subsidiaries offer defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed approximately 9700 10500 8400 2012 2011 2010 respectively defined contribution plan benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 19393 19430 recorded within pension postretirement employee benefits consolidated balance sheet december 31 2012 2011 respectively related benefits 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 guarantees warranties continued also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable standby letters credit bank guarantees surety bonds totaling 1015900 990300 december 31 2012 2011 respectively primarily guarantees performance projects currently execution warranty amounts include standby letters credit issued senior credit agreement discussed note 7 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations refineryelectric power generation project based chile hold noncontrolling interest see note 5 information 10 derivative financial instruments exposed certain risks relating ongoing business operations risks managed using derivative financial instruments relate primarily foreign currency exchange rate risk significantly lesser extent interest rate risk derivative financial instruments held consolidated entities recognized assets liabilities fair value consolidated balance sheet proportionate share fair value derivative financial instruments held equity method investees included investments advances unconsolidated affiliates consolidated balance sheet foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments continued fair values derivative financial instruments held consolidated entities follows foreign currency exchange rate risk operate worldwide basis substantial operations europe subject us foreign currency exchange rate risk mainly relative british pound euro risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge exposed item anticipated purchases revenues back functional currency notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2012 total gross notional amount measured us dollar equivalent approximately 514800 related foreign currency forward contracts amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2013 2014 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains foreign currency forward contracts used mitigate currency risk projects gain loss portion marktomarket adjustment related completed foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments continued portion underlying project included cost operating revenues time underlying foreign currency exposure occurs gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying project reflected directly cost operating revenues period marktomarket adjustment occurs also utilize foreign currency forward contracts mitigate nonproject related currency risks recorded deductions net gain loss remaining uncompleted portion projects nonproject related transactions follows marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses primarily recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet 2012 2011 2010 included net cash inflowsoutflows settlement derivatives 4073 315 5289 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows interest rate risk use interest rate swap contracts manage interest rate risk associated portion variable rate specialpurpose limited recourse project debt aggregate notional amount receivevariablepayfixed interest rate swaps consolidated entities 60900 december 31 2012 upon entering swap contracts designate interest rate swaps cash flow hedges assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income amounts reclassified accumulated comprehensive loss recognized within interest expense consolidated statement operations impact interest rate swap contracts cash flow hedging relationships consolidated entities follows balances consolidated entities proportionate share impact interest rate swap contracts cash flow hedging relationships held equity method investees included con foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments continued solidated statement comprehensive income net tax see note 12 related tax benefits cash flow hedges recognized comprehensive income years ended december 31 2012 2011 2010 11 sharebased compensation plans sharebased compensation plans include stock options restricted awards following table summarizes sharebased compensation expense related income tax benefit estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price date grant using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period certain executives awarded performancebased restricted share units performance rsus awards number restricted share units ultimately vest depend share price performance specified performance goals defined performancebased award agreements estimate grant date fair value performance rsu award using monte carlo valuation model recognize fair value performance rsu award compensation expense ratably using straightline attribution method service period generally vesting period foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest december 31 2012 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted share units performancecontingent shares performancecontingent units including performance rsus cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaced prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued conditionally authorized shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance current accounting guidance regarding classification measurement redeemable securities adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued reconciliations temporary equity years ended december 31 2012 2011 2010 follows articles association provide conditional capital issuance shares sharebased compensation plans convertible exercisable securities may issue future conditional capital decreases upon issuance shares connection exercise outstanding stock options vesting restricted awards offsetting increase issued authorized share capital december 31 2012 remaining available conditional capital 59369723 shares prior sharebased compensation plan remaining outstanding prior sharebased compensation plan consists stock option plan directors foster wheeler approved shareholders awards granted plan connection redomestication switzerland foster wheeler ag assumed foster wheeler ltd’s obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards stock option awards summary employee stock option activity 2012 2011 2010 presented based grant date fair value options foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued following table summarizes stock options outstanding exercisable december 31 2012 december 31 2012 aggregate intrinsic value outstanding options exercisable options 3696 2632 respectively exercise date intrinsic value options exercised 2012 2011 2010 totaled 335 4250 10268 respectively restricted awards restricted awards consist restricted share units performance rsus summary restricted awards activity 2012 2011 2010 presented 1 represents maximum number shares could awarded based performance criteria specified award foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued vesting date fair value restricted awards vested 2012 2011 2010 totaled 8381 11303 10129 respectively 12 accumulated comprehensive loss adjustments included comprehensive loss related foreign currency translation cash flow hedges pension postretirement benefits related tax provisionbenefit balances attributable noncontrolling interests foster wheeler ag cash flow hedges include impact unconsolidated affiliates accounted equity method accounting tax provided foreign currency translation adjustments comprehensive income extent related earnings indefinitely reinvested subsidiary’s country domicile portion comprehensive loss amounts related pension postretirement benefits cash flow hedges recognized consolidated statement operations discussion please refer note 8 pension postretirement benefits note 10 cash flow hedges foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 accumulated comprehensive loss continued rollforward accumulated comprehensive loss adjusted comprehensive incomeloss items attributable foster wheeler ag amounts net tax 13 income taxes components incomeloss income taxes 2012 2011 2010 following tax jurisdictions provision income taxes follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus deferred tax assets valuation allowance based consideration available evidence indicates likely deferred tax assets realized 2012 aggregate worldwide valuation allowance increased net 9714 primarily result losses jurisdictions full valuation allowance previously recorded primarily us partially offset release valuation allowance territories result updated forecast taxable income future periods concluded likely deferred tax assets realized majority us federal tax benefits valuation allowances established expire 2026 beyond based current tax laws foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued subsidiaries file income tax returns many tax jurisdictions including us several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years 2008 2011 2010 settled tax audits europe resulted reduction unrecognized tax benefits corresponding reduction provision income taxes 1450 1700 respectively number tax years audit relevant tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including 2013 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time following table summarizes activity related unrecognized tax benefits recognized would affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense table summarizes activity interest penalties unrecognized tax benefits 2012 2011 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued provision income taxes differs amount income tax computed applying us federal statutory rate 35 income taxes result following 1 tax rate differential nonus earnings representing difference tax accrued nonus subsidiaries based local statutory income tax rates tax would accrued nonus subsidiaries subject us federal statutory income tax rate 2 impact earnings nonus joint ventures presented net investeelevel tax component pretax income using equity method accounting 3 impact utilization various tax incentives andor credits nonus jurisdictions although swiss corporation listed us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets 14 business segments operate two business groups global ec group global power group global ec group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities global ec group generates revenues design engineering procurement construction project management activities pursuant contracts generally span approximately four years duration returns equity investments various power production facilities foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued global power group global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations district heating industrial facilities worldwide additionally global power group owns operates wastetoenergy facility holds controlling interest operates combinedcycle gas turbine facility owns noncontrolling interest petcokefired circulating fluidizedbed facility refinery steam power generation operates university cogeneration power facility steamelectric generation global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments various power production facilities global power group’s steam generating equipment includes broad range steam generation environmental technologies offering independent power producers utilities municipalities industrial clients highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste flue gases steam used power generation district heating industrial processes corporate finance group addition global ec group global power group represent two operating segments financial reporting purposes report financial results associated management entities managed one two business groups include corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group also represents operating segment financial reporting purposes refer cf group operating revenues conduct business global basis 2012 global ec group accounted 71 total operating revenues global power group accounted 29 total operating revenues operating revenues geographic region based upon projects executed 2012 follows australasia primarily represents australia new zealand pacific islands foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued 2012 one client accounted approximately 12 consolidated operating revenues inclusive flowthrough revenues however associated flowthrough revenues included percentage accounted approximately 11 consolidated operating revenues 2012 second client accounted approximately 26 25 consolidated operating revenues inclusive flowthrough revenues 2011 2010 respectively however associated flowthrough revenues included percentages accounted approximately 25 23 consolidated operating revenues 2011 2010 respectively single client accounted ten percent consolidated revenues 2012 2011 2010 ebitda primary measure operating performance used chief operating decision maker define ebitda net income attributable foster wheeler ag interest expense income taxes depreciation amortization reconciliation ebitda net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest depreciation expense 2012 included impairment charge 11455 recognized connection camden new jersey wastetoenergy facility within global power group business segment please refer note 4 information foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued ebitda table includes following 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions global power group increased 2012 favorable claim settlement legacy project subcontractor approximately 6900 recognized first quarter 2012 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 information regarding revaluation asbestos liability related asset 4 curtailment gain closure uk pension plan future defined benefit accrual global ec group 5 settlement fee received net charges incurred due client’s decision proceed prospective power project development italy within global ec group identifiable assets identifiable assets group assets directly related support operations group assets cf group principally cash investments real estate insurance receivables foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactionsie current market rates include elimination activity results cf group foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site additional country detail thirdparty revenues determined based upon location contracting subsidiary presented balances represent portion total operating revenues presented table switzerland country domicile foster wheeler ag longlived assets presented based geographic region contracting subsidiary located december 31 2012 2011 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 2576 5162 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued operating revenues industry follows 15 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases follows future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains recognized income term respective leases gain recognized 4099 4202 4004 2012 2011 2010 respectively december 31 2012 2011 balance deferred gains 34279 36987 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending us uk plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items approximately 125310 open claims subsidiaries respondents approximately 28650 open claims wherein administrative agreements named defendants lawsuits involving approximately 96660 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 55 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required minimum jurisdiction suit filed following table summarizes range requested monetary damages sought asbestos lawsuits 1 specified monetary damages sought recited amount monetary damages sought meets exceeds required minimum jurisdiction suit filed 2 small number cases range 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated december 31 2027 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend based forecast next 15 years year recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2012 activity arpc recommended certain assumptions used estimate future asbestos liability updated december 31 2012 accordingly developed revised estimate aggregate indemnity defense costs december 31 2027 considering advice arpc 2012 revalued liability asbestos indemnity defense costs december 31 2027 275300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded net charge 28127 2012 included charge related updating assumptions increased asbestos defense costs projected 15year estimate lesser extent adjustment actual claim settlement experience year accrual another year estimated claims rolling 15year asbestosrelated liability estimate total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2027 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred december 31 2027 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2027 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2027 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued yearend 2012 total cumulative indemnity costs paid prior insurance recoveries approximately 795500 total cumulative defense costs paid approximately 388700 approximately 33 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 31 2012 approximately 32 average cost per resolved claim increasing believe continue increase future last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred 2011 2010 subsidiaries reached agreements certain insurers settle disputed asbestosrelated insurance coverage result settlements increased asbestosrelated insurance asset recorded settlement gains please see table breakout gains period asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2027 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2012 2011 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2012 2011 2010 2011 reached agreement insurer bankruptcy liquidation written receivable prior 2009 asset awarded bankruptcy liquidation insurer 4500 included asbestosrelated assets december 31 2011 receivable subsequently collected 2012 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected following table summarizes net asbestosrelated provision net asbestosrelated provision result revaluation asbestos liability related asset resulting adjustments actual settlement experience different estimates accrual rolling 15year asbestos liability estimate partially offset gains settlement coverage litigation asbestos insurance carriers foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued following table summarizes approximate asbestosrelated payments insurance proceeds expect net cash outflows 14700 result asbestos liability indemnity defense payments excess insurance settlement proceeds 2013 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows based december 31 2012 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 42000 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge consolidated statement operations approximately 85 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 1022 claims brought uk subsidiaries 303 remained open december 31 2012 none settled claims resulted material costs us following table summarizes asbestosrelated liabilities assets uk subsidiaries based open outstanding claims estimate future unasserted claims 2027 liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability recorded uk would increase approximately 46400 corresponding increase asbestosrelated asset project claims addition specific matter described ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued power plant arbitration united states june 2011 demand arbitration filed american arbitration association client’s erection contractor client us connection power plant project united states time details erection contractor’s claims included demand arbitration panel formed september 26 2012 detailed statement claim erection contractor delivered panel october 24 2012 according claim erection contractor seeking unpaid contract amounts client additional compensation client us alleged delays disruptions inefficiencies extra work connection erection plant supplied steam generation equipment project contract client power plant owner turbine contractor supplied turbine electricity generator plant equipment separate contract power plant owner also included party arbitration erection contractor seeking approximately 240000 damages exclusive interest client amount statement claim asserts approximately 150000 related steam generation equipment alleges failure part connection performance steam generation equipment supply contract damages claimed jointly us client power plant owner claims us erection contractor allege negligence purported capacity third party beneficiary assignee steam generation equipment supply contract breach contract responsive pleadings erection contractor’s pleading filed parties including us november 28 2012 pleading denies erection contractor’s claims us asserts cross claims client seeking 14800 damages related delays scope work improperly assessed delay liquidated damages pleading turbine contractor asserts claims client unpaid contract amounts additional compensation extra work delays capacity purported coassignee steam generation equipment supply contract turbine contractor joins erection contractor’s claims us delayrelated damages asserts cross claims us seeking 5000 nondelay related damages pleading client asserts counter cross claims breach contract gross negligence erection contractor turbine contractor client also asserts cross claims us damages client incurred indemnification damages client may required pay erection turbine contractors arising alleged failures performance part steam generation supply contract denied client’s turbine contractor’s cross claims us arbitration proceedings expected run end 2014 longer cannot predict ultimate outcome matter time environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities four subsidiaries’ former facilities including mountain top described addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose wells contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated responding foregoing although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec immediately provided affected residences bottled water followed water filters pursuant settlement agreement usepa hooked public water system pursuant amendment settlement agreement fwec subsequently agreed usepa arrange pay foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued hookup several additional residences even though tce detected wells residences hookups agreed upon residences completed usepa provided fwec certificate fwec completed obligations related abovedescribed settlement agreement amended fwec may required pay agencies’ costs overseeing responding situation fwec also incurring costs connection remedial investigation feasibility study “rifs” march 2009 agreed conduct fourth quarter 2012 fwec received usepa demand foregoing agreement payment 1040 response costs usepa claims incurred commencement rifs april 2009 february 2012 fwec preparing response demand april 2009 usepa proposed listing national priorities list “npl” area consisting fwec’s former manufacturing facility affected residences also stated proposed listing may finalized fwec complies agreement conduct rifs fwec submitted comments opposing proposed listing fwec accrued best estimate cost foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated camden county energy recovery associates lp “ccera” project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions made ccera’s mercury control requirements stringent especially last phase revisions became effective january 3 2012 ccera’s management believes data generated stack testing 2012 several prior years tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment estimates cost installing additional control equipment approximately 30000 based last assessment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited 1 contract profit net income attributable foster wheeler ag quarter ended december 31 2012 included pretax impact outofperiod correction increase final estimated profit 5280 global ec group aftertax impact 4012 correction recorded quarter ended december 31 2012 material results quarter ended september 30 2012 period recorded material 2012 financial statements whole 2 contract profit net income attributable foster wheeler ag quarter ended march 31 2012 included favorable pretax settlement subcontractor approximately 6900 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited continued 3 contract profit net income attributable foster wheeler ag quarter ended march 31 2011 included pretax impact two outofperiod corrections reductions final estimated profit totaling 7800 included pretax final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded quarter ended march 31 2011 material previously issued financial statements material 2011 financial statements net income attributable foster wheeler ag fourth quarter table includes following pretax amounts 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 please refer note 16 information regarding revaluation asbestos liability related asset 3 impairment charge 11455 recognized connection camden new jersey wastetoenergy facility within global power group business segment please refer note 4 information foster wheeler ag schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ag subsidiaries “the company” december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp florham park new jersey february 27 2014 foster wheeler ag subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement comprehensive income thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement changes equity thousands dollars except share data see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation fiscal year foster wheeler ag ends december 31 calendar year foster wheeler ag’s fiscal quarters end last day march june september fiscal years nonus operations parent’s fiscal year us operations 52 53week annual accounting period ending last friday december certain prior period amounts reclassified conform current period presentation reclassifications include presentation statement comprehensive income result adoption “asu 201302 comprehensive income topic 220 reporting amounts reclassified accumulated comprehensive income” asu 201302 asu 201302 issued financial accounting standards board february 2013 standard requires disclosure effects line items net income significant amounts reclassified accumulated comprehensive income crossreference disclosures portion amount reclassified accumulated comprehensive income initially transferred balance sheet account eg contracts process billings excess costs estimated earnings uncompleted contracts pensionrelated amounts instead directly income expense adoption standard impact results operations financial position cash flows reclassifications also include presentation former wastetoenergy business result classification heldforsale turn discontinued operations please refer note 18 information consolidated financial statements include accounts foster wheeler ag us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated see “variable interest entities” information related consolidation variable interest entities use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs progress toward completion customer vendor claims employee benefit plan obligations sharebased compensation plans addition also use estimates accounting uncertain tax positions deferred taxes asbestos liabilities expected recoveries assessing goodwill impairment among others revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion time numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change following table summarizes number separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 relating revaluation work performed prior periods changes final estimated contract profit revisions global power group increased 2012 favorable settlement subcontractor approximately 6900 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global engineering construction group “global ec group” global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements please see note 14 information related changes final estimated contract profit impact business segment results claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims additional contract revenue probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred include amounts unapproved change orders two requirements described met unapproved change orders similar items subject uncertainty meet two requirements described expensed without recognition additional contract revenue costs attributable claims treated costs contract performance incurred recorded contracts process consolidated financial statements included commercial claims 4500 8800 december 31 2013 2012 respectively substantially costs incurred december 31 2013 2012 certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract event defer precontract costs successful obtaining contract write deferred costs consolidated statement operations period longer assess recoverability costs probable deferred precontract costs inconsequential december 31 2013 2012 certain specialpurpose subsidiaries global power group business segment reimbursed customers costs building operating certain facilities lives corresponding service contracts depending specific legal rights obligations arrangements cases reimbursements treated operating revenues gross value cases reduction cost cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less date acquisition dependent cash repatriations subsidiaries cover payments expenses parent holding company switzerland cover cash needs related asbestosrelated liability overhead expenses us discretion specific liquidity needs funding acquisitions share repurchase program cash equivalents 416657 470546 held nonus entities december 31 2013 2012 respectively entities require portion funds support liquidity working capital needs well comply required minimum capitalization requirements cases contractual restrictions accordingly portion funds may readily available repatriation entities switzerland us trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed refer retention receivables final payment retention receivables might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet please see note 3 detailed information regarding retention receivable balances trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity relevant industry accounting standards however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively consolidated balance sheet inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 11998 18414 december 31 2013 2012 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 20 35 years power generation facilities related equipment 3 15 years equipment depreciation expense allocated cost operating revenues selling general administrative expenses based manner underlying assets deployed expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash balances held entities investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently investments affiliates investment ownership 20 greater consolidated recorded using equity method affiliates investment ownership less 20 carried cost variable interest entities sometimes form separate legal entities corporations partnerships limited liability companies connection execution single contract project upon formation separate legal entity perform evaluation determine whether new entity variable interest entity vie whether primary beneficiary new entity would require us consolidate new entity financial results reassess initial determination whether entity vie upon occurrence certain events whether primary beneficiary outlined current accounting guidelines entity vie determine accounting entity voting interest accounting guidelines entity determined vie either total equity investment sufficient entity finance activities without additional subordinated financial support b characteristics controlling financial interest missing ability make decisions voting rights obligation absorb losses right receive benefits c voting rights equity holders proportional obligations absorb losses entity andor rights receive benefits entity substantially entity’s activities either involve conducted behalf investor disproportionately voting rights december 31 2013 2012 participated certain entities determined vies including gasfired cogeneration facility martinez california refineryelectric power generation project chile consolidate operations martinez project record participation project chile equity method accounting please see note 5 information regarding participation projects goodwill intangible assets goodwill arising business acquisitions allocated appropriate reporting unit relative fair value basis time acquisition intangible assets consist principally patents trademarks customer relationships pipeline backlog technology amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist estimated remaining useful lives intangible assets december 31 2013 ranged patents 3 10 years trademarks 1 22 years customer relationships pipeline backlog 2 14 years technology 6 years test goodwill impairment reporting unit level determined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists four reporting units one within global power group business segment three within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed reporting units case perform goodwill impairment test first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step compares implied fair value reporting unit’s goodwill based hypothetical purchase price allocation carrying amount goodwill fourth quarter year evaluate goodwill reporting unit based assumptions used estimate fair value reporting units assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill december 31 2013 2012 estimated fair value reporting units sufficiently excess carrying values even conducting various sensitivity analyses key assumptions adjustment carrying values goodwill required intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions make provision incremental income taxes subsidiary earnings retained subsidiary’s country domicile expect earnings indefinitely reinvested jurisdiction unremitted earnings subsidiaries intended permanently reinvested incremental income tax provided aggregated 337257 december 31 2013 unable precisely estimate additional tax would incurred amounts repatriated due complexity calculating potential foreign tax credit relief mechanisms double taxation available respect distributions ii effect adjusted tax bases several subsidiaries determination income subject tax well iii impact significant distribution would rationalizing mix debt equity capital intermediary subsidiaries subject foregoing limitations indefinitely reinvested earnings balance sheet date distributed one year currently estimate amount tax due within range approximately 10000 30000 given unremitted earnings intended invested indefinitely amount additional tax fluctuate significantly period result several additional factors future changes tax rates continuing availability tax attributes tax losses tax credit carryovers intermediary subsidiaries potential changes legal entity ownership structure recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement recognize interest accrued potential tax liability related unrecognized tax benefits interest expense recognize potential penalties deductions net consolidated statement operations foreign currency functional currency foster wheeler ag us dollar functional currency nonus operations typically local currency country domicile assets liabilities nonus entities translated us dollars reporting currency periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses 2013 2012 2011 follows fair value measurements fair value defined price would received sell asset paid transfer liability orderly transaction market participants measurement date financial accounting standards board accounting standards codification fasb asc 82010 defines fair value establishes three level fair value hierarchy prioritizes inputs used measure fair value provides guidance required disclosures fair value measurements fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs financial assets liabilities recorded fair value recurring basis consist primarily assets liabilities arising derivative financial instruments defined benefit pension plan assets see note 10 information regarding derivative financial instruments note 8 information regarding defined benefit pension plan assets following methods assumptions used estimate fair value class financial instruments practicable estimate fair value financial instruments valued independent fair value hierarchy • cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value demand nature many deposits shortterm maturity instruments financial instruments valued within fair value hierarchy • longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities using level 2 inputs • foreign currency forward contracts estimate fair value foreign currency forward contracts obtaining quotes financial institutions market transactions either listed overthecounter markets estimate fair value foreign currency forward contracts also includes assessment nonperformance counterparties corroborate valuations observable market data using level 2 inputs • interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions corroborate observable market data using level 2 inputs • defined benefit pension plan assets estimate fair value investments equity securities yearend based quotes obtained financial institutions fair value investments commingled funds invested primarily debt equity securities based net asset values communicated respective asset manager corroborate valuations observable market data using level 1 2 inputs additionally hold investments private investment funds valued net asset value communicated asset manager using level 2 3 unobservable market data inputs assets liabilities measured fair value statement financial position december 31 2013 2012 include following longlived assets included discontinued operations presented table relate wastetoenergy facility camden new jersey sold 2013 please refer note 18 additional information investment unconsolidated affiliate presented table relates equity interest investment wastetoenergy project carrying value investment approximated fair value december 31 2013 result impairment charge investee level please see note 5 information contingent consideration liability presented table paid 2013 payment amount equaled fair value contingent consideration liability december 31 2012 please see note 7 fair value longterm debt held carrying amount consolidated balance sheet note 8 fair value defined benefit pension plan assets included plans’ funded status consolidated balance sheet external legal fees external legal fees expensed incurred recorded deductions net consolidated statement operations exception external legal fees associated asbestos defense costs please refer note 16 information related accounting asbestos defense costs incurred external legal fees excluding asbestos defense costs approximately 22700 16100 17800 2013 2012 2011 respectively include external legal fees related project claims restrictions shareholders’ dividends declared paid cash dividend since july 2001 current senior unsecured credit agreement contains limitations cash dividend payments february 26 2014 board directors approved proposal shareholders onetime dividend 040 per share please refer note 19 information regarding proposed dividend retirement shares share repurchase program swiss law cancellation shares previously repurchased share repurchase program must approved shareholders repurchased shares remain treasury shares balance sheet cancellation repurchases made discretion compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time treasury shares carried cost consolidated balance sheet cancellation shares approved shareholders cancellation registered commercial register canton zug switzerland upon effectiveness cancellation shares cost shares cancelled removed treasury shares consolidated balance sheet par value cancelled shares removed registered shares consolidated balance sheet excess cost treasury shares par value removed paidin capital consolidated balance sheet repurchased treasury shares longer considered outstanding results reduction weightedaverage number shares outstanding reporting period calculating earnings per share described earnings per share basic earnings per share amounts computed based weightedaverage number shares outstanding reporting period diluted earnings per share amounts based combination weightedaverage number shares outstanding reporting period impact dilutive securities outstanding stock options nonvested portion restricted stock units performancebased restricted stock units collectively “restricted awards” extent securities dilutive profitable periods outstanding stock options dilutive effect treasury stock method average share price period exceeds assumed proceeds exercise option assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option exercised treasury stock method assumed proceeds assumed used repurchase shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds computations basic diluted earnings per share continuing operations follows following table summarizes sharebased compensation awards included calculation diluted earnings per share assumed proceeds awards per share basis greater average share price period would result antidilutive effect diluted earnings per share 2 business combinations 2013 acquisitions june 2013 acquired outstanding shares privately held upstream consultancy business located united kingdom additional related assets middle east acquired business specializes field development project decision support focused evaluation implementation oil gas field developments covering greenfield brownfield assets paid cash consideration net cash acquired £6000 approximately 9300 based exchange rates effect payment dates sale purchase agreement also included earnout provision additional consideration estimated maximum £3000 approximately 4600 based exchange rate effect december 31 2013 depending acquired business’ performance defined sale purchase agreement period approximately 3 half years subsequent acquisition date amounts recognized earnout reported compensation expense periods subsequent acquisition date rather part purchase price business consolidated balance sheet december 31 2013 included preliminary purchase price allocation acquisition process finalizing valuation individual assets acquired liabilities assumed preliminary purchase price allocation based best estimate management expect finalize purchase price allocation upon completion independent appraisal next several months later one year acquisition date preliminary purchase price allocation pro forma impact assuming acquisition occurred beginning 2012 significant consolidated financial statements result preliminary purchase price allocation recognized goodwill 4465 intangible assets 5307 related acquisition assets liabilities results operations acquired business included within global engineering construction group “global ec group” business segment also june 2013 acquired outstanding shares privately held engineering project management business located mexico experience offshore onshore upstream oil gas downstream oil gas power projects paid cash consideration net cash acquired approximately 15700 consolidated balance sheet december 31 2013 included preliminary purchase price allocation acquisition process finalizing valuation individual assets acquired liabilities assumed preliminary purchase price allocation based best estimate management expect finalize purchase price allocation upon completion independent appraisal next several months later one year acquisition date preliminary purchase price allocation pro forma impact assuming acquisition occurred beginning 2012 significant consolidated financial statements part postacquisition valuation assets liabilities acquired recorded additional assets liabilities 20782 32647 respectively recorded corresponding net increase goodwill 11865 result preliminary purchase price allocation recognized goodwill 18143 intangible assets 7100 related acquisition assets liabilities results operations acquired business included within global ec group business segment us operations’ fiscal first quarter 2013 acquired outstanding shares privately held usbased business specializes management construction commissioning pharmaceutical biotech facilities also capabilities manage full engineering procurement construction facilities addition acquired business ability provide modular project delivery services worldwide basis participation business partnership paid cash consideration net cash acquired approximately 25100 sale purchase agreement also included earnout provision additional consideration estimated maximum approximately 6600 depending acquired business’ performance defined sale purchase agreement period approximately 5 years subsequent acquisition date amounts recognized earnout reported compensation expense periods subsequent acquisition date rather part purchase price business purchase price allocation pro forma impact assuming acquisition occurred beginning 2012 significant consolidated financial statements result purchase price allocation recognized goodwill 10571 intangible assets 13980 related acquisition assets liabilities results operations acquired business included within global ec group business segment 2012 acquisition november 2012 acquired outstanding shares privately held multidiscipline full service engineering procurement construction management business located north america paid cash consideration net cash acquired approximately 68500 sale purchase agreement also included earnout provision additional consideration estimated maximum approximately 20000 depending acquired business’ performance defined sale purchase agreement period approximately 5 years subsequent acquisition date earnout reported compensation expense periods subsequent acquisition date rather part purchase price business result purchase price allocation recognized goodwill 18708 intangible assets 42921 related acquisition assets liabilities results operations acquired business included within global ec group business segment allocation purchase price following table presents allocation purchase price aggregate assets acquired liabilities assumed goodwill acquisitions described balance related assets acquisitions year ended december 31 2013 included receivable indemnification rights seller acquired business total purchase price acquisitions year ended december 31 2012 increased working capital adjustment 2026 paid 2013 also resulted corresponding increase goodwill noted amounts two acquisitions occurred year ended december 31 2013 based preliminary estimates fair value identifiable assets acquired liabilities assumed estimates subject revision may result adjustments amounts presented expect finalize amounts within 12 months respective acquisition dates expect adjustments material pro forma results presented pro forma effect acquisitions material consolidated financial results periods presented goodwill factors contributing purchase price resulted recognition goodwill include opportunity expand product offerings ii opportunity enter new geographic markets iii opportunity achieving operating synergies iv acquiring workforce capabilities engineering procurement construction management business expand capabilities 2013 recognized goodwill 10571 expected deductible income tax purposes none goodwill recognized 2012 expected deductible income tax purposes intangible assets intangible assets amortized based period economic benefits intangible assets expected realized intangibles assets include following • customer relationships backlog estimated useful lives ranging two 13 years two 15 years acquisitions years ended december 31 2013 2012 respectively • trademarks estimated useful lives ranging two 12 years acquisitions year ended december 31 2013 estimated useful life five years acquisition year ended december 31 2012 • intangible assets represent fair values existing noncompete agreements software estimated useful lives ranging five six years acquisitions year ended december 31 2013 estimated useful lives ranging four seven years acquisition year ended december 31 2012 2011 acquisition december 2011 acquired stock grafwulff gmbh company based germany purchase price approximately 22300 approximately 29400 exchange rate date acquisition net cash acquired company designs manufactures installs equipment utilizes circulating dry ash flue gas scrubbing technology types steam generators power industrial sectors purchase price allocation acquisition significant consolidated financial statements company’s financial results included within global power group business segment operating revenues performance utilize ebitda defined note 14 primary measure operating performance table presents thirdparty operating revenues ebitda balances included consolidated financial results acquisitions respective year acquisition impact acquired company included respective year acquisition impact included subsequent years presented operating revenues ebitda acquisitions included consolidated financial results respective year acquisition thirdparty operating revenues ebitda 2011 grafwulff gmbh acquired december 31 2011 last day 2011 3 accounts notes receivable net following table shows components trade accounts notes receivable assess need allowance doubtful accounts projectbyproject basis risk nonpayment related customer credit risk record allowance doubtful accounts nature customer base rigorous customer credit risk assessment process prior entering contracts level allowance doubtful accounts typically small percentage gross accounts receivable balance extent risk nonpayment related commercial performance issues record allowance valuation contract work progress within contract recorded provision outstanding retention receivable balances december 31 2013 2012 following table shows components accounts notes receivable net 4 land buildings equipment land buildings equipment stated cost set forth depreciation expense 2013 2012 2011 40280 38013 37168 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 investments investment unconsolidated affiliates noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project located italy refineryelectric power generation project located chile also 50 noncontrolling interest project italy generates earnings royalty payments linked price natural gas based outstanding equity interests entities 4165 two electric power generation projects italy 39 wastetoenergy project 50 wind farm project notional 85 equity interest project chile however primary beneficiary result participation rights held minority shareholder determining primary beneficiary considered minority shareholder’s right approve activities project significantly impact project’s economic performance include right approve reject annual financial capital operating budget annual operating plan right approve reject appointment general manager senior management approval rights respect capital expenditures beyond included annual budget summarized financial information presented project chile includes estimated recovery property damage insurance policy estimated recovery business interruption insurance policy income statement data 2011 account investments italy chile equity method following summarized financial information entities whole based projects located investment unconsolidated affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet equity net earnings unconsolidated affiliates recorded within income net consolidated statement operations investments equity earnings unconsolidated affiliates italy chile included global ec group global power group business segments respectively consolidated financial statements reflect following amounts related unconsolidated affiliates italy chile share undistributed retained earnings equity investees amounted approximately 68200 110200 december 31 2013 2012 respectively 2013 global ec group’s projects italy experienced equity loss 12541 inclusive impact impairment charge 22400 one projects discussed equity earnings projects italy 2725 9744 2012 2011 respectively equity earnings 2013 included impact impairment charge 22400 equity interest investment wastetoenergy project italy reduction fair value investment resulted changed market conditions respect waste tariffs type waste delivered plant coupled reduced operating performance plant compared projected performance partner investment concluded continue operate plant may consider future capital investments improve operating performance including potential increase overall waste treatment electric production compared current levels impairment recorded investee level result foregoing carrying value investment approximated fair value december 31 2013 also 2013 equity earnings favorably impacted two items occurred 2013 governmental authority mandated rate change energy generated prior 2013 favorably impacted three projects aggregate amount 4900 governmental return investment credit received one projects deemed critical energy producing facility favorably impacted project 2200 additionally equity earnings projects italy favorably impacted inclusion two items recognized 2012 charge establish reserve receivable emission rights impact extended facility maintenance shutdown 2012 equity earnings 2012 compared 2011 unfavorably impacted two items recognized 2012 february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s facility chile result damage project’s facility suspended normal operating activities date subsequently filed claim insurance carrier property damage business interruption recoveries property damage business interruption insurance recoveries sufficient cover costs repairing facility substantially compensate unconsolidated affiliate loss profits facility suspended normal operating activities unconsolidated affiliate collected substantially remaining amounts due property damage business interruption insurance claims third quarter 2012 facility achieved normal operating activities third quarter 2011 equity earnings project chile 27542 20287 30871 2013 2012 2011 respectively increase equity earnings 2013 compared period 2012 primarily driven two items 3200 increase share project’s 2012 earnings recognized result revised earnings allocation 2012 approved connection approval project’s governing board 2012 earnings distribution second quarter 2013 3000 increase reversal insurancerelated contingency second quarter 2013 decrease equity earnings 2012 compared 2011 primarily driven impact lower marginal rates electrical power generation impact higher statutory tax rate chile partially offset increase project’s volume electricity produced 2012 equity earnings 2011 included equity interest tax estimated recovery project chile’s business interruption insurance policy covered period date earthquake period facility resumed normal operating activities guaranteed certain performance obligations project chile contingent obligation measured annually based operating results project chile preceding year shared equally minority interest partner current payment obligation guarantee december 31 2013 addition provided 10000 debt service reserve letter credit cover debt service payments event project chile generate sufficient cash flows make payments required maintain debt service reserve letter credit term project chile’s debt matures 2014 december 31 2013 amounts drawn letter credit anticipate amounts drawn letter credit also whollyowned subsidiary provides operations maintenance services project chile record fees operations maintenance services operating revenues consolidated statement operations corresponding receivable trade accounts notes receivable consolidated balance sheet consolidated financial statements include following balances related project chile also guaranteed performance obligations whollyowned subsidiary operations maintenance agreement governing project chile guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee third quarter 2013 acquired 49 interest joint venture company fully licensed engineer procure construct process facilities china paid cash consideration approximately cny 72000 approximately 11600 based exchange rate effect closing date investment included investments advances unconsolidated affiliates consolidated balance sheet investments majority equity partner general partner gasfired cogeneration project martinez california determined vie december 31 2013 2012 primary beneficiary vie since power direct activities significantly impact vie’s performance activities include operations maintenance facilities accordingly primary beneficiary vie consolidated entity aggregate net assets entity presented 6 goodwill intangible assets tracked accumulated goodwill impairments since beginning fiscal year 2002 date adoption accounting guidelines related assessment goodwill impairment accumulated goodwill impairment losses date following table provides rollforward goodwill balances december 2013 global ec group’s goodwill balance included increases related acquisitions located us mexico 10571 18143 respectively included north america geographic region table uk 4465 portions included europe middle east geographic regions table global ec group’s goodwill balance also includes increase 2013 related customary working capital adjustment 2026 2012 acquisition included north america geographic region table remaining changes regions result impact foreign currency translation adjustments december 2012 acquired multidiscipline full service engineering procurement construction management company located north america included within global ec group business segment please refer note 2 information regarding acquisitions following table provides net carrying amount goodwill geographic region reporting units located following table sets forth amounts relating identifiable intangible assets december 31 2013 net carrying amounts identifiable intangible assets 45635 global power group 67828 global ec group amortization expense related identifiable intangible assets recorded within cost operating revenues consolidated statement operations amortization expense related assets identifiable intangible assets material 2013 2012 2011 following table details amortization expense related identifiable intangible assets period 7 borrowings following table shows components longterm debt interest costs interest costs incurred 2013 2012 2011 11297 10894 12859 respectively capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows following minimum lease payments made years indicated capital lease obligations december 31 2013 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facility wind farm projects owner majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance project chile described note 5 fw power srl owner certain electric power generating wind farms italy project financing two wind farm projects base facilities base facilities bear interest variable rates based upon 6month euribor plus spread varying 09 10 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2022 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75300 approximately 103700 exchange rate december 31 2013 executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 10 “derivative financial instruments interest rate risk” accounting policy related interest rate swap contracts interest rate portion base facilities subject interest rate swap contracts 0331 december 31 2013 energia holdings llc notes collateralized certain revenues assets specialpurpose subsidiary indirect ownership interest project chile described note 5 subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois us assumed certain subordinated obligations 1999c bonds due october 15 2024 “1999c bonds” robbins bonds outstanding december 31 2013 remaining subordinated obligations paid full scheduled maturity dates 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date october 3 2008 acquired portion 1999c bonds plus accrued unpaid interest date aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows senior credit agreements august 3 2012 entered new fiveyear senior unsecured credit agreement replaced amended restated senior unsecured credit agreement july 2010 new senior credit agreement provides unsecured revolving line credit 750000 contains increase option permitting us subject certain requirements arrange existing lenders andor new lenders provide aggregate 300000 additional commitments term senior credit agreement may request subject certain requirements two oneyear extensions contractual termination date issue 750000 letter credit portion facility letters credit issued new senior credit agreement performance pricing decreased increased result improvements reductions corporate credit ratings defined senior credit agreement based current credit ratings letter credit fees performance nonperformance letters credit issued new senior credit agreement 075 150 per annum outstanding amount respectively excluding nominal fronting fee also option use 250000 750000 revolving borrowings rate equal adjusted libor defined senior credit agreement plus 150 subject also performance pricing noted fees expenses incurred conjunction execution new senior credit agreement approximately 4000 along portion remaining unamortized fees july 2010 agreement amortized expense fiveyear term agreement commenced third quarter 2012 also recorded 800 charge 2012 writeoff portion unamortized fees expenses paid conjunction july 2010 agreement new senior credit agreement contains various customary restrictive covenants addition new senior credit agreement contains financial covenants relating leverage interest coverage ratios total leverage ratio compares total indebtedness ebitda defined credit agreement total interest coverage ratio compares ebitda defined credit agreement interest expense leverage interest coverage ratios measured quarterly addition leverage ratio measured date determination certain significant events terms defined new senior credit agreement compliance financial covenants provisions august 2012 july 2010 senior credit agreements respective agreements effect year ended december 31 2013 2012 approximately 253900 250600 letters credit outstanding senior credit agreement effect december 31 2013 2012 respectively letter credit fees senior credit agreement effect december 31 2013 2012 ranged 075 150 outstanding amount excluding fronting fees funded borrowings outstanding senior credit agreement effect december 31 2013 2012 8 pensions postretirement benefits defined benefit pension plans united states us united kingdom uk canada finland france india south africa postretirement benefit plans refer opeb plans health care life insurance benefits us canada also defined contribution retirement plans us uk finally certain benefit plans including government mandated postretirement programs recognize funded status defined benefit pension opeb plans consolidated balance sheet recognize gains losses recognized component annual service cost component comprehensive income net tax record net actuarial losses prior service costcredits net transition obligationsassets within accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans effective march 31 2010 closed uk pension plan future defined benefit accrual date active members became deferred maintained salary link retail prices index rpi inflation calculation members’ benefits inactive members uk governmental standard rpi time plan closure would continue utilized determine inflation index calculation inactive members’ benefits result change uk governmental standard pension plan inflationary increases 2011 uk pension plan adopted use uk consumer prices index cpi basis inflationary increases calculation pension benefits members exception active members still maintained salary link rpi uk rpi former uk governmental standard used uk pension plan accounted change plan amendment may 31 2011 based remeasurement obligation time recognized decrease pension plan liability consolidated balance sheet corresponding pretax prior service credit comprehensive income 2011 approximately £29600 approximately 48100 exchange rate effect time change november 29 2013 uk pension plan announced salary limiter would future linked cpi inflation therefore resulting active members’ salaries linked cpi inflation calculation active members’ benefits accounted change rpi cpi inflation active members’ benefits plan amendment based remeasurement obligation time recognized decrease pension plan liability consolidated balance sheet corresponding pretax prior service credit comprehensive income £10900 approximately 17400 exchange rate effect time change postretirement benefit plans certain employees us canada may become eligible health care life insurance benefits qualify commence normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities sip 16213 18273 december 31 2013 2012 respectively reflected postretirement benefit obligation funded status information assets held fund benefits provided sip reflect cash surrender value insurance policies purchased cover obligations sip totaled 5781 6033 december 31 2013 2012 respectively assets recorded assets consolidated balance sheet reflected opeb funded status information components net periodic benefit costcredit changes recognized comprehensive income include 1 2013 uk pension plan adopted use uk consumer prices index basis future inflationary increases calculation pension benefits active members accounted plan amendment 2 2011 uk pension plan adopted use uk consumer prices index basis future inflationary increases calculation pension benefits inactive members accounted plan amendment 3 please refer note 12 related tax effect recognized comprehensive income components net periodic benefit costcredit recognized within cost operating revenues selling general administrative expenses consolidated statement operations please refer note 1 discussion timing items cost operating revenues recognized consolidated statement operations accounting policy revenue recognition longterm contracts utilizes percentageofcompletion method following summary net periodic benefit costcredit defined benefit pension plan estimated amortization expensebenefit recognized net periodic benefit cost next year includes following table summarizes weightedaverage assumptions used estimate net periodic benefit costcredit projected benefit obligation year salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 58 68 past three years assumed healthcare cost trend rates opeb plans assumed healthcare cost trend rates significant effect costs obligations reported postretirement benefit plans onepercentagepoint change assumed healthcare cost trend rates would following effects projected benefit obligations funded status years ended december 31 2013 2012 defined benefit pension plans accumulated benefit obligation excess plan assets balances years ended december 31 2013 2012 include information plans united kingdom south africa since plan assets plans exceeded accumulated benefit obligation contributions based minimum statutory funding requirements 2014 mandatory contributions us pension plans insignificant based minimum statutory funding requirements 2014 expect contribute total mandatory contributions approximately 22900 nonus pension plans approximately 5100 postretirement benefit plans estimated future benefit payments expect make following benefit payments plan assets defined benefit pension plans us uk canada india south africa governed written investment policy pension plans finland france plan assets investment policy pension plans allocates assets accordance policy guidelines identify target andor maximum minimum allocations asset class guidelines vary pension plan asset class generally range 30 40 equities 50 60 fixed income 0 10 alternative investments hedge funds 0 10 cash exception plan contributions temporarily awaiting longerterm investment guidelines expressly endorse ranges generally 10 less investments exposed various risks interest rate market credit risks due level uncertainty related certain investment securities least reasonably possible changes values investment securities occur near term changes could materially affect fair value defined benefit plan assets turn would result change net pension benefit liability consolidated balance sheet accordingly valuation investments year end may indicative future valuations amounts could realized upon future liquidation develop investment policies pension plans take risks account continually review investment policies ensure investment strategy aligned pension plan liabilities projected pension plan benefit payments based current holdings believe individual pension plans exposed significant concentration risk particular sector asset class pension plan assets valued established framework measuring fair value accordance us generally accepted accounting principles see note 1 information regarding measurement fair value us generally accepted accounting principles accounting policy pension plan assets measured within fair value framework primarily consist investments us treasury securities commingled funds private investment fund assets quoted prices active markets used value investments available investments valued closing price available last reported bid price accordance current accounting guidance valuations include use funds’ reported net asset values commingled fund investments private investment funds commingled funds valued net asset value underlying securities corroborate valuations observable market data using level 1 2 inputs within fair value framework fair value private investment fund assets based net asset value investments funds including hedge funds communicated asset manager net asset values underlying funds turn valued based net asset values investments equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles investments private investment fund assets valued using level 2 3 unobservable market data inputs additionally private investment fund assets “lockup” periods typically upon initial investment exceeded 90 days classified level 3 unobservable market data inputs assets transferred level 2 inputs expiration “lockup” period long asset liquidated net asset value end notice period less 90 days fair values defined benefit pension plan assets december 31 2013 2012 asset category follows 1 publicly traded us government treasury notes bonds 2 primarily equity securities focus longterm returns 3 primarily corporate fixed income securities focus intermediateterm longterm maturities 4 primarily government fixedincome securities focus current income capital preservation varying maturities 5 primarily shortterm maturities two years less various issuers focus preservation capital 6 private investment funds primarily invest funds including hedge funds turn invest equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles 7 investments publicly traded futures contracts corporate floating rate loan funds credit default swaps level 3 gains losses table provides summary changes fair value level 3 plan assets 2013 2012 2011 2013 transferred value investment one private investment funds valued net asset value level 3 level 2 “lockup” period fund expired ability liquidate asset net asset value end notice period less 90 days defined contribution plans us subsidiaries 401k plan salaried employees match 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code total us subsidiaries contributed approximately 10000 10900 9400 401k plan 2013 2012 2011 respectively us subsidiaries also roth 401k plan salaried employees uk subsidiaries offer defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed approximately 10000 9700 10500 2013 2012 2011 respectively defined contribution plan benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 19662 19393 recorded within pension postretirement employee benefits consolidated balance sheet december 31 2013 2012 respectively related benefits 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily breach covenants breach representations warranties well potential exposure retained liabilities environmental matters third party claims activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification however many indemnification obligations including environmental matters capped historically payments indemnification obligations significant effect business financial condition results operations cash flows believe incur loss related matters loss would significant effect business financial condition results operations cash flows maintain liabilities environmental matters properties owned properties covered indemnification obligations described businesses andor assets previously owned sold third parties december 31 2013 2012 carrying amounts environmental liabilities 6800 8500 respectively also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project adjustments provisions represent reversals warranty provisions longer required contingently liable standby letters credit bank guarantees surety bonds totaling 960500 1015900 december 31 2013 2012 respectively primarily guarantees performance projects currently execution warranty amounts include standby letters credit issued senior unsecured credit agreement discussed note 7 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations refineryelectric power generation project located chile hold noncontrolling interest see note 5 information 10 derivative financial instruments exposed certain risks relating ongoing business operations risks managed using derivative financial instruments relate primarily foreign currency exchange rate risk significantly lesser extent interest rate risk derivative financial instruments held consolidated entities recognized assets liabilities fair value consolidated balance sheet proportionate share fair value derivative financial instruments held equity method investees included investments advances unconsolidated affiliates consolidated balance sheet fair values derivative financial instruments held consolidated entities follows foreign currency exchange rate risk operate worldwide basis operations subject us foreign currency exchange rate risk mainly relative british pound chinese yuan euro us dollar december 31 2013 risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge exposed item anticipated purchases revenues back functional currency notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2013 total gross notional amount measured us dollar equivalent approximately 399800 related foreign currency forward contracts amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2014 2016 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains foreign currency forward contracts used mitigate currency risk projects gain loss portion marktomarket adjustment related completed portion underlying project included cost operating revenues time underlying foreign currency exposure occurs gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying project reflected directly cost operating revenues period marktomarket adjustment occurs also utilize foreign currency forward contracts mitigate nonproject related currency risks recorded deductions net gain loss remaining uncompleted portion projects nonproject related transactions follows marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses primarily recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet 2013 2012 2011 included net cash inflows settlement derivatives 10864 4073 315 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows interest rate risk use interest rate swap contracts manage interest rate risk associated portion variable rate specialpurpose limited recourse project debt aggregate notional amount receivevariablepayfixed interest rate swaps consolidated entities 56800 december 31 2013 upon entering swap contracts designate interest rate swaps cash flow hedges assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income amounts reclassified accumulated comprehensive loss recognized within interest expense consolidated statement operations impact interest rate swap contracts cash flow hedging relationships consolidated entities follows balances consolidated entities proportionate share impact interest rate swap contracts cash flow hedging relationships held equity method investees included consolidated statement comprehensive income net tax see note 12 related tax benefits cash flow hedges recognized comprehensive income years ended december 31 2013 2012 2011 11 sharebased compensation plans sharebased compensation plans include stock options restricted awards following table summarizes sharebased compensation expense related income tax benefit grant stock options 2013 2012 2011 estimated fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions stock options granted 2012 2011 • expected volatility estimated volatility share price date grant using “lookback” period coincided expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimated expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimated riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends used expected dividend yield zero declared paid cash dividend since july 2001 planned time grant used following weightedaverage assumptions estimate fair value options granted years indicated estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period performance rsu awards number restricted share units ultimately vest depend share price performance specified performance goals defined performance rsu award agreements estimate grant date fair value performance rsu award using monte carlo valuation model recognize fair value performance rsu award compensation expense ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest december 31 2013 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted share units performancecontingent shares performancecontingent units including performance rsus cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaced prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued conditionally authorized shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance current accounting guidance regarding classification measurement redeemable securities adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity reconciliations temporary equity years ended december 31 2013 2012 2011 follows articles association provide conditional capital issuance shares sharebased compensation plans convertible exercisable securities may issue future conditional capital decreases upon issuance shares connection exercise outstanding stock options vesting restricted awards offsetting increase issued authorized share capital december 31 2013 remaining available conditional capital 58168412 shares prior sharebased compensation plan remaining outstanding prior sharebased compensation plan consists stock option plan directors foster wheeler approved shareholders awards granted plan connection redomestication switzerland foster wheeler ag assumed foster wheeler ltd’s obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards stock option awards summary employee stock option activity 2013 2012 2011 presented based grant date fair value options following table summarizes stock options outstanding exercisable december 31 2013 december 31 2013 aggregate intrinsic value outstanding options exercisable options 8706 4921 respectively exercise date intrinsic value options exercised 2013 2012 2011 totaled 6146 335 4250 respectively restricted awards restricted awards consist restricted share units performance rsus summary restricted awards activity 2013 2012 2011 presented represents maximum number shares could awarded based performance criteria specified award vesting date fair value restricted awards vested 2013 2012 2011 totaled 7410 8381 11303 respectively 12 accumulated comprehensive loss adjustments included comprehensive loss related foreign currency translation cash flow hedges pension postretirement benefits related tax provisionbenefit balances attributable noncontrolling interests foster wheeler ag cash flow hedges include impact proportionate share unconsolidated affiliates accounted equity method accounting tax provided foreign currency translation adjustments comprehensive income extent related earnings indefinitely reinvested subsidiary’s country domicile reclassifications accumulated comprehensive loss related cash flow hedges included amounts related consolidated entities proportionate share impact interest rate swap contracts cash flow hedging relationships held equity method investees amounts reclassified accumulated comprehensive loss related cash flow hedges consolidated entities recognized within interest expense consolidated statement operations whereas amounts related equity method investees recognized within equity earnings income net consolidated statement operations please refer note 10 information reclassifications accumulated comprehensive loss related pension postretirement benefits included component net periodic pension cost please refer note 8 information rollforward accumulated comprehensive loss adjusted comprehensive incomeloss items attributable foster wheeler ag amounts net tax 13 income taxes components incomeloss continuing operations income taxes 2013 2012 2011 following tax jurisdictions provision income taxes follows deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus deferred tax assets valuation allowance based consideration available evidence indicates likely deferred tax assets realized 2013 aggregate worldwide valuation allowance increased net 6073 primarily result losses jurisdictions full valuation allowance previously recorded primarily us partially offset release valuation allowance territories result updated forecast taxable income future periods concluded likely deferred tax assets realized majority us federal tax benefits valuation allowances established expire 2025 beyond based current tax laws subsidiaries file income tax returns many tax jurisdictions including us several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years 2009 fourth quarter 2013 recorded tax provision approximately 10700 related tax audit nonus jurisdiction 2011 settled tax audit nonus jurisdiction resulted reduction unrecognized tax benefits corresponding reduction provision income taxes 1450 number tax years audit relevant tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including 2014 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time following table summarizes activity related unrecognized tax benefits recognized would affect effective tax rate recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense table summarizes activity interest penalties unrecognized tax benefits 2013 2012 2011 provision income taxes differs amount income tax computed applying us federal statutory rate 35 income taxes result following 1 tax rate differential nonus earnings representing difference tax accrued nonus subsidiaries based local statutory income tax rates tax would accrued nonus subsidiaries subject us federal statutory income tax rate 2 impact earnings nonus joint ventures presented net investeelevel tax component pretax income using equity method accounting 3 impact utilization various tax incentives andor credits nonus jurisdictions although swiss corporation shares listed us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets 14 business segments geographic areas business segments operate two business segments global ec group global power group global ec group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated minerals metals sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group owns operates electric power generating wind farms italy also owns noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project located italy noncontrolling interest joint venture company fully licensed engineer procure construct processing facilities china global ec group generates revenues design engineering procurement construction project management activities pursuant contracts generally span approximately four years duration returns equity investments various power production facilities global power group global power group designs manufactures installs steam generating auxiliary equipment electric power generating stations district heating industrial facilities worldwide additionally global power group holds controlling interest operates combinedcycle gas turbine facility owns noncontrolling interest petcokefired circulating fluidizedbed facility refinery steam power generation operates university cogeneration power facility steamelectric generation global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments various power production facilities global power group’s steam generating equipment includes broad range steam generation environmental technologies offering independent power producers utilities municipalities industrial clients highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste flue gases steam used power generation district heating industrial processes corporate finance group addition global ec group global power group represent two operating segments financial reporting purposes report financial results associated management entities managed one two business groups include corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group also represents operating segment financial reporting purposes refer cf group operating revenues continuing operations conduct business global basis 2013 global ec group accounted 76 total operating revenues global power group accounted 24 total operating revenues operating revenues continuing operations industry business segment geographic region based upon projects executed follows 2013 2012 one client global ec group accounted approximately 12 consolidated operating revenues inclusive flowthrough revenues years however associated flowthrough revenues included percentage accounted approximately 11 consolidated operating revenues years second client global ec group accounted approximately 26 consolidated operating revenues inclusive flowthrough revenues 2011 however associated flowthrough revenues included percentage accounted approximately 25 consolidated operating revenues 2011 single client accounted ten percent consolidated revenues 2013 2012 2011 ebitda primary measure operating performance used chief operating decision maker define ebitda net income attributable foster wheeler ag interest expense income taxes depreciation amortization reconciliation ebitda net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest ebitda table includes following 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions global power group increased 2012 favorable claim settlement legacy project subcontractor approximately 6900 recognized first quarter 2012 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 information regarding revaluation asbestos liability related asset 4 impairment charge related equity interest investment wastetoenergy project italy please refer note 5 information 5 charges facility shutdown costs included facility exit lease termination costs facilities global power group 2013 initiated restructuring actions relating ongoing cost reduction efforts within global power group including severancerelated postemployment benefits consolidation manufacturing operations recorded net pretax restructuring costs totaling 19100 restructuring actions initiated 2013 consisting 11700 cost operating revenues 5300 sga 2100 deductions net targeting complete 2014 severancerelated postemployment benefits activities majority facilityrelated cost reduction actions anticipate completed 2015 specific plans significant actions finalized time following table summarizes liability balances utilization cost type 2013 restructuring actions identifiable assets continuing operations identifiable assets group assets directly related support operations group assets cf group principally cash investments real estate insurance receivables accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group geographic areas thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site additional country detail thirdparty revenues determined based upon location contracting subsidiary presented balances represent portion total operating revenues presented table switzerland country domicile foster wheeler ag longlived assets presented based geographic region contracting subsidiary located december 31 2013 2012 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 525 2576 respectively incomeloss discontinued operations included following 2013 2012 recorded impairment charges 3919 11455 respectively camden new jersey wastetoenergy facility recorded depreciation expense within incomeloss discontinued operations please refer note 18 information 15 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases follows future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains recognized income term respective leases gain recognized 4149 4099 4202 2013 2012 2011 respectively december 31 2013 2012 balance deferred gains 30780 34279 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 16 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending us uk plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items approximately 125200 open claims subsidiaries respondents approximately 32800 open claims wherein administrative agreements named defendants lawsuits involving approximately 92400 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 54 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required minimum jurisdiction suit filed following table summarizes range requested monetary damages sought asbestos lawsuits 1 specified monetary damages sought recited amount monetary damages sought meets exceeds required minimum jurisdiction suit filed 2 small number cases range 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated december 31 2028 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date worked analysis research planning corporation arpc nationally recognized consultants us respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend based forecast next 15 years year recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2013 activity arpc recommended certain assumptions used estimate future asbestos liability updated december 31 2013 accordingly developed revised estimate aggregate indemnity defense costs december 31 2028 considering advice arpc 2013 revalued liability asbestos indemnity defense costs december 31 2028 278200 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded net charge 45963 2013 described total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2028 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies claim filings result monetary payments refer zeropay rate well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred december 31 2028 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2028 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2028 yearend 2013 total cumulative indemnity costs paid prior insurance recoveries approximately 825900 total cumulative defense costs paid approximately 409700 approximately 33 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 31 2013 approximately 33 average cost per resolved claim increasing believe continue increase future last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred subsidiaries reach agreements insurers settle disputed asbestosrelated insurance coverage increase asbestosrelated insurance asset record settlement gains asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims december 31 2028 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2013 2012 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2013 2012 2011 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected 2013 recognized gain result collection 15750 insurance receivable related insolvent insurance carrier previously writtenoff proceeds received result bankruptcy courtapproved settlement liquidation proceedings related insolvent insurance carrier following table summarizes net asbestosrelated provision net asbestosrelated provision net result revaluation asbestos liability related asset resulting • charge related impact increase estimate new claim filings • decrease estimate claim filings result zeropay rate 15year estimate partially offset • favorable impact inclusion gain recognized 2013 upon collection insurance receivable 15750 related insolvent insurance carrier previously writtenoff discussed net asbestosrelated provision also impacted lesser extent • adjustment actual claim settlement experience year • accrual another year estimated claims rolling 15year asbestosrelated liability estimate believe increase estimate new claim filings decrease zeropay rate shortterm nature longerterm trend revert previous forecast continue monitor parameters adjust forecasts actual results differ assumptions following table summarizes approximate us asbestosrelated net cash impact indemnity defense cost payments collection insurance proceeds expect net cash outflows 32000 result asbestos liability indemnity defense payments excess insurance proceeds 2014 estimate assumes settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows based december 31 2013 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 40300 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge consolidated statement operations approximately 85 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline united kingdom subsidiaries uk also received claims alleging personal injury arising exposure asbestos date 1052 claims brought uk subsidiaries 290 remained open december 31 2013 none settled claims resulted material costs us following table summarizes asbestosrelated liabilities assets uk subsidiaries based open outstanding claims estimate future unasserted claims 2027 liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability recorded uk would increase approximately 52400 corresponding increase asbestosrelated asset project claims addition specific matters described ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows power plant arbitration united states june 2011 demand arbitration filed american arbitration association client’s erection contractor client us connection power plant project us time details erection contractor’s claims included demand arbitration panel formed september 26 2012 detailed statement claim erection contractor delivered panel october 24 2012 according claim erection contractor seeking unpaid contract amounts client additional compensation client us alleged delays disruptions inefficiencies extra work connection erection plant supplied steam generation equipment project contract client power plant owner turbine contractor supplied turbine electricity generator plant equipment separate contract power plant owner also included party arbitration erection contractor seeking approximately 240000 damages exclusive interest client amount statement claim asserts approximately 150000 related steam generation equipment alleges failure part connection performance steam generation equipment supply contract damages claimed jointly us client claims us erection contractor allege negligence purported capacity third party beneficiary assignee steam generation equipment supply contract breach contract responsive pleadings erection contractor’s pleading filed parties including us november 28 2012 pleading denies erection contractor’s claims us asserts cross claims client seeking 14800 damages related delays scope work improperly assessed delay liquidated damages pleading turbine contractor asserts claims client unpaid contract amounts additional compensation extra work delays capacity purported coassignee steam generation equipment supply contract turbine contractor joins erection contractor’s claims us delayrelated damages asserts cross claims us seeking 5000 nondelay related damages pleading client asserts counter cross claims breach contract gross negligence erection contractor turbine contractor client also asserts cross claims us damages client incurred indemnification damages client may required pay erection turbine contractors arising alleged failures performance part steam generation supply contract denied client’s turbine contractor’s cross claims us august 30 2013 client filed petition us bankruptcy court district delaware seeking reorganize chapter 11 us bankruptcy code filing automatically stayed proceedings client including fourparty arbitration discussed client’s filing included motion seeking authorization use cash collateral fund activities bankruptcy proceedings motion client indicated intent draw performance retention letters credit previously issued connection contract totaling approximately 59000 contending funds needed fund operations bankruptcy make repairs power plant opposed motion various grounds including draw would unsupported wrongful applied order temporarily restraining client drawing letters credit lifting automatic stay arbitration proceeding transferring question client’s right draw letters credit back arbitration resolution context overall dispute bankruptcy court granted application temporary restraint scheduled hearing issue successive applications client adjourned november 21 2013 november 1 2013 client filed motion seeking bankruptcy court’s approval proposed debtorinpossession financing november 13 2013 client filed plan reorganization confirmation hearing plan reorganization currently scheduled march 10 2014 november 15 2013 client signed stipulation modify lift automatic stay arbitration proceedings bankruptcy filing permit arbitration proceed issues related letters credit stipulation approved bankruptcy court courtapproved stipulation also provided withdrawal client’s motion draw letters credit bar refiling motion prior march 1 2014 absent exigent circumstances following lifting bankruptcy stay scheduling conference held arbitration panel december 2013 panel extended various procedural deadlines case final hearing set first second quarters 2015 debtorinpossession financing facility approved court november 21 2013 plan reorganization contemplates funding debtorinpossession financing conditioned upon achievement various milestones specified dates one milestones reduction zero bankruptcy court value mechanics lien mechanics liens turbine erection contractors “claims estimation” proceeding client moved compel claims estimation december 11 2013 turbine erection contractors opposed motion various grounds motion set heard february 7 2014 adjourned request client february 12 2014 february 10 2014 agreed partial settlement outstanding claims supply contract client settlement agreement subject bankruptcy court approval requested client pending client’s claims estimation motion adjourned withdrawn us upon approval agreement bankruptcy court agreement perform certain new work steam generation equipment exchange release client liability alleged defects steam generation equipment ii restriction client’s right draw letters credit disputes involving new work iii courtapproved assignment client’s right seek indemnification cost new work erection turbine contractors also agreement release client liability 14800 project claims related delays scope work improperly assessed delay liquidated damages exchange courtapproved assignment client’s right seek indemnification claims turbine erection contractors upon bankruptcy court approval agreement client intend vigorously pursue claims 14800 project claims cost new work turbine erection contractors letters credit remain place vigorously oppose attempt draw cannot predict ultimate outcome matter time refinery petrochemicals project arbitration india november 2012 commenced arbitration india client seeking collection unpaid receivables excess £52000 approximately 86000 based exchange rate effect december 31 2013 arising services performed reimbursable basis client connection client’s grass roots refinery petrochemicals project northeastern india client rejected claims notified us various potential counterclaims may asserting arbitration purportedly totaling excess £55000 approximately 90900 based exchange rate effect december 31 2013 june 2013 submitted detailed statement claim july 2013 client submitted detailed statement defense counterclaim amount counterclaim increased approximately £620000 approximately 1024900 based exchange rate effect december 31 2013 damages including among claims claim lost profits due delay execution project counterclaim concerns number alleged issues arising connection execution engineering procurement construction management scope contract period contract award subsequent transfer client remaining engineering procurement construction management scope certain lump sum turnkey contractors hired directly client contends liable delays project withheld payment account delay liquidated damages total claim £620000 approximately 1024900 based exchange rate effect december 31 2013 cited seeking damages lost profits amount £555000 approximately 917500 based exchange rate effect december 31 2013 strongly dispute contentions liability delay damages capped contract specified percentage contract value currently equivalent approximately £11500 approximately 19000 based exchange rate effect december 31 2013 amount already retained client contract also excludes liability consequential damages including lost profits contains overall cap liability claims aggregate specified percentage contract value currently equivalent approximately £28800 approximately 47600 based exchange rate effect december 31 2013 unpaid amount seeking reimbursement arbitration may increase client continue withhold amounts invoices project still execution arbitration panel formed client moved dismiss arbitration premature terms contract opposed motion denied panel also pursuant request panel scheduled hearing early first quarter 2014 claims unpaid receivables along client’s counterclaim deductive change order amount approximately £21600 approximately 35700 based exchange rate effect december 31 2013 initial session hearing took place january 2014 session scheduled may 2014 remaining claims counterclaims including client’s counterclaim lost profits scheduled heard late fourth quarter 2014 cannot predict ultimate outcome matter time environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities four subsidiaries’ former facilities including mountain top described addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose wells contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated responding foregoing although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec immediately provided affected residences bottled water followed water filters pursuant settlement agreement usepa hooked public water system pursuant amendment settlement agreement fwec subsequently agreed usepa arrange pay hookup several additional residences even though tce detected wells residences hookups agreed upon residences completed usepa provided fwec certificate fwec completed obligations related abovedescribed settlement agreement amended fwec may required pay agencies’ costs overseeing responding situation fwec also incurring costs connection remedial investigation feasibility study “rifs” march 2009 agreed conduct fourth quarter 2012 fwec received usepa demand foregoing agreement payment 1040 response costs usepa claims incurred commencement rifs april 2009 february 2012 fwec questioned amount invoice based upon discussions usepa revised invoice received june 17 2013 reduced amount 1004 third quarter 2013 fwec received usepa invoice foregoing agreement payment 258 response costs usepa claims incurred march 2012 february 2013 april 2009 usepa proposed listing national priorities list “npl” area consisting fwec’s former manufacturing facility affected residences also stated proposed listing may finalized fwec complies agreement conduct rifs fwec submitted comments opposing proposed listing fwec accrued best estimate cost foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws 17 quarterly financial data unaudited 1 contract profit income continuing operations attributable foster wheeler ag quarter ended december 31 2012 included pretax impact outofperiod correction increase final estimated profit 5280 global ec group aftertax impact 4012 correction recorded quarter ended december 31 2012 material results quarter ended september 30 2012 period recorded material 2012 financial statements whole 2 contract profit income continuing operations attributable foster wheeler ag quarter ended march 31 2012 included favorable pretax settlement subcontractor approximately 6900 lossincome continuing operations attributable foster wheeler ag fourth quarter table includes following pretax amounts 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 please refer note 16 information regarding revaluation asbestos liability related asset 3 impairment charge related equity interest investment wastetoenergy project italy please refer note 5 information 4 charges facility shutdown costs included facility exit lease termination costs facilities global power group 18 discontinued operations first quarter 2013 recorded impairment charge 3919 wastetoenergy facility camden new jersey within global power group business segment charge addition impairment charge 11455 recorded fourth quarter 2012 impairment charges periods included estimates related continued operation facility potential sale facility charge first quarter 2013 result updating estimate related potential sale facility impairment charge recorded within income discontinued operations consolidated statement operations recording impairment charge approval plan sell facility discussed carrying value facility’s fixed assets approximated fair value less estimated costs sell facility april 17 2013 board directors approved plan sell camden facility completed sale facility august 2013 presentation financial results asset liability balances business periods prior completion sale reclassified consolidated statement operations consolidated balance sheet consolidated statement cash flows respective captions related discontinued operations reclassifications made notes consolidated financial statements prior sale business classified consolidated balance sheet june 30 2013 respective current noncurrent captions assets held sale liabilities held sale result board directors’ approval plan sell facility met accounting criteria business held sale criteria classification discontinued operation recognize depreciation longlived assets held sale camden facility formerly included global power group business segment completed sale camden facility august 2013 based proceeds received costs disposal recognized gain 300 within incomeloss discontinued operations income taxes consolidated statement operations quarter nine months ended september 30 2013 following main classes assets liabilities associated discontinued operations december 31 2012 operating revenues related discontinued operations exclusively us 17053 23241 22621 2013 2012 2011 respectively 19 subsequent events pending exchange offer acquisition amec plc february 13 2014 entered implementation agreement “implementation agreement” amec plc “amec” relating acquisition issued registered shares par value chf 300 per share foster wheeler ag “fw share” “fw shares” amec terms subject conditions implementation agreement amec commence exchange offer “offer” acquire fw shares pursuant validly tendered fw share exchanged combination subject election foster wheeler shareholder described current report form 8k filed february 13 2014 1600 cash plus b 08998 ordinary shares par value £050 per share amec “amec shares” election holder american depositary shares “adss” representing number amec shares less taxes required withheld closing offer subject among things approval shareholders certain amendments articles association remove certain transfer restrictions certain voting limitations respect fw shares fuller description offer see current report form 8k filed february 13 2014 proposed dividend february 26 2014 board directors approved proposal shareholders onetime dividend 040 per share intend ask shareholders approve dividend annual general meeting may 7 2014 subject shareholder approval dividend paid shortly annual general meeting dividend linked conditional closing offer covenants senior unsecured credit agreement limit ability pay proposed dividend expect swiss withholding taxes dividend foster wheeler ag schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ag subsidiaries “the company” december 31 2010 2009 results operations cash flows three fiscal years period ended december 31 2010 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 28 2011 foster wheeler ag subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement changes equity thousands dollars except share data see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag swiss corporation foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred throughout notes consolidated financial statements “redomestication” effectively changed place incorporation bermuda canton zug switzerland january 2010 relocated principal executive offices geneva switzerland please see note 18 information related redomestication fiscal year foster wheeler ag ends december 31 calendar year foster wheeler ag’s fiscal quarters end last day march june september fiscal years nonus operations parent’s fiscal year foster wheeler ltd parent company prior redomestication 52 53week annual accounting period ending last friday december ended december 26 2008 fiscal year 2008 fiscal year us operations 52 53week annual accounting period ending last friday december certain prior period amounts reclassified conform current year presentation principles consolidation consolidated financial statements include accounts foster wheeler ag significant us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated june 2009 financial accounting standards board “fasb” issued authoritative guidance amend manner entities evaluate whether consolidation required variable interest entities “vie” model determining enterprise controlling financial interest primary beneficiary vie changed new guidance furthermore new guidance requires ongoing reconsideration primary beneficiary also amends events trigger reassessment whether entity vie revised guidance also requires enhanced disclosures company’s involvement vie affects financial statements exposure risks guidance became effective us january 1 2010 result change entities previously included consolidated financial statements capital alterations see “ basis presentation” note 18 information related redomestication use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs progress toward completion customer vendor claims employee benefit plan obligations sharebased compensation plans addition also use estimates accounting uncertain tax positions deferred taxes asbestos liabilities expected recoveries assessing goodwill impairment among others foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total estimated contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change following table summarizes number separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 relating revaluation work performed prior periods changes fiscal year 2009 included 24300 positive settlements two projects global engineering construction group “global ec group” business segment 14800 associated receipt payment longoutstanding arbitration award please see note 14 information related changes final estimated contract profit impact business segment results foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims additional contract revenue probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process consolidated financial statements included following regarding commercial claims certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract deferred precontract costs immaterial december 31 2010 2009 certain specialpurpose subsidiaries global power group business segment reimbursed customers costs building operating certain facilities lives corresponding service contracts depending specific legal rights obligations arrangements cases reimbursements treated operating revenues gross value cases reduction cost cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less date acquisition dependent cash repatriations cover essentially payments expenses holding company principal executive offices switzerland cover cash needs related asbestos related liability overhead expenses us discretion acquisition shares share repurchase program cash equivalents 824938 772565 held nonus entities december 31 2010 2009 respectively entities require portion funds support liquidity working capital needs well comply required minimum capitalization requirements cases contractual restrictions accordingly portion funds may readily available repatriation entities switzerland us trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed refer retention receivables final payment retention receivables might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet please see note 3 detailed information regarding retention receivable balances trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity relevant industry accounting standards however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively consolidated balance sheet inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 11255 9636 december 31 2010 2009 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment depreciation expense allocated cost operating revenues selling general administrative expenses based manner underlying assets deployed expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash balances held entities investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently investments affiliates investment ownership 20 greater consolidated recorded using equity method affiliates investment ownership less 20 carried cost variable interest entities sometimes form separate legal entities corporations partnerships limited liability companies connection execution single contract project upon formation separate legal entity perform evaluation determine whether new entity vie whether primary beneficiary new entity would require us consolidate new entity financial results reassess initial determination whether entity vie upon occurrence certain events whether primary beneficiary outlined current accounting guidelines entity vie determine accounting entity voting interest accounting guidelines foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued entity determined vie either total equity investment sufficient entity finance activities without additional subordinated financial support b characteristics controlling financial interest missing ability make decisions voting rights obligation absorb losses right receive benefits c voting rights equity holders proportional obligations absorb losses entity andor rights receive benefits entity substantially entity’s activities either involve conducted behalf investor disproportionately voting rights december 31 2010 participated certain entities determined vies including gasfired cogeneration facility martinez california wastetoenergy facility camden new jersey refineryelectric power generation project chile consolidate operations martinez camden projects record participation chile based project equity method accounting please see note 5 information regarding participation projects goodwill intangible assets goodwill allocated reporting units relative fair value basis time original purchase price allocation intangible assets consist principally patents trademarks customer relationships pipeline backlog patents trademarks amortized straightline basis periods 3 40 years customer relationships pipeline backlog amortized straightline basis periods 1 13 years test goodwill impairment reporting unit level defined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists two reporting units one within global power group business segment one within global ec group business segment goodwill impairment test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter fiscal year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill december 31 2010 2009 estimated fair value reporting units sufficiently excess carrying values even conducting various sensitivity analyses key assumptions adjustment carrying values goodwill required intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions make provision incremental income taxes subsidiary earnings retained subsidiary’s country domicile expect earnings indefinitely reinvested jurisdiction unremitted earnings subsidiaries intended permanently reinvested incremental income tax provided aggregated 383800 december 31 2010 practicable estimate additional tax would incurred amounts repatriated recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement recognize interest accrued potential tax liability related unrecognized tax benefits interest expense recognize potential penalties deductions net consolidated statement operations foreign currency functional currency foster wheeler ag us dollar functional currency nonus operations typically local currency country domicile assets liabilities nonus entities translated us dollars reporting currency periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses fiscal years 2010 2009 2008 follows fair value measurements fair value defined price would received sell asset paid transfer liability orderly transaction market participants measurement date financial accounting standards board accounting standards codification fasb asc 82010 defines fair value establishes fair value hierarchy prioritizes inputs used measure fair value provides guidance required disclosures fair value measurements fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs financial assets liabilities recorded fair value recurring basis consist primarily assets liabilities arising derivative financial instruments defined benefit pension plan assets see note 10 information regarding derivative financial instruments note 8 information regarding defined benefit pension plan assets foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following methods assumptions used estimate fair value class financial instruments practicable estimate fair value financial instruments valued independent fair value hierarchy • cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value demand nature many deposits shortterm maturity instruments financial instruments valued within fair value hierarchy • longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities using level 2 inputs • foreign currency forward contracts estimate fair value foreign currency forward contracts obtaining quotes financial institutions market transactions either listed overthecounter markets corroborate observable market data using level 2 inputs • interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions corroborate observable market data using level 2 inputs • defined benefit pension plan assets accordance current accounting guidance valuations include use net asset values commingled fund assets defined benefit pension plan assets estimate fair value fiscal year end based quotes obtained financial institutions corroborate valuations observable market data using level 1 2 inputs external legal fees external legal fees expensed incurred recorded deductions net consolidated statement operations exception external legal fees associated asbestos defense costs please refer note 16 information related accounting asbestos defense costs incurred external legal fees excluding asbestos defense costs 17800 16400 23100 fiscal years 2010 2009 2008 respectively include external legal fees related project claims restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current us senior secured credit agreement contains limitations cash dividend payments retirement shares share repurchase program september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 designation repurchased shares cancellation approved shareholders extraordinary general meeting february 24 2011 swiss law cancellation shares previously repurchased share repurchase program must approved shareholders repurchased shares remain treasury shares balance sheet cancellation expect seek specific shareholder approval cancellation treasury shares december 31 2010 amend articles association reduce share capital accordingly 2011 annual general meeting shareholders based aggregate share repurchases program foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued december 31 2010 authorized repurchase additional 500591 outstanding shares repurchases made discretion compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time treasury shares carried cost consolidated balance sheet cancellation shares approved shareholders cancellation registered commercial register canton zug switzerland upon effectiveness cancellation shares cost shares cancelled removed treasury shares consolidated balance sheet par value cancelled shares removed registered shares consolidated balance sheet excess cost treasury shares par value removed paidin capital consolidated balance sheet repurchased treasury shares longer considered outstanding results reduction weightedaverage number shares outstanding reporting period calculating earnings per share described earnings per share basic earnings per share computed dividing net income attributable foster wheeler ag weightedaverage number shares outstanding reporting period excluding nonvested restricted shares nonvested restricted shares december 31 2010 december 31 2009 82980 nonvested restricted shares december 26 2008 restricted shares restricted share units collectively “restricted awards” included weightedaverage number shares outstanding restricted awards vest diluted earnings per share computed dividing net income attributable foster wheeler ag combination weightedaverage number shares outstanding reporting period impact dilutive securities outstanding stock options warrants purchase shares nonvested portion restricted awards extent securities dilutive previously outstanding warrants included earnings per share calculation fiscal years 2009 2008 remaining warrants expired october 2 2009 profitable periods outstanding stock options warrants dilutive effect treasury stock method average share price period exceeds assumed proceeds exercise option warrant assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued computations basic diluted earnings per share follows following table summarizes options included calculation diluted earnings per share exercise price options greater average share price period would result antidilutive effect diluted earnings per share 2 business combinations december 2010 acquired assets proprietary sulfur recovery technology business 1000 sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct acquisition includes patents knowhow skilled personnel purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment october 2009 acquired substantially assets houston operations atlas engineering inc privately held company purchase price approximately 21000 purchase price may increased estimated 12000 contingent consideration depending acquired company’s ebitda defined purchase agreement transaction first three years closing date estimated fair value contingent consideration liability consolidated balance sheet december 31 2010 6625 acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 2 business combinations continued material consolidated financial statements company’s financial results included within global ec group business segment april 2009 acquired substantially assets offshore engineering division ope holdings ltd canadian company listed tsx venture exchange refer ope purchase price approximately 8900 acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment july 2008 acquired majority assets work force engineering design company purchase consideration payments since acquisition totaled 8000 includes performance milestones achieved company engineering center kolkata india provides engineering services petrochemical refining upstream oil gas power industries purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment february 2008 acquired outstanding capital stock biopharmaceutical engineering company based philadelphia pennsylvania purchase consideration payments since acquisition totaled 12207 plus additional 8700 paid certain performance milestones met following three years company provides design engineering manufacture installation validation startupcommissioning services life sciences industry purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment 3 accounts notes receivable net following table shows components trade accounts notes receivable foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 3 accounts notes receivable net continued recorded provision outstanding retention receivable balances december 31 2010 2009 following table shows components accounts notes receivable net 4 land buildings equipment land buildings equipment stated cost set forth depreciation expense fiscal years 2010 2009 2008 46833 39357 39271 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 investments investment unconsolidated affiliates noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile also 50 noncontrolling interest project based italy generates earnings royalty payments linked price natural gas based outstanding equity interests entities 4165 two electric power generation projects italy 39 wastetoenergy project 50 wind farm project notional 85 equity interest project chile however primary foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued beneficiary result participating rights held minority shareholder determining primary beneficiary considered minority shareholder’s right approve activities project significantly impact project’s economic performance include right approve reject annual financial capital operating budget annual operating plan right approve reject appointment general manager senior management approval rights respect capital expenditures beyond included annual budget february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s plant chile project’s facility suspended normal operating activities date subsequent date unconsolidated affiliate filed claim insurance carrier preliminary assessment extent damage completed estimate required cost repairs developed based assessment cost estimate well correspondence received insurance carrier expect property damage insurance recovery sufficient cover estimated costs repairing facility insurance carrier also provided preliminary assessment business interruption insurance recovery due project continues advance insurance proceeds assessment based assessment expect business interruption insurance recovery substantially compensate project loss profits facility suspended normal operating activities normal operating activities anticipated resume late first quarter 2011 summarized financial information presented chile based project includes estimated recovery property damage insurance policy sufficient cover costs incurred date repair facility estimated recovery business interruption insurance policy fixed costs along estimated recovery lost profits period suspension facility’s operations february 27 2010 december 31 2010 account investments italy chile equity method following summarized financial information entities whole based projects located investment unconsolidated affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet equity net earnings foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued unconsolidated affiliates recorded within income net consolidated statement operations investments equity earnings italy based projects chile based project included global ec group global power group business segments respectively consolidated financial statements reflect following amounts related unconsolidated affiliates equity earnings chile based project fiscal year 2010 20670 primarily represents equity interest tax estimated recovery chile based project’s business interruption insurance policy accordance authoritative accounting guidance business interruption insurance recorded estimated recovery lost profits substantially contingencies related insurance claim resolved chile based project’s estimated recovery lost profits covered period february 27 2010 december 31 2010 two electric power generation projects italy owned companies centro energia teverola spa “cet” centro energia ferrara spa “cef” hold 4165 shares company longterm power offtake agreements place authority energy “energy authority” part italian economic development ministry “ministry” power offtake agreements energy authority included incentivized tariff period operation september 2010 ministry announced option certain projects including cef cet terminate longterm power offtake agreements energy authority exchange lumpsum payment determined specific calculation parameters established ministry october 2010 cef cet submitted application terminate power offtake agreements december 2010 ministry approved applications cet cef recognized revenue full value termination payments 2010 financial statements light termination power offtake agreement cet partner cet decided shut plant effective january 1 2011 cet recorded impairment charge write assets primarily fixed assets fair value financial statements result decision shut plant investment cet reduced equity loss 5300 inclusive 8000 impairment charge fiscal year 2010 based cet’s 2010 financial results result foregoing carrying value cet investment approximated fair value december 31 2010 partner cef decided continue operate plant least temporarily merchant basis following termination power offtake agreement partner continue review economic viability project may consider potential sale plant 2011 light termination power offtake agreement cef recorded impairment charge considered estimates related continued operation plant potential sale plant write assets primarily fixed assets fair value financial statements investment cef reduced equity loss 2900 inclusive 5200 impairment charge fiscal year 2010 based cef’s 2010 financial results result foregoing carrying value cef investment approximated fair value december 31 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued guaranteed certain performance obligations chile based project expect earthquake require us contribute project guarantee project’s performance obligations contingent obligation measured annually based operating results chile based project preceding year shared equally minority interest partner current payment obligation guarantee december 31 2010 addition provided 10000 debt service reserve letter credit cover debt service payments event chile based project generate sufficient cash flows make payments required maintain debt service reserve letter credit term chile based project’s debt matures 2014 december 31 2010 amounts drawn letter credit based current assessment following earthquake chile described anticipate amounts drawn letter credit also whollyowned subsidiary provides operations maintenance services chile based project continue provide services project facility suspended normal operating activities result earthquake chile noted focused assessing damage caused earthquake related repair facility resume normal operating activities record fees operations maintenance services operating revenues consolidated statement operations corresponding receivable trade accounts notes receivable consolidated balance sheet consolidated financial statements include following balances related chile based project also guaranteed performance obligations whollyowned subsidiary chile based project’s operations maintenance agreement guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee share undistributed retained earnings equity investees amounted 112742 122337 december 31 2010 2009 respectively investments majority equity partner general partner gasfired cogeneration facility martinez california 100 equity wastetoenergy facility camden new jersey please see note 16 information wastetoenergy facility determined entities vies primary beneficiary vies since power direct activities significantly impact vie’s performance activities include operations maintenance facilities accordingly consolidate entities aggregate net assets entities presented foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued 6 goodwill intangible assets tracked accumulated goodwill impairments since december 29 2001 first day fiscal year 2002 date adoption accounting guidelines related assessment goodwill impairment accumulated goodwill impairment losses date following table provides rollforward goodwill balances foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 goodwill intangible assets continued following table provides net carrying amount goodwill geographic region reporting units located fiscal year 2010 goodwill increased related contractual payments totaling approximately 3200 related prior acquisitions businesses 700 acquisition assets proprietary sulfur recovery technology business increases related global ec group’s us operations following table sets forth amounts relating identifiable intangible assets december 31 2010 net carrying amounts identifiable intangible assets 48673 global power group 17397 global ec group identifiable intangible asset amortization expense recorded within cost operating revenues consolidated statement operations following table details amortization expense period foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings following table shows components longterm debt interest costs interest costs incurred fiscal years 2010 2009 2008 14842 17166 16463 respectively capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued following minimum lease payments made years indicated capital lease obligations december 31 2010 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facilities wastetoenergy wind farm projects majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance chile based project camden county energy recovery associates debt represented solid waste disposal resource recovery system revenue bonds repaid pollution control finance authority camden county “pcfa” state new jersey scheduled maturity date december 2010 repayment bonds pcfa state new jersey fiscal years 2010 2009 2008 resulted noncash gains 21865 9914 9648 respectively bonds collateralized pledge certain revenues assets project plant wastetoenergy project located camden new jersey united states please refer note 16 information fw power srl owner certain electric power generating wind farms italy project financing two wind farm projects base facilities valueadded tax “vat” facilities base facilities bear interest variable rates based upon 6month euribor plus spread varying 09 10 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2022 vat facilities bear interest based upon 6month euribor plus spread 05 repayable semiannually based upon actual vat received commercial operation december 31 2013 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75300 approximately 100700 exchange rate december 31 2010 executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 10 “derivative financial instruments interest rate risk” accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 1738 2138 respectively december 31 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued energia holdings llc notes collateralized certain revenues assets specialpurpose subsidiary indirect ownership interest refineryelectric power generation project chile subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois us assumed certain subordinated obligations 1999c bonds due october 15 2024 “1999c bonds” robbins bonds outstanding december 31 2010 remaining subordinated obligations paid full scheduled maturity dates 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date october 3 2008 acquired portion 1999c bonds 19016 cash plus accrued unpaid interest date term loans china fiscal year 2010 one subsidiaries based china repaid outstanding term loan scheduled maturity date also fiscal year 2010 china based subsidiary entered new term loan approximately 2200 interest rate 478 also repaid fiscal year 2010 aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows us senior secured credit agreement july 30 2010 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered fouryear amendment restatement us senior secured credit agreement entered october 2006 amended restated us senior secured credit agreement provides facility 450000 includes provision permits future incremental increases aggregate 225000 total additional availability facility amended restated us senior secured credit agreement permits us issue 450000 letters credit facility letters credit issued amended restated us senior secured credit agreement performance pricing decreased increased result improvements reductions corporate credit rating reported moody’s investors service refer moody’s andor standard poor’s sp received corporate credit rating bbb issued sp fiscal third quarter 2010 amended restated us senior secured credit agreement reduces pricing letters credit issued agreement based current credit ratings letter credit fees performance financial letters credit issued amended restated us senior secured credit agreement 1000 2000 per annum outstanding amount respectively excluding fronting fees also option use 100000 450000 revolving borrowings rate equal adjusted libor defined agreement plus 2000 subject also performance pricing noted fees expenses incurred conjunction execution amended restated us senior credit agreement approximately 4300 amortized expense fouryear term agreement commenced fiscal third quarter 2010 result amending restating october 2006 us senior secured credit agreement july 2010 incurred charge fiscal year 2010 1600 related unamortized fees expenses remaining october 2006 agreement recorded deductions net consolidated statement operations foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued assets andor stock certain subsidiaries collateralize obligations amended restated us senior secured credit agreement amended restated us senior secured credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ag change foster wheeler ag’s fiscal year respect foster wheeler ag foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business event corporate credit rating issued moody’s least baa3 issued sp least bbb liens securing obligations amended restated us senior secured credit agreement automatically released terminated addition amended restated us senior secured credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined amended restated us senior secured credit agreement must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions us senior secured credit agreement prior subsequent amendment restatement agreement approximately 310100 308000 letters credit outstanding us senior secured credit agreement effect december 31 2010 2009 respectively letter credit fees us senior secured credit agreement outstanding december 31 2010 2009 ranged 100 200 150 160 respectively outstanding amount excluding fronting fees funded borrowings outstanding either two agreements december 31 2010 2009 8 pensions postretirement benefits defined benefit pension plans united states us united kingdom uk canada finland france india south africa postretirement benefit plans health care life insurance benefits us canada also defined contribution retirement plans us uk finally certain benefit plans including government mandated postretirement programs recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet recognize gains losses recognized component annual service cost component comprehensive income net tax record net actuarial losses prior service costcredits net transition obligationsassets within accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued plan closed new entrants additional benefit accruals south africa pension plan contributory plans effective march 31 2010 closed uk pension plan future defined benefit accrual result uk plan closure recognized curtailment gain statement operations fiscal year 2010 approximately £13300 approximately 20086 exchange rate effect time pension plan closure postretirement benefit plans certain employees us canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities sip 16086 15904 december 31 2010 2009 respectively reflected postretirement benefit obligation funded status information assets held fund benefits provided sip reflect cash surrender value insurance polices purchased cover obligations sip totaled 5609 5201 december 31 2010 2009 respectively assets recorded assets consolidated balance sheet reflected postretirement benefit obligation funded status information foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued components net periodic benefit cost changes recognized comprehensive income include fiscal year 2010 curtailment gain resulted closure uk pension plan future benefit accrual charges incurred related settlement pension obligations former employees canada pension plan fiscal year 2009 net charges incurred related settlement pension obligations former employees uk canada finland pension plans fiscal year 2008 charges incurred related settlement pension obligations former employees uk canada pension plans foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued following summary net periodic pension creditcost defined benefit pension plan uk pension plan closed future benefit accrual effective march 31 2010 estimated amortization expense recognized net periodic benefit cost next fiscal year includes following table summarizes weightedaverage assumptions used estimate net periodic benefit cost projected benefit obligation fiscal year salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 69 72 past three years foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued assumed healthcare cost trend rates postretirement benefit plans assumed healthcare cost trend rates significant effect costs obligations reported postretirement benefit plans onepercentagepoint change assumed healthcare cost trend rates would following effects foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued projected benefit obligations funded status fiscal years ended december 31 2010 2009 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued defined benefit pension plans accumulated benefit obligation excess plan assets 1 balances fiscal year ended december 31 2010 include information plans united kingdom south africa since plan assets plans exceeded accumulated benefit obligation 2 balances fiscal year ended december 31 2009 include information plans united kingdom south africa since plan assets plans exceeded accumulated benefit obligation contributions based minimum statutory funding requirements fiscal year 2011 required make mandatory contributions us pension plans based minimum statutory funding requirements fiscal year 2011 expect contribute total mandatory contributions approximately 24000 nonus pension plans approximately 6200 postretirement benefit plans estimated future benefit payments expect make following benefit payments plan assets defined benefit pension plans us uk canada india south africa governed written investment policy pension plans finland france plan assets investment policy pension plans allocates assets accordance policy guidelines identify target andor maximum minimum allocations asset class guidelines vary pension plan asset class generally range 40 60 equities 40 50 fixed income 0 10 cash exception plan contributions temporarily awaiting longerterm investment guidelines expressly endorse ranges generally 10 less investments exposed various risks interest rate market credit risks due level uncertainty related certain investment securities least reasonably possible changes values investment securities occur near term changes could materially affect fair value defined benefit plan assets turn would result change net pension benefit liability consolidated balance sheet accordingly valuation investments fiscal year end may indicative future valuations amounts could realized upon future liquidation develop investment policies pension plans take risks account continually review investment policies ensure investment strategy aligned pension plan foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued liabilities projected pension plan benefit payments based current holdings believe individual pension plans exposed significant concentration risk particular sector asset class pension plan assets valued established framework measuring fair value accordance us generally accepted accounting principles see note 1 information regarding measurement fair value us generally accepted accounting principles accounting policy pension plan assets measured within fair value framework consist commingled funds equity securities quoted prices active markets used value investments available investments valued closing price available last reported bid price commingled funds valued net asset value underlying securities accordance current accounting guidance valuations include use net asset values commingled fund assets corroborate valuations observable market data using inputs within fair value framework fair values defined benefit pension plan assets december 31 2010 2009 asset category follows 1 publicly traded equity securities 2 primarily equity securities focus longterm returns 3 primarily corporate fixed income securities focus intermediateterm longterm maturities 4 primarily government fixedincome securities focus current income capital preservation varying maturities 5 primarily shortterm maturities two years less various issuers focus preservation capital defined contribution plans us subsidiaries 401k plan salaried employees match 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code total us subsidiaries contributed approximately 7000 7800 9000 401k plan fiscal years 2010 2009 2008 respectively us subsidiaries also roth 401k plan salaried employees uk subsidiaries offer defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed approximately 8400 3800 3400 fiscal years 2010 2009 2008 respectively defined contribution plan benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 20877 24954 recorded within pension postretirement employee benefits consolidated balance sheet december 31 2010 2009 respectively related benefits 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable standby letters credit bank guarantees surety bonds totaling 1010600 943100 december 31 2010 2009 respectively primarily guarantees performance projects currently execution warranty amounts include standby letters credit issued us senior secured credit agreement discussed note 7 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations refineryelectric power generation project based chile hold noncontrolling interest see note 5 information foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments exposed certain risks relating ongoing business operations risks managed using derivative financial instruments relate primarily foreign currency exchange rate risk significantly lesser extent interest rate risk derivative financial instruments recognized assets liabilities fair value consolidated balance sheet foreign currency exchange rate risk operate worldwide basis substantial operations europe subject us translation risk mainly relative euro british pound risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2010 total gross notional amount 215652 related foreign currency forward contracts amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contracts mature fiscal years 2011 2013 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains foreign currency forward contracts used mitigate currency risk projects gain loss portion marktomarket adjustment related completed portion underlying project included cost operating revenues time underlying foreign currency exposure occurs gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying project reflected directly cost operating revenues period marktomarket adjustment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments continued occurs also utilize foreign currency forward contracts mitigate nonproject related currency risks recorded deductions net gain loss remaining uncompleted portion projects nonproject related transactions follows marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses primarily recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet fiscal years 2010 2009 2008 included net cash outflows settlement derivatives 5289 10600 8410 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows interest rate risk use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt aggregate notional amount receivevariablepayfixed interest rate swaps 73400 december 31 2010 upon entering swap contracts designate interest rate swaps cash flow hedges assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income impact interest rate swap contracts cash flow hedging relationships follows see note 12 related tax benefits cash flow hedges recognized comprehensive income fiscal years ended december 31 2010 december 31 2009 december 26 2008 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans sharebased compensation plans include restricted awards stock option awards following table summarizes sharebased compensation expense related income tax benefit estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility shares using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted awards using market price shares date grant recognize fair value restricted award compensation cost ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued december 31 2010 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted stock units performancecontingent shares performancecontingent units cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaces prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued conditionally authorized shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance current accounting guidance regarding classification measurement redeemable securities adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity reconciliation temporary equity fiscal years ended december 31 2010 2009 2008 follows articles association provide conditional capital 63207957 shares issuance shares sharebased compensation plans outstanding share purchase warrants convertible securities foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued may issue future conditional capital decreases upon issuance shares connection exercise outstanding stock options vesting restricted stock units offsetting increase issued authorized share capital december 31 2010 remaining available conditional capital 60675249 shares prior sharebased compensation plans prior sharebased compensation plans include 1995 stock option plan stock option plan directors foster wheeler approved shareholders inducement options granted former chief executive officer 2001 connection employment agreement awards granted plans connection redomestication foster wheeler ag assumed foster wheeler ltd’s obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards see note 18 information related redomestication stock option awards summary employee stock option activity fiscal years 2010 2009 2008 presented based grant date fair value options foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued following tables summarize stock options outstanding exercisable december 31 2010 aggregate intrinsic value outstanding options exercisable options december 31 2010 calculated difference market price shares exercise price underlying options exercise price lower market price shares date total intrinsic value options exercised fiscal years 2010 2009 2008 10268 483 7320 respectively determined date exercise restricted awards restricted awards consist restricted shares restricted share units summary restricted awards activity fiscal years 2010 2009 2008 presented december 31 2010 2009 restricted shares outstanding restricted share activity fiscal year 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued total fair value restricted awards vested fiscal years 2010 2009 2008 10129 16043 8946 respectively 12 accumulated comprehensive loss adjustments included comprehensive lossincome foreign currency translation net gainloss cash flow hedges pension postretirement benefits related tax provisionbenefit balances attributable noncontrolling interests foster wheeler ag tax currently provided foreign currency translation adjustments comprehensive income relate earnings indefinitely reinvested subsidiary’s country domicile rollforward accumulated comprehensive loss adjusted comprehensive incomeloss items attributable foster wheeler ag amounts net tax foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes components incomeloss income taxes fiscal years 2010 2009 2008 following tax jurisdictions provision income taxes follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus tax benefits valuation allowance based consideration available evidence indicates likely deferred tax assets realized fiscal year 2010 valuation allowance increased 11900 primarily result losses jurisdictions full valuation allowance previously recorded primarily us increase partially offset reversal valuation allowance deferred tax assets one nonus subsidiaries statutory purposes majority deferred tax assets valuation allowance provided begin expiring fiscal year 2025 later based current tax laws subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued number jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject income tax examinations tax authorities years fiscal year 2006 fiscal year 2010 2008 settled tax audits europe asia pacific regions respectively resulted reduction unrecognized tax benefits corresponding reduction provision income taxes 1700 3200 respectively number tax years audit tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including fiscal year 2011 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time following table summarizes activity related unrecognized tax benefits recognized would affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense table summarizes activity interest penalties unrecognized tax benefits fiscal years 2010 2009 2008 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued provision income taxes differs amount income tax computed applying us federal statutory rate 35 income taxes result following 14 business segments operate two business groups global ec group global power group global ec group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe global ec group generates revenues design engineering procurement construction project management activities pursuant contracts spanning approximately four years duration returns equity investments various power production facilities global power group global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations district heating industrial facilities worldwide owns andor operates several cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments power production facilities global power group’s steam generating equipment includes full range technologies offering independent power producers utilities municipalities industrial clients highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste steam used power generation district heating industrial processes foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued corporate finance group addition two business groups also represent operating segments financial reporting purposes report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group “cf group” also treat operating segment financial reporting purposes operating revenues conduct business global basis global ec group accounted largest portion operating revenues last ten years fiscal year 2010 global ec group accounted 82 total operating revenues global power group accounted 18 total operating revenues operating revenues geographic region based upon projects executed fiscal year 2010 follows australasia primarily represents australia south africa new zealand pacific islands one client accounted approximately 25 24 consolidated operating revenues inclusive flowthrough revenues fiscal years 2010 2009 2008 respectively however associated flowthrough revenues included percentages accounted approximately 23 22 20 consolidated operating revenues fiscal years 2010 2009 2008 respectively single client accounted ten percent consolidated revenues fiscal years 2010 2009 2008 ebitda primary measure operating performance used chief operating decision maker define ebitda net income attributable foster wheeler ag interest expense income taxes depreciation amortization foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued reconciliation ebitda net income attributable foster wheeler ag shown foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued 1 includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest 2 ebitda includes following please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit please refer note 16 information regarding revaluation asbestos liability related asset foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued identifiable assets identifiable assets group assets directly related support operations group assets cf group principally cash investments real estate insurance receivables accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site australasia primarily represents australia south africa new zealand pacific islands foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued additional country detail thirdparty revenues determined based upon location contracting subsidiary presented balances represent portion total operating revenues presented table switzerland country domicile foster wheeler ag longlived assets presented based geographic region contracting subsidiary located australasia primarily represents australia south africa new zealand pacific islands december 31 2010 2009 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 5094 1065 respectively operating revenues industry follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases follows future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains recognized income term respective leases gain recognized 4004 4036 4575 fiscal years 2010 2009 2008 respectively december 31 2010 2009 balance deferred gains 41328 47691 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 16 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued approximately 124420 open claims subsidiaries respondents approximately 30300 open claims wherein administrative agreements named defendants lawsuits involving approximately 94120 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 56 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required minimum jurisdiction suit filed following table summarizes range requested monetary damages sought asbestos lawsuits specified monetary damages sought recited amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed small number cases range 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated fiscal year 2025 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date since fiscal yearend 2004 worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued amount asbestosrelated indemnity defense costs fiscal yearend next 15 years since time recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review fiscal year 2010 activity arpc recommended assumptions used estimate future asbestos liability updated fiscal year 2010 accordingly developed revised estimate aggregate indemnity defense costs fiscal year 2025 considering advice arpc fiscal year 2010 revalued liability asbestos indemnity defense costs fiscal year 2025 337500 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 19451 fiscal year 2010 primarily related revaluation asbestos liability includes adjustments actual settlement experience different estimates accrual rolling 15year asbestosrelated liability estimate total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims fiscal yearend 2025 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred fiscal year 2025 period incidence new claims forecasted decrease year believe likely new claims filed fiscal year 2025 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred fiscal year 2025 december 31 2010 total cumulative indemnity costs paid approximately 729300 total cumulative defense costs paid approximately 340700 historically defense costs represented approximately 318 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 31 2010 approximately 29 average cost per resolved claim increasing believe continue increase future last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred fiscal year 2010 subsidiaries reached agreements settle disputed asbestosrelated insurance coverage four additional insurers result settlements increased asbestosrelated insurance asset recorded gain 14041 fiscal year 2010 asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims fiscal year 2025 asbestosrelated assets discounted time value money december 31 2010 unsettled asbestos insurancerelated assets recorded insurance recoveries may limited insolvencies among insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2010 2009 recorded allowance uncollectible balances asbestos insurancerelated assets write receivables insurers become insolvent writeoffs fiscal years 2010 2009 2008 assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving material amounts insurers could material adverse effect financial condition cash flows following table summarizes net asbestosrelated provision net asbestosrelated provision result revaluation asbestos liability related asset resulting adjustments actual settlement experience different estimates accrual rolling 15year asbestos liability estimate partially offset gains settlement coverage litigation asbestos insurance carriers following table summarizes approximate asbestosrelated payments insurance proceeds expect net cash outflows 5700 result asbestos liability indemnity defense payments excess insurance settlement proceeds full fiscal year 2011 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows based fiscal yearend 2010 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 52300 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued used estimate insurance asset increase would result charge statement operations approximately 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 959 claims brought uk subsidiaries 287 remained open december 31 2010 none settled claims resulted material costs us following table summarizes asbestosrelated liabilities assets uk subsidiaries based open outstanding claims estimate future unasserted claims fiscal year 2025 liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation total asbestos liability related asset recorded uk would approximately 53100 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims described herein amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued power plant dispute ireland 2006 dispute arose client material corrosion occurred two power plants designed built ireland began operation december 2005 june 2006 also corrosion occurred subcontractorprovided emissions control equipment induction fans backend power plants due principally low set point temperature design emissions control equipment set subcontractor identified technical solutions resolve boiler tube corrosion emissions control equipment corrosion fiscal fourth quarter 2008 entered settlement client implementing technical solutions exchange full release claims related corrosion including release client’s right original contract reject plants availability guaranty client’s agreement share cost ameliorative work related boiler tube corrosion accordingly client withdrew notice arbitration january 2009 originally filed may 2008 fiscal year 2006 end fiscal year 2008 recorded charges totaling 61700 relation project implementation technical solutions anticipated completed 2011 power plant arbitration north america january 2010 commenced arbitration client connection power plant project louisiana seeking among relief declaration rights purchase order respect 17800 retention monies 82000 letter credit held client purchase order supply two boilers ancillary equipment project substantially completed released commercial operation february 2010 client project’s engineering procurement construction contractor terms purchase order significant reductions retention letter credit monies occur upon project’s achievement substantial completion delayed due failures client’s part properly manage execute project client taken position responsible project’s delays subsequent service arbitration demand served arbitration demand seeking assess us associated late substantial completion liquidated damages purchase order together liquidated damages alleged late material equipment deliveries back charges corrective work damages arising allegedly defective materials equipment delivered us client contends owed excess 69000 purchase order result alleged failures risk client attempt call part letter credit pendency proceeding opinion call would wrongful entitle us seek return funds damages arising call client commenced separate arbitration power plant owner seeking monetary damages delay liquidated damage assessment refunds schedule productivity impacts due force majeure events power plant ownercaused delays power plant owner counterclaimed seeking monetary damages deficient plant performance including alleged inability boilers sustain reliable operation client asserted claim us arbitration client damages unspecified amount due boiler performance problems position existence ownertoclient claim affect liability contract client cannot predict ultimate outcome dispute time camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” pollution control finance authority camden county “pcfa” issued bonds finance construction project foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction project accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds bond trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa debt pcfa limited amount outstanding bonds 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project marketrate revenues sufficient service debt bonds issued pcfa finance construction project 1998 ccera filed suit pcfa state new jersey “state” parties seeking among things void applicable contracts agreements governing project judgment one defendants responsible pay bonds camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion bond debt project allocated ccera even though ccera guarantee bonds 1999 2009 state provided subsidies sufficient ensure payment pcfa’s bond debt service payments became due november 2010 state entered agreement pcfa whereby pcfa permitted utilize certain restricted funds towards making final debt service payment due bonds december 2010 final debt service payment bonds made result foregoing removed pcfa debt balance sheet believe litigation responsibility payment bonds become moot environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities two subsidiaries’ former facilities including mountain top described addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose wells contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated responding foregoing although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec immediately provided affected residences bottled water followed water filters pursuant settlement agreement usepa hooked public water system pursuant amendment settlement agreement fwec subsequently agreed usepa arrange pay hookup approximately five additional residences even though tce detected wells residences fwec incurring costs related public outreach communications affected area may required pay agencies’ costs overseeing responding foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued situation fwec also incurring costs connection remedial investigation feasibility study “rifs” march 2009 agreed conduct april 2009 usepa proposed listing national priorities list “npl” area consisting former manufacturing facility affected residences also stated proposed listing may finalized fwec complies agreement conduct rifs fwec submitted comments opposing proposed listing fwec accrued best estimate cost foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated ccera project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment even equipment installed ccera could assert project’s sponsor would responsible pay equipment however sponsor may sufficient funds may assert responsible estimates cost installing additional control equipment approximately 30000 based last assessment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited continued 1 net income quarter includes following please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit please refer note 16 information regarding revaluation asbestos liability related asset 18 redomestication foster wheeler ag incorporated laws switzerland november 18 2008 registered commercial register canton zug switzerland november 25 2008 whollyowned subsidiary foster wheeler ltd special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things holder whole common shares foster wheeler ltd par value 001 per share outstanding immediately transaction effected received registered shares foster wheeler ag par value chf 300 per share approximately 258 based exchange rate february 9 2009 date redomestication completed oneforone basis respect outstanding foster wheeler ltd common shares case fractional shares foster wheeler ltd cash fractional shares lieu registered shares foster wheeler ag additional paidin capital decreased amount scheme arrangement effectively changed place incorporation bermuda canton zug switzerland scheme arrangement approved common shareholders foster wheeler ltd january 27 2009 sanctioned supreme court bermuda january 30 2009 february 9 2009 following steps occurred pursuant scheme arrangement 1 fractional common shares foster wheeler ltd totaling approximately 1336 shares cancelled foster wheeler ltd paid holder fractional shares cancelled amount based average high low trading prices foster wheeler ltd common shares nasdaq global select market february 5 2009 2063 business day immediately preceding effectiveness scheme arrangement foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 18 redomestication continued 2 previously outstanding whole common shares foster wheeler ltd totaling 126276112 whole shares cancelled 3 foster wheeler ltd acting behalf shareholders issued 1000 common shares constituted foster wheeler ltd’s common shares time foster wheeler ag 4 foster wheeler ag increased share capital filed amended articles association reflecting share capital increase swiss commercial register 5 foster wheeler ag issued aggregate 126276112 registered shares holders whole foster wheeler ltd common shares cancelled result scheme arrangement common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies connection consummation scheme arrangement • concurrently issuance registered shares holders whole foster wheeler ltd common shares foster wheeler ag issued holders preferred shares aggregate 139802 registered shares number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional common shares otherwise issuable totaling approximately one share • foster wheeler ag executed supplemental warrant agreement pursuant assumed foster wheeler ltd’s obligations warrant agreement agreed issue registered shares foster wheeler ag upon exercise warrants accordance terms • foster wheeler ag assumed foster wheeler ltd’s existing obligations connection awards granted foster wheeler ltd’s incentive plans similar employee awards refer foregoing transactions together steps scheme arrangement “redomestication” january 2010 relocated principal executive offices geneva switzerland foster wheeler ag schedule ii valuation qualifying accounts amounts thousands fiscal year 2009 2008 balances reflect adjustments previously presented balances properly reflect tax benefits associated sharebased compensation item 9item 8 financial statements supplementary data report independent accountants board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statement earnings comprehensive income shareholders’ equity deficit cash flows present fairly material respects financial position foster wheeler ltd subsidiaries “company” december 27 2002 december 28 2001 results operations cash flows years three year period ended december 27 2002 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit btain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed first paragraph note 2 notes 25 26 financial statements accompanying financial statements restated account certain company’s benefit plans accordance statement financial accounting standard 106 “employers’ accounting postretirement benefits pensions” discussed note 2 financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying financial statements prepared assuming company continue going concern discussed note 1 financial statements company incurred significant losses years twoyear period ended december 27 2002 shareholder deficit 780939000 december 27 2002 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement accordingly company received waivers covenant violations ultimately negotiated new credit facilities august 2002 company unable comply certain debt covenants new credit facility agreement therefore obtained amendment agreement realization assets satisfaction liabilities normal course business dependent among things company’s ability return p rofitability generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well company maintaining credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s ability continue going concern management’s plan regard matters also described note 1 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 25 2003 foster wheeler ltd subsidiaries consolidated statement earnings comprehensive income thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ equitydeficit thousands except per share amounts see notes financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars see notes financial statements foster wheeler ltd notes financial statements thousands dollars except per share amounts 1 going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well company maintaining credit facilities bonding capacity adequate conduct business company incurred significant losses years twoyear period ended december 27 2002 shareholder deficit 780939 december 27 2002 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement accordingly company received waivers covenant violations ultimately negotiated new credit facilities august 2002 management believes operating plans met sufficient assure compliance terms new debt agreements amended assurance company 2003 matters raise substantial doubt company’s ability continue going concern company’s plans regard matters described august 2002 company finalized senior credit facility lender group facility including 71000 term loan 69000 revolving credit facility 149000 letter credit facility expires april 30 2005 facility secured assets domestic subsidiaries stock domestic subsidiaries 66 stock firsttier foreign subsidiaries facility scheduled repayments prior maturity april 30 2005 facility requires prepayments proceeds assets sales issuance debt equity excess cash flow company retains first 77000 amounts also retains 50 share balance financial covenants facility commence end first quarter 2003 include senior leverage ratio minimum earnings interest taxes depreciation amortization “ebitda” level described agreement amended sale foster wheeler environmental corporation march 7 2003 cumulative sales proceeds received defined agreement approximate 75000 amendment 1 credit agreement obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred 4th quarter 2002 11000 contingency risks favorably resolved additional project reserves established 19000 leaving contingency balance 33000 amendment 2 credit agreement entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company must make prepayment principal aggregate amount 10000 refer exhibit 1035 filed part report form 10k complete amendment due company’s significant leverage management reviewing various options restructure balance sheet although definitive plans finalized point options may include among things debt equity exchanges debt exchanges equity exchanges additional asset sales assurances however company successfully effect foregoing third quarter 2002 company also completed receivables financing arrangement 40000 funding available company dependent amount characteristics foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 1 going concern continued domestic receivables amount available company fluctuates daily company estimates approximately 15000 20000 available 2003 financing arrangement expires august 2005 subject covenant compliance financial covenants commence end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding december 27 2002 company 0 borrowings outstanding facility refer note 4 information company initiated comprehensive plan enhance cash generation improve profitability 2002 management’s comprehensive plan address company’s domestic liquidity issues included generating approximately 150000 asset sales collection receivables resolving disputed claims end first quarter 2003 additional 40000 following six months december 27 2002 company generated approximately 60000 efforts sale operating business foster wheeler environmental corporation march 7 2003 additional 80000 generated additional 10000 also received efficient working capital management 40000 still expected received asset sales claims recoveries course year 2003 management forecasts cash hand together cash operations asset sale collection receivables claims recoveries sufficient fund company’s working capital needs first quarter 2004 failure company achieve forecast could material adverse effect company’s financial condition 2 summary significant accounting policies restatement management determined assets liabilities results operations associated company’s postretirement medical benefit plan properly accounted accordance sfas 106 “employer’s accounting postretirement benefits pensions” company’s consolidated balance sheet december 28 2001 consolidated statements earnings comprehensive income two years period ended december 28 2001 revised account benefit plan accordance sfas 106 effect adjustment material current year’s financial statements however management elected restate prior years see note 25 principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations years 2002 2001 2000 included 52 weeks use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others december 27 2002 december 28 2001 company recorded commercial claims 0 135000 respectively decrease recorded claims resulted collection 11000 provision established balance outstanding commercial cl aims company revised estimates claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company december 27 2002 company approximately 9000 requests foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued equitable adjustments recorded contracts process amount relates primarily claim us government agency project currently executed claim unsuccessful costs would charged cost operating revenues revenue recognition longterm contracts revenues profits long term fixed price contracts recorded percentage completion method progress towards completion measured using cost method efforts expended method variations thereof methods applied consistently contracts similar characteristics similar circumstances cost method revenues profits recognized based ratio costs incurred bear total estimated costs efforts expended method revenue profits recognized based ratio incurred labor hours bear total estimated labor hours variations two methods used multiyear contracts require significant engineering effort multiple delivery units methods subject physical verification actual progress towards completion revenues profits costs reimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete long term contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract ev idence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings certain specialpurpose subsidiaries energy group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents approximately 274000 maintained foreign subsidiaries december 27 2002 subsidiaries require substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation restricted cash restricted cash consists approximately 16000 company required deposit escrow connection todak litigation discussed note 20 approximately 69000 required collateralize letters credit bank guarantees 16000 related litigation domestic restricted cash 69000 related letters credit bank guarantees foreign restricted cash shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale fasb statement 115 “accounting certain investments debt equity securities” realized gains losses sales based specific identification method years ended 2002 2001 2000 unrealized gains losses immaterial trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 4 conformity industry practice however full amount accounts receivable including amounts withheld included current assets accounts notes receivable nontrade accounts notes receivable consist primarily land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings july 2001 fasb issued statement financial accounting standards 143 “accounting asset retirement obligations” “sfas 143” statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 company currently assessing impact adoption new statement effective december 29 2001 company adopted sfas 144 “accounting impairment disposal longlived assets” statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 “accounting impairment longlived assets longlived assets disposed ” provisions foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years company’s results operations financial position affected initial adoption statement 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility third quarter management energy group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive incomeloss fourth quarter 2002 company decided take necessary steps mothball facility additional charges 5300 recorded december 2002 investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates recorded using equity method income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 274549 december 27 2002 practicable estimate additional tax would incurred amounts repatriated foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weighted average rates foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 27 2002 gain derivative instruments approximately 3500 inventories principally materials supplies stated lower cost market determined primarily average cost method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents trademarks amortized straightline basis periods 12 40 years company periodically evaluates goodwill separate operating unit basis assess recoverability impairments recognized earnings event facts circumstances indicate carrying amount goodwill associated investment impaired company reduces carrying amount representing estimated undiscounted future cash flows interest generated operation effective december 29 2001 company adopted sfas 142 “goodwill intangible assets” “sfas 142” supersedes apb opinion 17 “intangible assets” statement requires goodwill intangible assets indefinite lives longer amortized instead tested impairment least annually company tests impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s g oodwill carrying amount goodwill impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill impairment losses measured december 29 2001 recognized cumulative effect change accounting principle 2002 sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 december 27 2002 december 28 2001 company unamortized goodwill 50214 200152 respectively total goodwill december 27 2002 50187 related energy group 27 related ec group reduction goodwill due 150500 impairment losses discussed offset foreign currency translation adjustments 562 accordance sfas 142 company longer amortizing goodwill company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated wastetoenergy facility 77000 associated another reporting unit included operations energy group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 relates reporting unit ec group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued determined full write goodwill required reporting units also subjected first step goodwill impairment test december 29 2001 company unamortized identifiable intangible assets 74391 following table details amounts relating assets december 27 2002 amortization expense related patents trademarks 2002 3535 amortization expense expected approximate 3500 year next five years following table presents current prior years reported amounts adjusted eliminate effect goodwill amortization accordance sfas 142 earnings per share basic per share data computed based weighted average number shares common stock outstanding 1999 company adopted directors deferred compensation stock award plan “plan” plan nonmanagement director credited annually share units company’s common stock addition nonmanagement director may elect defer receipt compensation services rendered director deferred amount credited account form share units company makes supplemental contribution equal 15 deferred amount year ended 2002 145886 share units credited participants’ accounts period 29309 shares delivered one director upon retirement december 27 2002 116576 share units included calculation basic earnings per share years end ed 2001 2000 41091 53443 share units respectively credited participants’ accounts included calculation basic earnings per share options purchase 3877361 2330736 shares common stock included computation diluted earnings per share years ending december 27 2002 december 28 2001 respectively due antidilutive effect 13085751 shares related convertible subordinated notes included computation diluted earnings per share years ended december 27 2002 december 28 2001 restated due antidilutive effect foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued stock option plans company two fixed option plans reserve shares common stock issuance executives key employees directors company adopted disclosureonly provisions statement financial accounting standards sfas 123 “accounting stockbased compensation” accordingly compensation cost recognized stock option plans compensation cost company’s stock option plans determined based fair value grant date awards 2002 2001 2000 consistent provisions sfas 123 company’s net earnings per share would reduced pro forma amounts indicated stock options included diluted earnings per share due losses 2002 2001 assumption regarding stock options issued executives 2002 2001 2000 100 options vested year grant fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions dividend yield 000 136 318 expected volatility 8362 7920 5920 risk free interest rate 290 423 646 expected life years 50 1995 stock option plan approved shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 april 1990 shareholders approved stock option plan directors company april 29 1997 shareholders approved amendment directors’ stock option plan authorizes granting options 400000 shares common stock nonemployee directors company automatically receive option acquire 3000 shares year plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect whollyowned subsidiary company also granted 1300000 inducement options 2001 chief executive officer connection employment agreement 1000000 options 2002 based upon foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued amendment employment agreement company granted 300000 inducement options chief financial officer 255000 inducement options president chief executive officer foster wheeler power group inc connection employment agreements 2002 price options granted pursuant agreements fair market value date grant one fifth options become exercisable year date agreement options available exercise fifth anniversary agreement date options granted agreements expire 10 years date granted 2002 company granted 250000 options one consultants price options granted fair market value date grant options fully vest march 31 2003 expire ten years date grant accordance sfas 123 company recognized 328 expense related options 2002 options part company’s employee stock option plans included information presented following page information regarding option plans years 2002 2001 2000 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 27 2002 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued reclassifications certain prior period amounts reclassified conform current financial statement presentation particular engineering procurement construction business power industry united states reclassified ec group energy group allows united states domestic power projects controlled one group better aligns presentation current management reporting well customer base recent accounting developments june 2002 financial accounting standards board “fasb” issued sfas 145 “rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections” sfas 145 rescinds previous statements regarding extinguishment debt amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions provisions sfas 145 related extinguishment debt applied fiscal years beginning may 15 2002 provisions sfas 145 related amendment sfas 13 effective transactions occurring may 15 2002 company currently assessing impact adoption new standard june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” sfas 146 requires liabilities associated exit disposal activity recognized fair value liability incurred contrasts existing accounting requirements liabilities exit disposal activities recognized date entity’s commitment exit plan provisions sfas 146 effective exit disposal activities initiated december 31 2002 although early adoption permitted company implemented sfas 146 fourth quarter 2002 connection company’s exit dansville ny manufacturing facility company recognized 5300 charge earnings accordance standard december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure” sfas 148 amends sfas 123 “accounting stockbased compensation” provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation also amends disclosure requirements sfas 123 require prominent disclosures interim annual financial statements effects reported net income entity’s accounting policy decisions respect stockbased employee compensation provisions sfas 148 effective fiscal years ending december 15 2002 provisions standard relating fair value measurements affect company accounts stockbased employee compensation provisions accounting principles board opinion 25 “accounting stock sued employees” permitted sfas 123 company 2002 financial statements implemented disclosure requirements standard november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 2 summary significant accounting policies continued product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 financial statements implemented disclosure requirements interpretation 3 research development years 2002 2001 2000 approximately 10300 12300 12000 respectively spent companysponsored research activities periods approximately 18100 39200 27600 respectively spent customersponsored research activities foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 4 accounts notes receivable following tabulation shows components trade accounts notes receivable provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance third quarter 1998 subsidiary company entered threeyear agreement financial institution whereby subsidiary would sell undivided interest designated pool qualified accounts receivable terms agreement new receivables added pool collections reduce previously sold accounts receivable credit risk uncollectible accounts receivable transferred purchaser company serviced administered collected receivables behalf purchaser fees payable purchaser agreement equivalent rates afforded high quality commercial paper issuers plus certain administrative expenses included deductions consolidated statement earnings comprehensive income december 28 2001 50000 receivables sold agreement therefore reflected accounts receivabletrade balance consolidated balance sheet agreement terminated repaid early 2002 replaced new facility august 2002 described third quarter 2002 company entered receivables securitization facility matures august 15 2005 secured portion company’s domestic trade receivables facility operates use wholly owned special purpose subsidiary foster wheeler funding llc “fw foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 4 accounts notes receivable continued funding” described fw funding included consolidated financial statements company fw funding entered purchase sale contribution agreement “psca” august 15 2002 six company’s wholly owned domestic subsidiaries pursuant psca fw funding obligated purchase eligible trade receivables defined psca companies obligated contribute capital ineligible trade accounts receivable defined psca august 15 2002 fw funding also entered loan security agreement foothill capital corporation ableco finance corporation llc agreement fw funding ability borrow maximum 40000 using eligible trade accounts receivable security fw funding pays 10 interest outstanding borrowings addition fw funding pays monthly unused line fee equal 05 per annum maximum available amount less average daily amount borrowings preceding month facil ity subject covenant compliance financial covenants commence end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding amounts outstanding facility december 27 2002 fw funding may increase decrease discretion use facility weekly basis subject availability sufficient eligible trade accounts receivable facility’s maximum amount 40000 december 27 2002 fw funding held 211700 trade accounts receivable included consolidated balance sheet 21900 availability facility 5 contracts process inventories costs contracts process inventories shown following tabulation shows elements included contract process related longterm contracts foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 6 land buildings equipment land buildings equipment stated cost set forth depreciation expense years 2002 2001 2000 54492 44348 46388 respectively 7 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs company’s policy fund plans current basis exte nt deductible existing federal tax regulations contributions made intended provide benefits attributed service date also expected earned future company also nonqualified unfunded supplemental executive retirement plan covers certain employees year ended december 27 2002 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 370649 resulting pretax charge comprehensive income minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes domestic subsidiaries company 401k plan salaried employees company years 2002 2001 2000 contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507 5008 5599 respectively benefits addition providing pension benefits company’s domestic subsidiaries provide certain health care life insurance benefits retired employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s domestic subsidiaries also plan provides coverage employee’s beneficiary upon death employee foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 7 pensions postretirement benefits continued following chart contains disclosures pension benefits years 2002 2001 2000 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 7 pensions postretirement benefits continued provision sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” charges recorded provision mothballing domestic manufacturing facility 900 provision employee terminations part workforce reduction 100 provision retirement company’s vice president human resources approximately 900 2002 provision retirement company’s chief executive officer resulted charge 1900 2001 health care cost trend 85 decline 2009 50 assumed health care cost trend rates significant effect amounts reported benefit plans onepercentagepoint change assumed health care cost trend rates would following effects 8 bank loans approximate weighted average interest rates borrowings outstanding primarily foreign end 2002 2001 438 428 respectively unused lines credit shortterm bank borrowings aggregated 6373 yearend 2002 available outside united states canada various currencies interest rates consistent market conditions respective countries foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 8 bank loans continued interest costs incurred including dividends preferred security 2002 2001 2000 84396 85202 83405 1368 718 151 respectively capitalized 9 corporate debt convertible subordinated notes corporate debt company subsidiary foster wheeler llc 200000 notes “senior notes” public market bear interest fixed rate 675 per annum payable semiannually mature november 15 2005 senior notes issued indenture company bny midwest trust company notes redeemable prior maturity subject sinking fund requirements senior notes constitute senior unsecured indebtedness company rank parity company’s senior unsecured indebtedness august 2002 company finalized senior credit facility lender group facility including 71000 term loan 69000 revolving credit facility 149000 letter credit facility expires april 30 2005 facility secured assets domestic subsidiaries stock domestic subsidiaries 66 stock firsttier foreign subsidiaries facility scheduled repayments prior maturity april 30 2005 facility requires prepayments proceeds assets sales issuance debt equity excess cash flow company retains first 77000 amounts also retains 50 share balance financial covenants facility commence end first quarter 2003 include senior leverage ratio minimum ebitda level described agreement amended sale foster wheeler environmental corporation marc h 7 2003 cumulative sales proceeds received defined agreement approximate 75000 term loan revolving loans bear interest company’s option libor plus 350 b base rate plus 250 “base rate” means higher bank america prime rate ii federal funds rate plus 05 amendment 1 credit agreement obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation incurred december 31 2003 amendment 2 credit agreement entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company must make prepayment principal aggregate amount 10000 refer exhibit 1035 filed part report form 10k complete amendment december 27 2002 140000 borrowed senior credit facility amount appears consolidated balance sheet caption “corporate debt” december 27 2002 113670 standby letters credit outstanding foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 9 corporate debt convertible subordinated notes continued corporate debt consisted following convertible subordinated notes may june 2001 company issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 notes may converted common shares initial conversion rate 62131 common shares per 1000 principal amount 1605 per common share subject adjustment certain circumstances notes subordinated right payment existing future senior indebtedness company net proceeds approximately 202900 used repay 76300 364day revolving credit facility expired may 30 2001 reduce advances outstanding revolving credit agreement amortization debt issuance costs included component interest expense term notes 10 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 27 2002 5300 net gain derivative instruments recorded reduction cost operating revenues consolidated statement earnings comprehensive income company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poor’s a2 better moody’s december 27 2002 approximately 177140 owed company counterparties 103950 owed company counterparties 3834 net tax gain recorded comprehensive income december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows twentyfour months foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 10 derivative financial instruments continued reconciliation current period changes net applicable income taxes accumulated comprehensive income relating derivatives qualifying cash flow hedges follows balance december 28 2001 3834 reclassification earnings 3834 balance december 27 2002 11 subordinated robbins facility exit funding obligations foster wheeler’s subordinated obligations entered connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois “exit funding agreement” limited funding 1999c bonds 7 14 interest due october 15 2009 13710 october 15 2024 77155 90865 1999d bonds accrued 7 due october 15 2009 18000 total 108865 1999c bonds 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date application trustee funds deposit credit 1999c sinking fund installment subaccount october 15 years principal amounts follows see note 20 information 12 mandatorily redeemable preferred securities january 13 1999 fw preferred capital trust delaware business trust 100 owned finance subsidiary company issued 175000 preferred trust securities preferred trust securities fully unconditionally guaranteed foster wheeler llc preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company deferred quarterly distributions beginning distribution due foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 12 mandatorily redeemable preferred securities continued january 15 2002 deferred interest totals 20100 maturity date january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 13 specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects 1 note payable 27907 represents loan bank credit facility limited partnership whose general partner specialpurpose subsidiary 2 senior secured notes 40077 issued total amount 42500 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner project 3 solid waste disposal resource recovery system revenue bonds totaling 88920 issued total amount 133500 bonds collateralized pledge certain revenues assets project plant see note 20 4 resource recovery revenue bonds 48936 issued total amount 86780 bonds collateralized pledge certain revenues assets project principal payments payable annual installments follows 23195 25165 27072 15323 balance due installments 2015 90858 181613 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 14 guarantees company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 28 2001 52700 accruals 45600 settlements 8600 adjustments provisions 7800 balance december 27 2002 81900 15 equity interests company owns noncontrolling equity interest three energy projects one wastetoenergy project three located italy one chile two projects italy 42 owned third 49 owned company project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates december 27 2002 company’s share net earnings investment equity affiliates totaled 14006 88523 respectively dividends 9744 received year 2002 company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 2800 per year four projects company provided 10000 debt service reserve letter credit providing liquidity foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 15 equity interests continued performance project insufficient cover debt service payments amounts drawn letter credit april 2001 company completed sale interests two hydrogen production plants south america net proceeds transactions approximately 40000 aftertax loss 5000 recorded second quarter relating sales 16 income taxes components lossearnings income taxes years 2002 2001 2000 taxed following jurisdictions provisionbenefit income taxes earnings follows foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 16 income taxes continued deferred tax liabilities assets consist following domestic investment tax credit carryforwards used expire years 2003 2008 foreign tax credit carryforwards recognized based potential utilization used expire years 2004 2007 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 175600 197000 2002 2001 respectively increase required fasb 109 “accounting income taxes” evidence losses domestic operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2020 beyond based current tax laws foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 16 income taxes continued provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 17 operating leases company entered saleleaseback wastetoenergy plant charleston south carolina 1989 terms agreement consisted longterm operating lease 25 years company recorded deferred gain 13800 related transaction amortized income term lease december 28 2001 unamortized gain 6500 net current portion 500 year lease expense recognized 2002 6300 2001 2000 7500 per year charleston facility sold october 2002 company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 32000 2002 29800 2001 30200 2000 future minimum rental commitments non cancelable leases follows fiscal year 26937 25805 21208 16443 15159 thereafter 157574 263126 18 capital leases 2002 company entered salesleaseback transactions office buildings finland united states transactions qualified capitalized leases assets capital leases summarized follows foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 18 capital leases continued following minimum lease payments made years indicated capital leases effect december 27 2002 fiscal year 6152 6679 thereafter 134927 less interest 107754 net minimum lease payments capital leases 58987 19 quarterly financial data unaudited foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 19 quarterly financial data unaudited continued effect stock options convertible notes included calculation diluted earnings per share options antidilutive due quarterly loss 20 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts company’s us subsidiaries along many companies codefendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company’s subsidiaries 1970s prior summary claim activity three years ended december 27 2002 follows amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 57200 2002 66900 2001 56200 2000 company recorded assets 569000 relating probable insurance recoveries approximately 35000 recorded accounts notes receivables 534000 recorded long term foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 20 litigation uncertainties continued company funded approximately 59000 december 27 2002 asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending proceedings certain insurers well recoveries funding arrangement insurers place since 1993 total liability recorded comprised estimated liability relating open outstanding claims approximately 337500 estimated liability relating future unasserted claims approximately 217300 total 35000 recorded accrued expenses 519800 recorded asbestos related liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type breakdown known future claims disease type tota l estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments expected incurred next sixteen years period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2018 light uncertainties inherent long term forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2018 nonetheless company plans update forecasts periodically take consideration future experience considerations legislation continuously update estimate future costs expected insurance recoveries historically defense costs represented approximately 24 total costs december 27 2002 total indemnity costs paid prior insurance recoveries approximately 294600 total defense costs paid approximately 95100 company’s management consultation counsel considered ongoing proceedings insurers financial viability legal obligations insurers believe except insurers become may become insolvent insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimate assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainty ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncer tainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows subsidiary company united kingdom also received limited number claims alleging personal injury arising exposure asbestos none claims resulted material costs company san francisco california jury returned verdict march 26 2002 finding foster wheeler corporation liable 10600 case todak vs foster wheeler corporation case brought foster wheeler corporation us navy several companies 59yearold man suffering mesothelioma allegedly resulted exposure asbestos company believes credible evidence presented plaintiff exposed asbestos contained foster wheeler corporation product addition company believes verdict clearly excessive set aside reduced appeal foster wheeler corporation appealed judgment management company believes financial obligation may ultimately result entry final judgment case paid insurance april 3 2002 united states district court northern district texas entered amended final judgment matter koch engineering company et al vs glitsch inc et al glitsch inc foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 20 litigation uncertainties continued known tray inc indirect subsidiary company lawsuit claimed damages patent infringement trade secret misappropriations pending 18 years previously reported company judgment entered case november 29 1999 awarding plaintiffs compensatory punitive damages plus prejudgment interest amount yet calculated amended final judgment amount 54283 includes interest period beginning 1983 lawsuit filed entry judgment postjudgment interest accrue rate 5471 percent per annum november 29 1999 management tray inc believes court’s decision contains numerous factual legal errors subject reversal appeal tray inc filed notice appeal court appeals 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations immediate effect eliminate guaranteed supply municipal solid waste camden county wastetoenergy project “project” corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project marketbased revenues expected sufficient service debt outstanding bonds issued construct project acquire landfill camden county’s use company’s project subsidiary camden country energy recovery associates lp “ccera” filed suit involved parties including state new jersey seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due january 2002 state new jersey enacted legislation providing mechanism statesupported refinancing bond debt solid waste facilities located within state legislation expired december 31 2002 without refinancing accomplished press reports indicate unlikely statesupported refinancing occur n near future reports include statements state officials state continue ensure debt service payments made due given foregoing management seeking identify potential mechanisms refinancing project’s bond debt refinancing would likely involve restructuring ccera’s contracts related project including service agreement bonds outstanding camden project public debt either company ccera bonds guaranteed company state fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies time management cannot determine ultimate outcome foregoing potential effects ccera project however management believes pending conclusion foregoing litigation project continue operate full capacity receiving market rates waste disposal generating sufficient revenues pay ccera service fee debt outstanding camden project ccera’s secured ccera’s plant company’s management believe attempt bondholders exercise remedies would material adverse effect ccera company 1996 company completed construction recycling wastetoenergy project located village robbins illinois “robbins facility” virtue robbins facility qualifying illinois retail rate law qualified solid wasteto energy facility receive electricity revenues projected substantially higher utility’s “avoided cost” retail rate law utility entitled tax credit state tax utility gross receipts invested capital state illinois “state” reimbursed robbins facility tax credit beginning 20th foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 20 litigation uncertainties continued year following initial sale electricity utility state repealed retail rate law insofar applied robbins facility 1996 company’s project subsidiaries filed legal action state officials utility asserting number claims including claim repeal construed retroactively apply robbins facility pending village robbins resource recovery partners lp v wright et al circuit court cook county illinois chancery division 00 ch 3754 previously 96 ch 12873 november 2002 circuit court issued memorandum order related judgments holding repeal retail rate law could retroactively applied robbins facility defendants appealed trial court’s rulings stayed october 1999 company reached agreement “robbins agreement” holders bonds issued village robbins finance construction robbins facility “bondholders” part robbins agreement company agreed continue contest repeal litigation pursuant robbins agreement company also agreed proceeds litigation allocated certain order priority pursuant agreement reached debtor project companies bondholders approved bankruptcy court march 5 2002 robbins resource recovery partners lp nd illinois case 00b 25018 foregoing allocation modified proceeds allocated following order priority 1 attorneys entitled contingency fee 15 2 next 10000 50 company 50 redeem outs tanding 1999d bonds 3 redeem outstanding 1999d bonds 4 reimburse company amounts paid respect 1999d bonds 5 reimburse company costs incurred connection prosecuting retail rate litigation 6 redeem outstanding 1999c bonds 7 106 interest foregoing items 4 5 company extent proceeds 80 proceeds shall paid indenture trustee nonrecourse robbins bonds amount sufficient repay bonds full paid remaining 20 paid company foregoing payments shall made remaining proceeds shall paid company december 1 1999 three special purpose subsidiaries company commenced reorganization proceedings chapter 11 us bankruptcy code order effectuate terms robbins agreement january 21 2000 subsidiaries’ plan reorganization confirmed plan consummated february 3 2000 august 8 2000 company initiated final phase exit robbins facility part robbins agreement company agreed operate robbins facility subject reimbursed costs operation reimbursement occur therefore pursuant robbins agreement company october 10 2000 completed final phase exit project company administering project companies delaware business trust owned project behalf bondholders result exit project company longer administering project companies project companies commenced reorganization proceedings chapter 11 us bankruptcy code august october 2000 subsidiary company reached agreement debtor project companies requisite holders bonds approved bankruptcy court march 5 2002 robbins resource recovery partners lp nd illinois case 00b 25018 june 2002 plan reorganization incorporating agreement among things confirmed became effective foregoing agreement expected favorably resolve issues related exit project ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 20 litigation uncertainties continued accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 21 preferred share purchase rights september 22 1987 company’s board directors “board” declared dividend distribution one preferred share purchase right “right” share company’s common stock outstanding october 2 1987 adopted rights agreement dated september 22 1987 “rights agreement” september 30 1997 board amended restated rights agreement right allows shareholder purchase one onehundredth share new series preferred stock company exercise price 175 rights exercisable person group acquires 20 company’s common stock announces tender offer consummation would result ownership person group 20 company’s common stock connection reorganization may 25 2001 foster wheeler corporation rights exchanged rights foster wheeler ltd new rights agreement governs rights although terms rights right vote receive dividends expire may 20 2011 may redeemed prior becoming exercisable board 02 per right shareholder action acquisition proposal person group acquires 20 company’s outstanding common stock “flipin” provision rights triggered rights entitle holder person member group acquire number additional shares company’s common stock market value twice exercise price right event company involved merger business combination transaction right entitle holder purchase right’s thencurrent exercise price number acquiring company’s common stock market value time twice right’s exercise price board directors may amend rights agreement prevent approved transactions triggering rights 22 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities carrying amount 2001 includes debt issuances classified current liabilities due covenant violations company’s revolving credit agreement potential acceleration debt certain debt agreements see note 1 information foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 22 financial instruments risk management continued significant financial institutions primarily rated better standard poor’s a2 better moody’s see notes 2 10 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 718751 1025612 december 27 2002 december 28 2001 respectively balances include standby letters credit issued revolving credit agreement discussed note 9 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 27 2002 company 281090 foreign currency contracts outstanding foreign currency contracts mature 2003 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 27 2002 december 28 2001 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 yearend 2002 2001 respect partnership interest commercial real estate project 23 business segments data business company subsidiaries falls within two business groups engineering construction group designs engineers constructs petroleum chemical petrochemical alternativefuels facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities process plants production fine chemicals pharmaceuticals dyestuffs fragrances flavors food additives vitamins also ec group provides broad range environmental remediation services together related technical design regulatory services energy group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heat recovery equipment lownox burners site services related foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 23 business segments data continued products encompass plant erection maintenance engineering plant upgrading life extension plant repowering energy group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition energy group also builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries since fiscal 2000 power systems group combined energy group rest company’s power expertise resides prior years amounts adjusted reflect change unit small project development team longer develop wastetoenergy facilities united states company conducts business global basis ec group accounted largest portion company’s operating revenues operating income last ten years 2002 ec group accounted approximately 57 operating revenues geographic dispersion operating revenues follows 25 north america 20 asia 31 europe 13 middle east 5 south america 6 energy group accounted 43 operating revenues company geographic dispersion operating revenues follows 62 north america 31 europe 4 asia 2 middle east 1 south america earnings segments represent revenues less expenses attributable group geographic area operating units located revenues business segments immaterial eliminated corporate financial services export revenues account 53 operating revenues single customer represented 10 operating revenues 2002 2001 2000 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 23 business segments data continued summary financial information concerning company’s reportable segments shown following table 1 includes general corporate income expense company’s captive insurance operation eliminations 2 includes intercompany interest charged corporate financial services business groups outstanding borrowings 3 includes dividends preferred security 16610 2002 15750 2000 2001 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 23 business segments data continued 4 includes 2002 revaluation contract estimates provisions uncollectible receivables 216700 210800 tax engineering construction group ec 121650 energy group energy 86450 corporate financial services cf 8600 provision mothballing domestic manufacturing facility 18700 energy 5 includes 2002 anticipated loss sale assets 54500 energy provisions asbestos claim 26200 cf 6 includes 2002 79300 79000 net tax performance intervention activities debt restructuring efforts accrual legal settlements severance costs increased pension postretirement cost 6500 ec 12700 energy 60100 cf 7 excluded cumulative effect 2002 goodwill change accounting principle 48700 ec 101800 energy 8 includes 2001 contract writedowns 160600 104400 aftertax engineering construction group 51700 energy group 103900 corporate financial services 5000 9 includes 2001 loss sale cogeneration plants energy group 40300 27900 aftertax increased pension postretirement benefit cost corporate financial services 9100 6000 aftertax provision domestic plant impairment 6100 4000 tax severance 4700 3100 tax cancellation company owned life insurance 20000 13000 tax legal settlements provisions 13500 8800 tax 10 includes 2001 valuation allowance deferred tax assets 194600 corporate financial services restated see note 2 revenues longlived assets based country contracting subsidiary located foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 23 business segments data continued operating revenues industry segment three years ending december 2002 follows 24 consolidating financial information following represents summarized condensed consolidating financial information december 27 2002 december 28 2001 respect financial position three years ended december 27 2002 results operations cash flows company 100 owned majorityowned subsidiaries result reorganization may 25 2001 foster wheeler llc successor foster wheeler corporation became obligor company’s 675 notes due november 15 2005 “notes” connection company’s finalizing senior credit facility following companies issued guarantees favor holders notes otherwise assumed obligations indenture governing notes equipment consultants inc foreign holdings ltd foster wheeler asia limited foster wheeler capital finance corporation foster wheeler constructors inc foster whee ler development corporation foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler enviresponse inc foster wheeler environmental corporation foster wheeler facilities management inc foster wheeler inc foster wheeler international corporation foster wheeler international holdings inc foster wheeler ltd foster wheeler power group inc foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corporation foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler zack inc fw mortshal inc fw technologies holdings llc hfm international inc process consultants inc pyropower operating services company inc perryville iii trust guarantees full unconditional joint several may june 2001 company issued 65 convertible subordinated notes “convertib le notes” due 2007 convertible notes fully unconditionally guaranteed foster wheeler llc summarized consolidating financial information presented lieu separate financial statements related disclosures wholly owned subsidiary guarantors management believe separate financial statements related disclosures would material investors none subsidiary guarantors restricted making distributions company comparative statements december 28 2001 restated december 29 2000 restated respect financial position results operations cash flows revised conform current financial presentation guarantors guarantor subsidiaries include results foreign holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly guarantor subsidiaries nonguarantor subsidiaries foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating balance sheet december 27 2002 thousands dollars foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating balance sheet december 28 2001 thousands dollars restated see note 2 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating statement earnings year ended december 27 2002 thousands dollars includes interest expense dividends preferred securities 83028 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating statement earnings year ended december 28 2001 thousands dollars restated see note 2 includes interest expense dividends preferred securities 84484 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler corporation condensed consolidating statement earnings year ended december 29 2000 thousands dollars restated see note 2 includes interest expense dividends preferred securities 83254 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating statement cash flow year ended december 27 2002 thousands dollars foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler ltd condensed consolidating statement cash flow year ended december 28 2001 thousands dollars restated see note 2 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 24 consolidating financial information continued foster wheeler corporation condensed consolidating statement cash flow year ended december 29 2000 thousands dollars restated see note 2 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 25 restatement management determined assets liabilities results operations associated one company’s postretirement medical plans accounted accordance sfas 106 “employers’ accounting postretirement benefits pensions” company’s consolidated balance sheet december 28 2001 related consolidated statements earnings comprehensive income shareholder’s equity cash flows two years period ended december 28 2001 revised account assets liabilities results operations associated benefit plan accordance sfas 106 “employers’ accounting postretirement benefits pensions” postretirement employee benefits pensions liability increased reflect updated obligation calculated going concern basis cumulative effect shareholders’ equity december 29 2000 decrease 9620 summary effects restatement company’s consolidated balance sheet consolidated statement earnings comprehensive income shown refer note 26 effects restatement company’s quarterly data pension postretirement employee benefits liability reported reflects increase 70927 related reclassification pension liabilities longterm liabilities foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 26 restatement quarterly data unaudited summary effects restatement company’s quarterly financial data seven quarterly periods ended september 27 2002 follows restatement quarter ended march 29 2002 also includes effect cumulative effect change accounting goodwill change increased previously reported net loss march 29 2002 77000 foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 26 restatement quarterly data unaudited continued foster wheeler ltd notes financial statements continued thousands dollars except per share amounts 26 restatement quarterly data unaudited continued 27 subsequent events unaudited march 7 2003 company sold assets one wholly owned domestic ec subsidiaries company received net cash proceeds approximately 80000 consisting 72000 sales proceeds balance cash retained within business company also expects receive additional 57000 yearend 2003 subsidiary’s contract federal agency included sale cash proceeds available general corporate purposes proceeds subject adjustment based final net worth calculation finalized middle second quarter 2003 item 9item 8 financial statements supplementary data report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statement operations comprehensive loss shareholders’ deficit cash flows present fairly material respects financial position foster wheeler ltd subsidiaries “company” december 26 2003 december 27 2002 results operations cash flows three years period ended december 26 2003 conformity accounting principles generally accepted united states america consolidated financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying consolidated financial statements prepared assuming company continue going concern discussed note 1 consolidated financial statements company incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 company substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well company maintaining credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s ability continue going concern management’s plan regard matters also described note 1 consolidated financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 2004 foster wheeler ltd subsidiaries consolidated statement operations comprehensive loss year ended thousands dollars except per share amounts december 26 december 27 december 28 revenues operating revenues 3723815 3519177 3315314 income including interest 2003 10130 2002 12251 2001 9060 77493 55360 77160 total revenues income 3801308 3574537 3392474 costs expenses cost operating revenues 3441342 3426910 3164025 selling general administrative expenses 199949 226524 225392 deductions 168455 193156 126495 minority interest 5715 4981 5043 interest expense 77354 66418 68734 dividends preferred security subsidiary trust 18130 16610 15750 total costs expenses 3910945 3934599 3605439 loss income taxes 109637 360062 212965 provision income taxes 47426 14657 123395 net loss prior cumulative effect change accounting principle 157063 374719 336360 cumulative effect change accounting principle goodwill net 0 tax 150500 net loss 157063 525219 336360 comprehensive incomeloss cumulative effect prior years december 29 2000 change accounting principle derivative instruments designated cash flow hedges 6300 change gain derivative instruments designated cash flow hedges 3834 2466 foreign currency translation adjustment 6762 22241 10191 minimum pension liability adjustment net tax provision benefits 2003 18886 2002 73400 2001 0 58677 226011 36770 comprehensive loss 91624 732823 379487 loss per share basic diluted net loss prior cumulative effect change accounting principle 383 915 823 cumulative effect prior years december 28 2001 change accounting principle goodwill 367 net loss 383 1282 823 shares outstanding thousands basic weightedaverage number shares outstanding 41045 40957 40876 diluted effect share options total diluted 41045 40957 40876 see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts december 26 2003 december 27 2002 assets current assets cash equivalents 364095 344305 shortterm investments 13390 accounts notes receivable net trade 451010 543055 105404 85166 contracts process 166503 270492 inventories 6790 9332 prepaid deferred refundable income taxes 37160 41155 prepaid expenses 30024 36071 total current assets 1174376 1329847 land buildings equipment 622729 769680 less accumulated depreciation 313114 361861 net book value 309615 407819 restricted cash 52685 84793 notes accounts receivable longterm 6776 21944 investment advances 98651 88523 goodwill net 51121 50214 intangible assets net 71568 72668 prepaid pension cost related benefit assets 7240 26567 asbestosrelated insurance recovery receivable 495400 534045 assets 182151 156279 deferred income taxes 56947 69578 total assets 2506530 2842277 liabilities shareholders’ deficit current liabilities current installments longterm debt 20979 31562 bank loans 14474 accounts payable 305286 283940 accrued expense 381376 326881 estimated costs complete longterm contracts 552754 645763 advance payment customers 50248 82658 income taxes 62996 64517 total current liabilities 1373760 1449795 corporate debt less current installment 333729 341702 specialpurpose project debt less current installments 119281 181613 capital lease obligations 62373 58237 deferred income taxes 9092 8333 pension postretirement employee benefits 295133 437820 asbestosrelated liability 526200 519790 longterm liabilities minority interest 124792 109361 subordinated robbins exit funding obligations less current installment 111589 111674 convertible subordinated notes 210000 mandatory redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures 175000 deferred accrued interest expensemandatory redeemable interest securities 38021 19891 commitments contingencies total liabilities 3378970 3623216 shareholders’ deficit preferred stock authorized 1500000 shares par value none outstanding common stock 100 par value authorized 160000000 shares issued 2003 40771560 2002 40771560 40772 paidin capital 201841 201718 accumulated deficit 811054 653991 accumulated comprehensive loss 303999 369438 total shareholders’ deficit 872440 780939 total liabilities shareholders’ deficit 2506530 2842277 see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ deficit thousands dollars except share data per share amounts december 26 december 27 december 28 common stock balance beginning year 40772 40748 sold stock options shares 200066000 bermuda reorganization 42 balance end year 40772 paidin capital balance beginning year 201718 201390 200963 stock options issued nonemployees stock option exercise price less par value excess cost treasury stock common stock issued incentive plans market value bermuda reorganization 140 balance end year 201841 201718 201390 accumulated deficit retained earnings balance beginning year 653991 128772 212476 net loss year 157063 525219 336360 cash dividends paid common per share outstanding 2001 012 4888 balance end year 811054 653991 128772 accumulated comprehensive loss balance beginning year 369438 161834 118707 cumulative effect prior years december 29 2000 change accounting principle derivative instruments designated cash flow hedges 6300 change net gain derivative instruments designated cash flow hedges 3834 2466 change accumulated translation adjustment year 6762 22241 10191 minimum pension liability net tax provision benefits 2003 18886 2002 73400 2001 0 58677 226011 36770 balance end year 303999 369438 161834 treasury stock balance beginning year common stock acquired treasury shares 2001 3000 shares issued incentive plans shares 2001 3008 20 bermuda reorganization 182 balance end year total shareholders’ deficit 872440 780939 48444 see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows year ended thousands dollars december 26 december 27 december 28 cash flows operating activities net loss 157063 525219 336360 adjustments reconcile net loss cash flows operating activities cumulative effect change accounting principle 150500 provision impairment loss 15100 18700 provision restructuring 41570 depreciation amortization 35574 44425 55750 deferred tax 19774 28355 137801 gainprovision loss sale cogeneration plants 4300 54500 40300 provision asbestos claims 68081 26200 claims recoverieswrite downs related contract provisions 1500 136200 37000 contract reserves receivable provisions 32300 80500 123600 dividends preferred trust securities 18130 16610 3484 gain sale land building equipment 17970 1269 10174 earnings equity interests net dividends 9145 4262 4658 equity earnings net dividends 3312 1850 1544 noncash items 2884 14827 2787 changes assets liabilities receivables 78069 192801 96607 contracts process inventories 47353 53361 88044 accounts payable accrued expenses 11265 153565 35338 estimated costs complete longterm contracts 142914 62870 25026 advance payments customers 38287 18206 5399 income taxes 2499 15535 14265 assets liabilities 12868 19304 10542 net cash usedprovided operating activities 62098 160365 88681 cash flows investing activities change restricted cash 38414 84793 capital expenditures 12870 53395 33998 proceeds sale assets 87159 6282 59672 decrease investments advances 9107 16008 increasedecrease shortterm investments 6808 1530 net cash providedused investing activities 105895 122706 43212 cash flows financing activities dividends common shareholders 4888 distributions minority shareholder 2879 2061 1367 repurchase common stock 37 proceeds convertible subordinated notes 202912 proceeds exercise stock options decrease shortterm debt 14826 7792 82032 proceeds longterm debt 70546 185042 proceeds lease financing obligation 44900 repayment longterm debt 34100 45591 214724 net cash usedprovided financing activities 51805 60002 85533 effect exchange rate changes cash equivalents 27798 22624 7937 increase cash equivalents 19790 120285 32127 cash equivalents beginning year 344305 224020 191893 cash equivalents end year 364095 344305 224020 cash paid year interest net amount capitalized 63194 60973 74201 income taxes 17588 13508 15543 see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except per share amount 1 going concern accompanying consolidated financial statements foster wheeler ltd hereinafter referred “foster wheeler” “company” prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well company maintaining credit facilities bonding capacity adequate conduct business company incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail company received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance company able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates company compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts company violate covenants company’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related company’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs company’s current cash flow forecasts indicate sufficient cash available fund company’s us foreign working capital needs throughout 2004 december 26 2003 company aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 company cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries company sometimes required cash collateralize bonding certain bank facilities amount restricted cash december 26 2003 52700 48000 relates nonus operations company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs company’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 company repatriated approximately 100000 nonus subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 1 going concern continued assurance forecasted foreign cash transfers occur significant legal contractual restrictions company’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit company’s ability continue going concern part debt restructuring plan company certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 company announced support restructuring activities number institutional investors committed provide 120000 new financing company replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally company discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 company offering mix equity well debt longer maturities exchange securities company anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance company complete exchange offer acceptable terms failure company achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect company’s financial condition matters raise substantial doubt company’s ability continue going concern august 2002 company finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts also retains 50 share balance company’s sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates company compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 1 going concern continued amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility company agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 company made prepayment principal senior credit facility 100000 march 31 2004 company expects gross amount fee required approximately 14000 accrued included company’s liquidity forecast 2004 holders company’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility company finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility company initial noncancelable period 20 years proceeds saleleaseback sufficient repay balance outstanding previous operating lease arrangement 33000 second corporate office building longterm capital lease obligation included capital lease obligations accompanying consolidated balance sheet third quarter 2002 company entered receivables financing facility matures august 15 2005 secured portion certain company’s domestic trade receivables facility operates use wholly owned specialpurpose subsidiary foster wheeler funding ii llc “fw funding” described fw funding included consolidated financial statements company fw funding party purchase sale contribution agreement “psca” six company’s wholly owned domestic subsidiaries pursuant psca fw funding obligated purchase eligible trade receivables defined psca companies obligated contribute capital ineligible trade accounts receivable defined psca fw funding simultaneously entered loan security agreement foothill capital corporation ableco finance corporation llc agreement fw funding ability borrow maximum 40000 using eligible trade accounts receivable collateral fw funding pays 10 interest outstanding borrowings addition fw funding pays monthly unused line fee equal 05 per annum maximum available amount less average daily amount borrowings preceding month facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 december 26 2003 fw funding held 94200 trade accounts receivable net allowances included consolidated balance sheet january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates company compliance debt covenants throughout 2004 however assurance actual financial results match forecasts company violate covenants company violates covenant foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 1 going concern continued senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount company debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 company would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler received formal notice new york stock exchange “nyse” indicating company continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions company may 2003 nyse permitted company’s securities continue listed subject company’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist company november 14 2003 based company’s inability meet nyse’s minimum shareholders’ equity requirement positive 50000 company’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler relied exemption rule provided nyselisted companies due company delisted exemption longer available address issue company obtained consent bma transfers nonresidents long company’s shares continue quoted pink sheets otcbb company believes consent continue available 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations years 2003 2002 2001 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others december 26 2003 december 27 2002 december 28 2001 company claims 0 9000 135000 respectively decrease recorded claims 2002 resulted collection 11000 provision recorded balance 2002 company revised estimates claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual task contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits cost reimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings certain specialpurpose subsidiaries energy group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents approximately 305300 maintained foreign subsidiaries december 26 2003 subsidiaries require substantial portion funds support liquidity working capital needs well required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities restricted cash restricted cash december 26 2003 consists approximately 4000 held primarily special purpose entities restricted debt service payments approximately 44900 required collateralize letters credit bank guarantees approximately 3800 client escrow funds domestic restricted cash totals approximately 4700 relates funds held primarily special purpose entities restricted debt service payments client escrow funds foreign restricted cash totals approximately 48000 comprised cash collateralized letters credit bank guarantees client escrow funds restrictions shareholders dividends board directors company discontinued common stock dividend july 2001 company currently prohibited paying dividends senior credit facility amended accordingly company paid dividends common shares 2003 expect pay dividends common shares foreseeable future restricted net assets one company’s subsidiaries entered bonding arrangement bank contains covenants limiting ability make distributions company covenants include restriction distribution dividends 75 statutory earnings requirement maintain equity ratio calculated equity divided sum equity total liabilities least 30 addition subsidiary permitted make intercompany loans company result net assets subsidiary distributed annually dividends subsidiary’s statutory financial statements issued december 26 2003 december 27 2002 37148 30638 respectively subsidiary’s retained earnings considered restricted shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale fasb statement 115 “accounting certain investments debt foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued equity securities” realized gains losses sales based specificidentification method years ended 2003 2002 2001 unrealized gains losses immaterial proceeds sales shortterm investments 2000 gainloss trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 4 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily insurance claims receivable 60000 35000 foreign refundable valueadded tax 13600 6800 land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings effective december 29 2001 company adopted sfas 144 “accounting impairment disposal longlived assets” statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 “accounting impairment longlived assets longlived assets disposed of” provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years company’s results operations financial position affected initial adoption statement company recorded impairment loss 15100 corporate office building third quarter 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated balance sheet 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility sold october 2003 loss 19000 also recorded 2002 charleston wastetoenergy facility sold october 2002 losses recorded deductions consolidated statement operations comprehensive loss third quarter 2002 management energy group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter 2002 impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive incomeloss fourth quarter 2002 company decided take necessary steps mothball facility additional charges 5300 recorded december 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates recorded using equity method income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 177500 december 26 2003 practicable estimate additional tax would incurred amounts repatriated foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates cumulative translation adjustment beginning year 85157 107398 97207 current year foreign currency adjustment 6762 22241 10191 cumulative translation adjustment end year 78395 85157 107398 foreign currency transaction gains 1700 2900 3400 foreign currency transaction gains net tax 1100 1900 2200 company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded approximately 3400 tax loss 2003 5500 tax gain 2002 inventories principally materials supplies stated lower cost market determined primarily averagecost method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents trademarks amortized straightline basis periods 12 40 years effective december 29 2001 company adopted sfas 142 “goodwill intangible assets” “sfas 142” supersedes apb opinion 17 “intangible assets” statement requires goodwill intangible assets indefinite lives longer amortized instead tested impairment least annually company tests impairment reporting unit level defined sfas 142 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued goodwill allocated reporting units based original purchase price allocation test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill impairment losses measured december 29 2001 recognized cumulative effect change accounting principle 2002 sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 december 26 2003 december 27 2002 company unamortized goodwill 51121 50214 respectively increase goodwill 907 resulted foreign currency exchange gains goodwill december 26 2003 27 goodwill december 27 2002 related energy group december 28 2001 company unamortized goodwill 200152 reduction goodwill 2002 due 150500 impairment losses discussed offset foreign currency translation adjustments 562 accordance sfas 142 company longer amortizing goodwill 2003 fair value reporting units exceeded carrying amounts company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated camden wastetoenergy facility 77000 associated north american power unit included operations energy group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 relates foster wheeler environmental corporation e c group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two determined full write goodwill required reporting units also subjected first step goodwill impairment test december 26 2003 december 27 2002 company unamortized identifiable intangible assets 71568 72668 respectively following table details amounts relating assets amortization expense related patents trademarks 2003 2002 2001 3675 3535 3165 respectively amortization expense expected approximate 3500 year next five years following table presents current prior years reported amounts adjusted eliminate effect goodwill amortization accordance sfas 142 december 26 december 27 december 28 reported net loss 157063 525219 336360 add back goodwill amortization 5369 adjusted net loss 157063 525219 330991 basic diluted earnings per share reported net loss 383 1282 823 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued goodwill amortization 013 adjusted net loss 383 1282 810 earnings per share basic per share data computed based weightedaverage number shares common stock outstanding 1999 company adopted directors deferred compensation stock award plan “plan” plan nonmanagement director credited annually share units company’s common stock addition nonmanagement director may elect defer receipt compensation services rendered director deferred amount credited account form share units company makes supplemental contribution equal 15 deferred amount additional share data presented directors deferred compensation beginning shares 245942 129366 88275 shares credited participants’ accounts 70580 145885 41091 shares delivered directors upon retirement 41987 29309 incremental shares 28593 116576 41091 shares included calculation basic earnings per share 274535 245942 129366 options purchase shares common stock included computation diluted earnings per share due antidilutive effect 117145 3877361 2330736 shares convertible subordinated notes included computation diluted earnings per share due antidilutive effect 13085751 stock option plans company two fixed option plans reserve shares common stock issuance executives key employees directors company adopted disclosureonly provisions statement financial accounting standards sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” accordingly compensation cost recognized stock option plans compensation cost company’s stock option plans determined based fair value grant date awards 2003 2002 2001 consistent provisions sfas 123 company’s net loss per share would increased pro forma amounts indicated net loss reported 157063 525219 336360 deduct total stockbased employee compensation expense determined fair value based method awards net taxes 5 2003 390 2002 154 2001 3631 6091 net loss pro forma 157188 528850 342451 loss per share reported basic 383 1282 823 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued diluted 383 1282 823 loss per share pro forma basic 383 1291 838 diluted 383 1291 838 stock options included diluted earnings per share due losses 2003 2002 2001 fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions dividend yield 000 136 expected volatility 8823 8362 7920 risk free interest rate 322 290 423 expected life years 50 1995 stock option plan approved shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 april 1990 shareholders approved stock option plan directors company april 29 1997 shareholders approved amendment directors’ stock option plan authorizes granting options 400000 shares common stock nonemployee directors company automatically receive option acquire 3000 shares year plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect wholly owned subsidiary company also granted 1300000 inducement options 2001 chief executive officer connection employment agreement 1000000 options 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter company granted 255000 inducement options president chief executive officer foster wheeler north america corp formerly known “foster wheeler power group inc” connection employment agreement 2002 granted 100000 inducement option 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire 10 years date granted 2002 company granted 250000 options one consultants price options granted fair market value date grant options fully vested march 31 2003 expire ten years date grant accordance sfas 123 company recognized 123 328 expense related options 2003 2002 respectively options part company’s employee stock option plans included information presented information regarding option plans years 2003 2002 2001 follows presented actual number shares foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 26 2003 recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements annual periods ending december 15 2002 company 2002 form 10k implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements management however believe subsidiary trust issued mandatory redeemable preferred securities need deconsolidated 2004 interpretation impact company’s consolidated debt intercompany debt subsidiary trust become third party debt upon deconsolidation april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 2 summary significant accounting policies continued redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employers’ disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans january 12 2004 fasb issued fasb staff position “fsp” 1061 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp permits employers sponsor postretirement benefit plans provide prescription drug benefits retirees make onetime election defer accounting effects medicare prescription drug improvement modernization act 2003 “act” without fsp plan sponsors would required sfas 106 “employers’ accounting postretirement benefits pensions” account effects act fiscal period includes december 8 2003 date president bush signed act law deferral elected deferral must remain effect earlier issuance guidance fasb account federal subsidy provided plan sponsors act b remeasurement plan assets obligations subsequent january 31 2004 accordance fsp company reflected impact act measures accumulated postretirement benefit obligation net periodic postretirement benefit cost consolidated financial statements accompanying notes specific authoritative guidance accounting federal subsidy pending guidance issued could require company change previously reported information company currently assessing impact act whether postretirement plan amended consideration new legislation 3 research development years 2003 2002 2001 approximately 6200 10300 12300 respectively spent companysponsored research activities periods approximately 10200 18100 39200 respectively spent customersponsored research activities foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 4 accounts notes receivable following table shows components trade accounts notes receivable december 26 2003 december 27 2002 longterm contracts amounts billed due within one year 332135 410214 retention billed estimated due 58042 30502 25481 21338 4978 total billed 52496 88501 unbilled estimated due 97997 79937 2699 total unbilled 83305 98001 total retentions 135801 186502 total receivables longterm contracts 467936 596716 trade accounts notes receivable 20480 19387 488416 616103 less allowance doubtful accounts 37406 73048 accounts receivable net 451010 543055 third quarter 2002 company entered receivables securitization facility matures august 15 2005 secured portion company’s domestic trade receivables facility operates use wholly owned special purpose subsidiary foster wheeler funding ii llc “fw funding” described fw funding included consolidated financial statements company fw funding entered purchase sale contribution agreement “psca” six company’s wholly owned domestic subsidiaries pursuant psca fw funding obligated purchase eligible trade receivables defined psca companies obligated contribute capital ineligible trade accounts receivable defined psca fw funding also entered loan security agreement foothill capital corporation ableco finance corporation llc agreement fw funding ability borrow maximum 40000 using eligible trade accounts receivable collateral fw funding pays 10 interest outstanding borrowings addition fw funding pays monthly unused line fee equal 05 per annum maximum available amount less average daily amount borrowings preceding month facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 4 accounts notes receivable continued amounts outstanding facility december 26 2003 december 27 2002 fw funding may increase decrease discretion use facility weekly basis subject availability sufficient eligible trade accounts receivable facility’s maximum amount 40000 december 26 2003 fw funding held 94200 trade accounts receivable net allowances included consolidated balance sheet approximately 11900 availability facility 5 contracts process inventories following table shows elements included contracts process related longterm contracts process costs plus accrued profits less earned revenues contracts currently process 238645 336074 less progress payments 72142 65582 net 166503 270492 costs inventories shown inventories materials supplies 5098 9102 finished goods 1692 total 6790 9332 6 land buildings equipment land buildings equipment stated cost set forth land improvements 24057 23806 buildings 142608 151462 equipment 450941 590295 construction progress 5123 4117 total 622729 769680 depreciation expense years 2003 2002 2001 31214 54492 44348 respectively 7 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs company’s policy fund plans current basis extent deductible existing federal tax regulations contributions made intended provide benefits attributed service date also expected earned future company also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees company froze serp april 2003 issued letters credit totaling 2250 certain employees support obligations serp third quarter 2003 cash payments approximately 500 made select serp participants foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 7 pensions postretirement benefits continued april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following domestic pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution net effect changes expected positively impact financial condition company reduced costs reduced cash outflow future years year ended december 26 2003 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 311746 resulting cumulative pretax charge comprehensive loss represents reduction minimum liability 58903 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes domestic subsidiaries company 401k plan salaried employees year 2003 company contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 4066 years 2002 2001 company contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507 5008 respectively benefits addition providing pension benefits company’s domestic subsidiaries provide certain health care life insurance benefits retired employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s domestic subsidiaries also plan provides coverage employee’s beneficiary upon death employee foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 7 pensions postretirement benefits continued following chart contains disclosures pension benefits years 2003 2002 2001 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 7 pensions postretirement benefits continued provision sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” charges recorded provision impact freezing domestic pension plans 2003 provision mothballing domestic manufacturing facility 900 provision employee terminations part workforce reduction 100 provision retirement company’s vice president human resources approximately 900 2002 provision retirement company’s chief executive officer resulted charge 1900 2001 health care cost trend 85 decline 2010 50 assumed health care cost trend rates significant effect amounts reported benefit plans onepercentagepoint change assumed health care cost trend rates would following effects 1percentage point increase 1percentage point decrease effect total service interest cost components 495 effect accumulated postretirement benefit obligations 5207 4587 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligations abo company’s plans totaled approximately 812000 738000 year end 2003 2002 respectively previously discussed company recorded net cumulative charge comprehensive loss years 2000 2003 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy us plans allocates assets accordance policy guidelines asset mix target plans 70 equities 30 fixed income securities investment policy currently undergoing review company ensure investment strategy aligned plan liabilities considering changes domestic benefits program made 2003 investment policy canadian plans uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weighted average expected longterm rate return plan assets declined 93 79 past three years foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 7 pensions postretirement benefits continued plan asset allocation uk plans uk equities nonuk equities uk fixed income securities nonuk fixed income securities total us plans us equities nonus equities us fixed income securities nonus fixed income securities total canadian plans canandian equities noncanadian equities canadian fixed income securities noncanadian fixed income securities total contributions company expects contribute total approximately 64700 foreign domestic pension plans 2004 estimated future benefit payments following benefit payments reflect expected future service expected paid domestic defined benefit plans pension benefits 22200 7900 20600 7900 20700 8000 20800 8000 21200 8000 20092013 109900 38000 8 bank loans approximate weightedaverage interest rates borrowings outstanding primarily foreign end 2003 2002 491 438 respectively unused lines credit shortterm bank borrowings aggregated 8255 yearend 2003 available outside united states canada various currencies interest rates consistent market conditions respective countries interest costs incurred including dividends preferred security 2003 2002 2001 95791 84396 85202 respectively 307 1368 718 respectively capitalized foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 9 corporate debt convertible subordinated notes corporate debt company subsidiary foster wheeler llc 200000 senior notes public market bear interest fixed rate 675 per annum payable semiannually mature november 15 2005 senior notes issued indenture company bny midwest trust company senior notes redeemable prior maturity subject sinking fund requirements see note 24 regarding guarantees issued favor senior notes august 2002 company finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts also retains 50 share balance company’s sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 term loan revolving loans bear interest company’s option libor plus 600 b base rate plus 500 “base rate” means higher bank america prime rate ii federal funds rate plus 05 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation incurred december 31 2003 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility company agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 company made prepayment principal senior credit facility 100000 march 31 2004 company expects gross amount fee required approximately 14000 accrued included company’s liquidity forecast 2004 holders company’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility december 26 2003 128163 borrowed senior credit facility amount appears consolidated balance sheet caption “corporate debt” december 26 2003 105777 standby letters credit outstanding foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 9 corporate debt convertible subordinated notes continued corporate debt consisted following convertible subordinated notes may june 2001 company issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 notes may converted common shares initial conversion rate 62131 common shares per 1000 principal amount 1605 per common share subject adjustment certain circumstances notes subordinated right payment existing future senior indebtedness company net proceeds approximately 202900 used repay 76300 364day revolving credit facility expired may 30 2001 reduce advances outstanding revolving credit agreement amortization debt issuance costs included component interest expense term notes 10 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded years ended december 26 2003 december 27 2002 5160 pretax 3400 tax net loss 8470 pretax 5500 tax net gains derivative instruments respectively recorded reductions cost operating revenues consolidated statement operations comprehensive loss company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “a” better standard poor’s “a2” better moody’s december 26 2003 approximately 67100 owed company counterparties 17800 owed company counterparties 3834 net tax gain recorded comprehensive loss december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 11 subordinated robbins facility exit funding obligations foster wheeler’s subordinated obligations entered connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois “exit funding agreement” limited funding 1999c bonds 714 interest due october 15 2009 12130 october 15 2024 77155 89285 1999d accretion bonds 7 interest due october 15 2009 23994 total 113279 1999c bonds 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date application trustee funds deposit credit 1999c sinking fund installment subaccount october 15 years principal amounts follows 1999d bonds 1999d accretion bonds originally issued 18000 total amount due october 15 2009 35817 12 mandatorily redeemable preferred securities january 13 1999 fw preferred capital trust delaware business trust 100 owned finance subsidiary company issued 175000 preferred trust securities preferred trust securities fully unconditionally guaranteed foster wheeler ltd foster wheeler llc preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 deferred interest totals 38021 maturity date january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 13 specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 13 specialpurpose project debt continued 1 note payable 21887 represents loan bank credit facility limited partnership whose general partner specialpurpose subsidiary 2 senior secured notes 37782 issued total amount 42500 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner project 3 solid waste disposal resource recovery system revenue bonds totaling 77508 issued total amount 133500 bonds collateralized pledge certain revenues assets project plant see note 20 4 resource recovery revenue bonds issued total amount 86780 bonds collateralized pledge certain revenues assets project facility sold 2003 along debt obligation principal payments payable annual installments follows 19215 20422 12972 13792 14588 thereafter 38292 total 119281 14 guarantees warranties company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 14 guarantees warranties continued balance december 28 2001 52700 accruals 45600 settlements 8600 adjustments provisions 7800 balance december 27 2002 81900 accruals 72800 settlements 13800 adjustments provisions 9300 balance december 26 2003 131600 15 equity interests company owns noncontrolling equity interest three energy projects one wastetoenergy project three located italy one chile two projects italy 42 owned third 49 owned company project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates december 26 2003 company’s share net earnings investment equity affiliates totaled 17142 98651 respectively dividends 7997 received year 2003 company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 2700 per year four projects company provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments amounts drawn letter credit undistributed retained earnings company’s equity investees amounted approximately 28765 20143 december 26 2003 december 27 2002 respectively 16 income taxes components loss income taxes years 2003 2002 2001 taxed following jurisdictions foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 16 income taxes continued provision income taxes earnings follows deferred tax assets liabilities consist following domestic investment tax credit carryforwards used expire years 2004 2008 foreign tax credit carryforwards recognized based potential utilization used expire years 2004 2008 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed 2003 2002 valuation allowance increased 58017 175576 respectively increase required fasb 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 16 income taxes continued assets valuation allowance provided begin expiring 2020 beyond based current tax laws company completes exchange offer discussed note 1 subject substantial limitations use prechange losses credits offset us federal taxable income postchange year since valuation allowance already reflected offset losses credits limitation result significant writeoff company provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 17 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases total 26700 2003 32000 2002 29800 2001 future minimum rental commitments noncancelable leases follows fiscal year 25100 22800 19400 17200 15700 thereafter 159500 259700 company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 3622 3197 3080 years ended december 26 2003 december 27 2002 december 28 2001 respectively december 27 2003 december 27 2002 balance deferred gains 74151 69540 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 18 capital leases 2002 company entered saleleaseback transactions office buildings finland united states transactions qualified capital leases assets capital leases summarized follows foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 18 capital leases continued following minimum lease payments made years indicated capital leases effect december 26 2003 fiscal year 6830 6797 7246 6973 7449 thereafter 131435 less interest 103035 net minimum lease payments capital leases 63695 less current portion net minimum lease payments 1322 longterm net minimum lease payments 62373 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 19 quarterly financial data unaudited effect stock options convertible notes included calculation diluted earnings per share options antidilutive due quarterly loss 20 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts company’s us subsidiaries along many companies codefendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 20 litigation uncertainties continued allegedly performed company’s subsidiaries 1970s prior summary claim activity three years ended december 26 2003 follows includes approximately 24500 claims inactive court dockets amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 66000 2003 57200 2002 66900 2001 overall average combined indemnity defense cost per closed claim since 1993 approximately 18 view many uncertainties associated asbestos bodily injury claims company believes average cost may increase future company recorded assets 555400 relating probable insurance recoveries approximately 60000 recorded accounts notes receivables 495400 recorded longterm asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending proceedings certain insurers well recoveries settlements insurers total liability recorded comprised estimated liability relating open outstanding claims approximately 372200 estimated liability relating future unasserted claims approximately 214000 total 60000 recorded accrued expenses 526200 recorded asbestosrelated liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type breakdown known future claims disease type total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments expected incurred next fifteen years period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2018 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2018 nonetheless company plans update forecasts periodically take consideration future experience considerations legislation continuously update estimate future costs expected insurance recoveries historically defense costs represented approximately 24 total costs december 26 2003 total indemnity costs paid prior insurance recoveries approximately 354000 total defense costs paid approximately 109000 company recorded charges related increases valuation allowance insurance claims receivable 68100 26200 0 years ended 2003 2002 2001 respectively charges recorded deductions consolidated statement operations 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 2002 charge recorded due allocation future costs insurer became insolvent december 26 2003 257700 contested subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries various insurers subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurer would immaterial based nature litigation opinions received outside counsel company also believes possibility recovering full amount asset remote july 2003 several subsidiaries company liberty mutual insurance company one insurers entered settlement release agreement resolves coverage litigation subsidiaries liberty mutual state courts new york new jersey agreement provides foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 20 litigation uncertainties continued buyback insurance policies settlement disputes subsidiaries liberty mutual respect asbestosrelated claims agreement requires liberty mutual make payments nineteenyear period subject annual caps payments decline time special account established pay subsidiaries’ indemnity defense costs asbestos claims payments however would available fund subsidiaries’ required contributions national settlement trust may established future federal legislation subsidiaries received july initial payment agreement approximately 6000 used pay asbestosrelated defense indemnity costs september 2003 company’s subsidiaries entered settlement release agreement resolves coverage litigation certain london market north river insurers agreement provides cash payment 5900 received subsidiaries additional amounts deposited trust use subsidiaries defense indemnity asbestos claims january 2004 company’s subsidiaries entered settlement release agreement resolves coverage litigation hartford accident indemnity company certain affiliates agreement provides cash payment 5000 received subsidiaries additional amount deposited trust use subsidiaries amount deposited trust 2005 pending litigation negotiations insurers continuing company’s management consultation counsel considered ongoing proceedings insurers financial viability legal obligations insurers believes except insurers become may become insolvent insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimate assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows subsidiary company united kingdom also received limited number claims alleging personal injury arising exposure asbestos none claims resulted material costs company san francisco california jury returned verdict march 26 2002 finding foster wheeler corporation liable 10600 case todak vs foster wheeler corporation case brought foster wheeler corporation us navy several companies 59yearold man suffering mesothelioma allegedly resulted exposure asbestos case amicably resolved parties appeal verdict dismissed terms settlement confidential company’s financial obligation covered insurance april 3 2002 united states district court northern district texas entered amended final judgment matter koch engineering company et al vs glitsch inc et al glitsch inc known tray inc indirect subsidiary company lawsuit claimed damages patent infringement trade secret misappropriations pending 18 years judgment entered case november 29 1999 awarding plaintiffs compensatory punitive damages plus prejudgment interest amount yet calculated amended final judgment amount 54283 included interest period beginning 1983 lawsuit filed entry judgment postjudgment interest accrued rate 5471 percent per annum november 29 1999 management tray inc believes court’s decision contained numerous factual legal errors subject reversal appeal tray inc filed notice appeal united states court appeals fifth circuit april 1 2003 tray inc filed bankruptcy third quarter 2003 parties amicably resolved cases management assessed liability associated legal proceeding determined previously recorded provision financial statements liability adequate address terms settlement company longterm contract government agency completed four phases first phase design permitting licensing spent fuel facility phase completed price 66700 first phase project profitable close phase resulted increased costs 11900 charge recorded 2003 remaining cash outlay 4000 expended 2004 company process submitting requests equitable adjustment related contract foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 20 litigation uncertainties continued december 26 2003 december 27 2002 company’s financial statements reflect anticipated collection 0 9000 respectively requests equitable adjustment second phase billed cost plus fee basis expected conclude june 2004 phase company must respond questions regarding initial design included phase one phase three construction startup testing facility fixed price 114000 subject escalation scheduled commence 2004 phase begin purchase long lead items followed 2005 construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency interested restructuring contract commenced discussions possible restructuring withdrawal contract project proceed company intends seek third party financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot obtain third party financing required surety bond company’s participation would uncertain could material adverse effect company’s financial condition results operations cash flow 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations immediate effect eliminate guaranteed supply municipal solid waste camden county wastetoenergy project “project” corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project marketbased revenues expected sufficient service debt outstanding bonds issued construct project acquire landfill camden county’s use company’s project subsidiary camden country energy recovery associates lp “ccera” filed suit involved parties including state new jersey seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due january 2002 state new jersey enacted legislation providing mechanism statesupported refinancing bond debt solid waste facilities located within state legislation expired december 31 2002 without refinancing accomplished press reports indicate unlikely statesupported refinancing occur near future reports include statements state officials state continue ensure debt service payments made due us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act “cercla” clean water act clean air act similar state local laws current owner operator real property past owners operators real property disposal release took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances subject additional liabilities comply applicable laws regulating hazardous substances either case liabilities substantial moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal mediation substances disposal treatment site whether site owned operated person “offsite facility” liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors company currently owns operates industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances company aware conditions currently owned facilities united states expects cause company incur material costs accrued company also may receive claims pursuant indemnity obligations owners recently sold facilities may require company incur costs investigation andor remediation based available information company believe costs material assurance provided foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 20 litigation uncertainties continued company discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring company incur material expenditures investigate andor remediate conditions company notified potentially responsible party “prp” cercla similar state laws three offsite facilities excluding sites company resolved liability sites company’s liability substantially less total site remediation costs percentage waste attributable company compared attributable prps low company believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate company’s project claims increased result increase lumpsum contracts years 1992 2000 project claims brought company project owners costs exceeding contract price amounts included original contract price claims typically arise changes initial scope work ownercaused delays claims often subject lengthy arbitration litigation proceedings costs associated changes ownercaused delays include additional direct costs labor material costs associated performance additional works well indirect costs may arise due delays completion project increased labor costs resulting changes labor markets company used significant additional working capital projects cost overruns pending resolution relevant project claims company cannot assure project claims continue future company established provision balance outstanding commercial claims december 27 2002 bring net book value claims 0 time company revised estimates claim revenues reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company continues pursue claims assurance recover full amount claims anything company also faces number counterclaims brought certain project owners connection several project claims described company found liable counterclaims would incur writedowns charges earnings extent reserve established failure recover amounts claims charges related counterclaims could material adverse impact company’s liquidity financial condition ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 21 preferred share purchase rights september 22 1987 company’s board directors “board” declared dividend distribution one preferred share purchase right “right” share company’s common stock outstanding october 2 1987 adopted rights agreement dated september 22 1987 “rights agreement” september 30 1997 board amended restated rights agreement right allows shareholder purchase one onehundredth share new series preferred stock company exercise price 175 rights exercisable person together affiliates acquires 20 company’s common stock announces tender offer consummation would result ownership person together affiliates 20 company’s common stock connection reorganization may 25 2001 foster wheeler corporation rights exchanged rights foster wheeler ltd new rights agreement governs rights although terms rights right vote receive dividends expire may 20 2011 may redeemed prior becoming exercisable board 02 per right shareholder action acquisition proposal person together affiliates acquires 20 company’s outstanding common stock ¨flipin¨ provision rights triggered rights entitle holder person member group acquire number additional shares company’s common stock market value twice exercise price right foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 21 preferred share purchase rights continued event company involved merger business combination transaction right entitle holder purchase right’s thencurrent exercise price number acquiring company’s common stock market value time twice right’s exercise price board directors may amend rights agreement prevent approved transactions triggering rights 22 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “a” better standard poor’s “a2” better moody’s see notes 2 10 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 609000 1182394 december 26 2003 december 27 2002 respectively balances include standby letters credit issued senior credit facility discussed note 9 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 26 2003 company 84922 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 26 2003 december 27 2002 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 yearend 2003 2750 yearend 2002 respect partnership interest commercial real estate project foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 23 business segments data business company subsidiaries falls within two business groups engineering construction group “e c” designs engineers constructs petroleum chemical petrochemical alternativefuels facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities process plants production fine chemicals pharmaceuticals dyestuffs fragrances flavors food additives vitamins also e c group provides broad range environmental remediation services together related technical design regulatory services however domestic environmental remediation business sold 2003 energy group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering energy group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition energy group also builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries company conducts business global basis e c group accounted largest portion company’s operating revenues operating income last ten years 2003 e c group accounted approximately 62 operating revenues geographic dispersion operating revenues follows 12 north america 11 asia 58 europe 6 middle east 13 energy group accounted 38 operating revenues company geographic dispersion operating revenues follows 42 north america 43 europe 6 asia 8 middle east 1 south america management uses several financial metrics measure performance company’s business segments ebitda discussed defined primary earnings measure used company’s chief decision makers previously gross margin equal operating revenues less cost operating revenues considered primary financial measure segment information 2002 2001 restated conform current presentations ebitda supplemental nongaap financial measure ebitda defined earningsloss taxes goodwill charge interest expense depreciation amortization company presented ebitda believes important supplemental measure operating performance ebitda adjusted certain unusual infrequent items specifically excluded terms senior credit facility also used measure certain covenants senior credit facility company believes line item consolidated statement earnings entitled “net earningsloss” directly comparable gaap measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net earningsloss indicator operating performance ebitda company calculates may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure company’s ability fund cash needs ebitda excludes certain financial information compared net earningsloss directly comparable gaap financial measure users financial information consider type events transactions excluded reconciliation ebitda nongaap financial measure net earningsloss gaap measure shown next page export revenues account 45 operating revenues single customer represented 10 operating revenues 2003 2002 2001 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 23 business segments data continued summary financial information concerning company’s reportable segments shown following table foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 23 business segments data continued 1 includes general corporate income expense company’s captive insurance operation eliminations 2 includes intercompany interest charged corporate financial services business groups outstanding borrowings 3 includes dividends preferred security 18130 2003 16610 2002 15750 2001 4 includes 2003 revaluation contract estimates revisions contract claims 30800 engineering construction group e c 33900 energy group energy 3100 5 includes 2003 gain sale environmental e c 16700 impairment anticipated sale domestic corporate office building corporate financial services c f 15100 includes gain sale wastetoenergy plant 4300 energy provision asbestos claims 68100 c f 2003 58700 performance intervention activities debt restructuring efforts accrual legal settlement severance costs increased pension post retirement costs 8900 e c 2800 energy 47000 c f 6 includes 2002 revaluation contract estimates provisions uncollectible receivables 216700 210800 aftertax engineering construction group e c 121650 energy group energy 86450 corporate financial services c f 8600 provision mothballing domestic manufacturing facility 18700 energy 7 includes 2002 anticipated loss sale assets 54500 energy provisions asbestos claim 26200 c f 8 includes 2002 79300 79000 net tax performance intervention activities debt restructuring efforts accrual legal settlements severance costs increased pension postretirement cost 6500 e c 12700 energy 60100 c f 9 excluded cumulative effect 2002 goodwill change accounting principle 48700 e c 101800 energy 10 includes 2001 contract writedowns 160600 104400 aftertax engineering construction group 51700 energy group 103900 corporate financial services 5000 11 includes 2001 loss sale cogeneration plants energy group 40300 27900 aftertax increased pension postretirement benefit cost corporate financial services 9100 6000 aftertax provision domestic plant impairment 6100 4000 aftertax severance 4700 3100 aftertax cancellation company owned life insurance 20000 13000 aftertax legal settlements provisions 13500 8800 aftertax 12 includes 2001 valuation allowance deferred tax assets 194600 corporate financial services foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 23 business segments data continued revenues longlived assets based country contracting subsidiary located operating revenues industry segment three years ending december 2003 follows 24 consolidating financial information senior notes 675 result reorganization may 25 2001 foster wheeler llc successor foster wheeler corporation became obligor senior notes due november 15 2005 connection company’s finalizing senior credit facility foster wheeler ltd following 100 owned companies issued guarantees favor holders senior notes equipment consultants inc foster wheeler holdings ltd formerly known foreign holdings ltd foster wheeler asia limited foster wheeler capital finance corporation foster wheeler constructors inc foster wheeler development corporation foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler enviresponse inc foster wheeler environmental corporation foster wheeler facilities management inc foster wheeler inc foster wheeler international corporation foster wheeler international holdings inc foster wheeler north america corp formerly known “foster wheeler power group inc” foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corporation foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued wheeler zack inc fw mortshal inc fw technologies holding llc hfm international inc process consultants inc pyropower operating services company inc perryville iii trust guarantees full unconditional joint several foster wheeler llc subsidiary guarantors 100 owned directly indirectly foster wheeler ltd summarized consolidating financial information presented lieu separate financial statements related disclosures wholly owned subsidiary guarantors issuer management believe separate financial statements related disclosures would material investors none subsidiary guarantors restricted making distributions company following represents summarized condensed consolidating financial information december 26 2003 december 27 2002 respect financial position three years ended december 26 2003 results operations cash flows company 100 owned majorityowned subsidiaries foster wheeler ltd column presents parent company’s financial information foster wheeler ltd also guarantor foster wheeler llc column presents issuer’s financial information guarantor subsidiaries column presents financial information guarantors excluding foster wheeler ltd separately presented guarantor subsidiaries include results foster wheeler holdings ltd formerly known foreign holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly guarantor subsidiaries nonguarantor subsidiaries 2002 guarantor nonguarantor subsidiaries columns accompanying condensed consolidating balance sheets reclassified conform current financial statement presentation particular allowance doubtful accounts receivable trade 66561 reclassified estimated costs complete longterm contracts 61561 advance payments 5000 accounts receivable trade accordingly accounts receivable trade balance presented net reserves foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 thousands dollars foster wheeler ltd foster wheeler llc guarantor subsidiaries non guarantor subsidiaries eliminations consolidated assets cash equivalents 32984 331111 364095 accounts notes receivable net 272361 111142 798644 625733 556414 contracts process inventories 121527 60876 9110 173293 investment advances 88641 current assets 4310 76264 80574 total current assets 272361 358604 1266895 723484 1174376 investments subsidiaries others 872080 919588 407023 98651 1384645 98651 land buildings equipment net 64315 245300 309615 notes accounts receivable longterm 210000 575118 281108 458490 1517940 6776 intangible assets net 101664 21025 122689 asbestosrelated insurance recovery receivable 495400 noncurrent assets 28478 83898 186647 299023 total assets 662080 451769 1296612 2277008 856779 2506530 liabilities shareholders’ deficitequity accounts payable accrued expenses 78278 723122 519693 634843 686662 estimated costs complete longterm contracts 162168 390586 552754 current liabilities 52 1085 17209 118272 134344 total current liabilities 77193 902499 1028551 634843 1373760 corporate debt 328163 44120 23819 396102 specialpurpose project debt 119281 pension postretirement employee benefits 216281 78852 295133 asbestosrelated liability 526200 longterm liabilities minority interest 392221 894203 763125 1877644 171905 subordinated robbins obligations 111589 convertible subordinated notes 210000 preferred trust securities 175000 total liabilities 210360 1323777 2168692 2188628 2512487 3378970 common stock paidin capital 242613 325741 810967 242613 accumulated deficit 811054 810622 810694 33254 1654570 811054 accumulated comprehensive loss 303999 204107 812105 303999 total shareholders’ deficitequity 872440 872008 872080 88380 1655708 872440 total liabilities shareholders’ deficitequity 662080 451769 1296612 2277008 856779 2506530 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating balance sheet december 27 2002 thousands dollars foster wheeler ltd foster wheeler llc guarantor subsidiaries non guarantor subsidiaries eliminations consolidated assets cash equivalents 19771 324534 344305 accounts notes receivable net 228428 163817 847482 611506 628221 contracts process inventories 177115 110959 8250 279824 investment advances 292654 current assets 39924 38102 529 77497 total current assets 228428 693281 1321077 912939 1329847 investments subsidiaries others 780671 842608 325341 88523 1297938 88523 land buildings equipment net 103489 304330 407819 notes accounts receivable longterm 210000 595656 289106 658167 1730985 21944 intangible assets net 104349 18533 122882 asbestosrelated insurance recovery receivable 534045 noncurrent assets 20749 107174 209296 2 337217 total assets 570671 536270 1622740 2599926 1345988 2842277 liabilities shareholders’ deficitequity accounts payable accrued expenses 39048 743006 448732 620285 610821 estimated costs complete longterm contracts 279739 366024 645763 current liabilities 52 1085 23643 170705 193211 total current liabilities 37963 1046388 985461 620285 1449795 corporate debt 340000 43678 16261 399939 specialpurpose project debt 181613 pension postretirement employee benefits 294133 143687 437820 asbestosrelated liability 519790 longterm liabilities minority interest 419134 907538 971731 2160818 137585 subordinated robbins obligations 111674 convertible subordinated notes 210000 preferred trust securities 175000 total liabilities 210268 1316887 2403411 2473753 2781103 3623216 common stock paidin capital 242490 374892 859872 242490 accumulated deficitretained earnings 653991 653669 653723 5727 1301665 653991 accumulated comprehensive loss 369438 254446 993322 369438 total shareholders’ deficitequity 780939 780617 780671 126173 1435115 780939 total liabilities shareholders’ deficitequity 570671 536270 1622740 2599926 1345988 2842277 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 28 2001 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 thousands dollars foster wheeler ltd foster wheeler llc guarantor subsidiaries non guarantor subsidiaries eliminations consolidated cash flows operating activities net cash usedprovided operating activities 93 18811 163781 87168 4203 62098 cash flows investing activities change restricted cash 15524 22890 38414 capital expenditures 105 12765 12870 proceeds sale properties 79701 7458 87159 increase investment advances 274 increase shortterm investments 6808 net cash provided investing activities 95394 10501 105895 cash flows financing activities dividends shareholders 4203 decrease shortterm debt 14826 proceeds longterm debt repayment longterm debt 11837 1580 20683 34100 6974 83180 79178 2879 net cash providedused financing activities 18811 81600 118890 4203 51805 effect exchange rate changes cash equivalents 27798 increase cash equivalents 13213 6577 19790 cash equivalents beginning year 19771 324534 344305 cash equivalents end year 32984 331111 364095 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 thousands dollars foster wheeler ltd foster wheeler llc guarantor subsidiaries non guarantor subsidiaries eliminations consolidated cash flows operating activities net cashusedprovided operating activities 172 15109 197489 3483 18360 160365 cash flows investing activities change restricted cash 15900 68893 84793 capital expenditures 40932 12463 53395 proceeds sale properties 1783 4499 6282 increasedecrease investment advances 350 21049 30506 9107 decrease shortterm investments net cash used investing activities 350 76098 46258 122706 cash flows financing activities dividends shareholders 18360 increase shortterm debt 7792 proceeds longterm debt 70000 70546 proceeds lease financing obligation 44900 repayment longterm debt 24440 21151 45591 54541 163185 215493 2061 net cash providedused financing activities 15459 142725 168736 18360 60002 effect exchange rate changes cash equivalents 22481 22624 decreaseincrease cash equivalents 21191 141476 120285 cash equivalents beginning year 40962 183058 224020 cash equivalents end year 19771 324534 344305 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued senior notes 675 continued foster wheeler ltd condensed consolidating statement cash flows year ended december 28 2001 thousands dollars foster wheeler ltd foster wheeler llc guarantor subsidiaries non guarantor subsidiaries eliminations consolidated cash flows operating activities net cash usedprovided operating activities 96 181267 418899 71574 254643 88681 cash flows investing activities capital expenditures 2346 17074 14578 33998 proceeds sale properties 59482 59672 decreaseincrease investment advances 77838 61830 16008 increase shortterm investments 1530 net cash usedprovided investing activities 2346 60954 15396 43212 cash flows financing activities dividends shareholders 4888 228936 25707 254643 4888 decrease shortterm debt 76250 5782 82032 proceeds convertible bonds net 202912 proceeds longterm debt 178061 285000 291981 185042 repayment longterm debt 193062 1601 20061 214724 202816 203502 113620 115083 777 net cash providedused financing activities 183613 478167 125348 254643 85533 effect exchange rate changes cash equivalents 347 7590 7937 increase cash equivalents 1339 30788 32127 cash equivalents beginning year 39623 152270 191893 cash equivalents end year 40962 183058 224020 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes may june 2001 foster wheeler ltd issued 65 convertible subordinated notes “convertible notes” due 2007 convertible notes fully unconditionally guaranteed foster wheeler llc 100 owned subsidiary foster wheeler ltd foster wheeler llc assumed obligation fund debt service following summarized consolidating financial information presented lieu separate financial statements related disclosures foster wheeler llc management believe separate financial statements related disclosures would material investors following represents summarized condensed consolidating financial information december 26 2003 december 27 2002 respect financial position three years ended december 26 2003 results operations cash flows company 100 owned majorityowned subsidiaries foster wheeler ltd column presents financial information parent company also issuer guarantor subsidiary column presents financial information sole guarantor foster wheeler llc nonguarantor subsidiaries include results direct indirect nonguarantor subsidiaries foster wheeler ltd including foster wheeler holdings ltd previously known foreign holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries 2002 nonguarantor subsidiaries column accompanying condensed consolidating balance sheets reclassified conform current financial statement presentation particular allowance doubtful accounts receivable trade 66561 reclassified estimated costs complete longterm contracts 61561 advance payments 5000 accounts receivable trade accordingly accounts receivable trade balance presented net reserves foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations year ended december 28 2001 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 28 2001 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities january 13 1999 fw preferred capital trust delaware business trust 100 indirectly owned finance subsidiary company issued 175000 preferred trust securities preferred trust securities fully unconditionally guaranteed foster wheeler ltd foster wheeler llc guarantees full unconditional joint several foster wheeler llc assumed obligation fund debt service preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 maturity date january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 following summarized consolidating financial information presented lieu separate financial statements related disclosures 100 indirectly owned subsidiary guarantor issuer management believe separate financial statements related disclosures would material investors following represents summarized condensed consolidating financial information december 26 2003 december 27 2002 respect financial position three years ended december 26 2003 results operations cash flows company 100 owned majorityowned subsidiaries foster wheeler ltd column presents parent company’s financial information foster wheeler ltd also guarantor fw preferred capital trust column presents financial information issuer guarantor subsidiary column presents financial information foster wheeler llc excludes foster wheeler ltd separately presented nonguarantor subsidiaries include foster wheeler holdings ltd previously known foreign holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries 2002 nonguarantor subsidiaries column accompanying condensed consolidating balance sheets reclassified conform current financial statement presentation particular allowance doubtful accounts receivable trade 66561 reclassified estimated costs complete longterm contracts 61561 advance payments 5000 accounts receivable trade accordingly accounts receivable trade balance presented net reserves foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating balance sheet december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 thousands dollars includes dividends preferred securities 18130 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 thousands dollars includes dividends preferred securities 16610 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 28 2001 thousands dollars includes dividends preferred securities 15750 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 24 consolidating financial information continued c preferred trust securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 28 2001 thousands dollars foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 25 related party transactions mr kenneth hiltz served chief financial officer foster wheeler ltd april 7 2003 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners provide financial management consulting services mr hiltz also principal alixpartners llc mr ryan j esko employee alixpartners served treasurer company november 26 2002 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners also provide financial management services company paid alixpartners llc approximately 743 mr hiltz’s services 1017 mr esko’s services 2003 based upon agreement terms additional 8613 paid alixpartners financial management consulting services 26 subsequent events company entered agreement first quarter 2004 sell domestic corporate office building estimated net cash proceeds 17000 approximates carrying value company recorded impairment loss 15100 building third quarter 2003 anticipation sale loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated balance sheet sale expected close second quarter 2004 terms senior credit facility 50 net proceeds transaction paid lenders foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except per share amount 26 subsequent events continued included following pages financial statements certain foster wheeler ltd indirectly wholly owned subsidiary companies company required provide financial statements regulation sx rule 316 exchange act “financial statements affiliates whose securities collateralize issue registered” stock andor debt subsidiaries collateralize company’s 200000 senior notes 675 described note 9 foster wheeler ltd’s consolidated financial statements appearing item 8 foster wheeler llc consolidated financial statements three years ended december 26 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated statement financial position related consolidated statements operations comprehensive loss cash flows changes member’s deficit present fairly material respects financial position foster wheeler llc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 26 2003 december 27 2002 results operations cash flows three years period ended december 26 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 3 consolidated financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying consolidated financial statements prepared assuming company parent continue going concern discussed note 2 consolidated financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business stock debt company pledged collateral holders 200000000 senior notes issued company matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 consolidated financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 2004 foster wheeler llc subsidiaries consolidated statement operations comprehensive loss year ended thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement financial position thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement changes member’s deficit thousands dollars december 26 december 27 december 28 membership interests balance beginning year balance end year contributed capital balance beginning year 242489 242161 241545 balance end year 242612 242489 242161 accumulated deficit retained earnings balance beginning year 653669 128663 212476 net loss year 156953 525006 336251 cash dividends paid 4888 balance end year 810622 653669 128663 accumulated comprehensive loss balance beginning year 369438 161834 118707 cumulative effect prior years december 29 2000 change accounting principle derivative instruments designated cash flow hedges 6300 change net gain derivative instruments designated cash flow hedges 3834 2466 change accumulated translation adjustment year 6762 22241 10191 minimum pension liability net tax provisionbenefit 2003 15700 2002 73400 2001 0 58677 226011 36770 balance end year 303999 369438 161834 total shareholders’ deficit 872008 780617 48335 see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement cash flows year ended thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler llc “company” “foster wheeler” formed february 9 2001 delaware limited liability company pursuant reorganization occurred may 25 2001 foster wheeler corporation merged foster wheeler llc assets primarily investments subsidiaries design engineer construct petroleum chemical petrochemical alternative fuel facilities related infrastructures design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide liabilities foster wheeler corporation recorded foster wheeler llc historical cost company wholly owned subsidiary foreign holdings ltd turn wholly owned subsidiary foster wheeler ltd foster wheeler llc holding company owns stock substantially subsidiary companies foster wheeler group business company falls within two business groups engineering construction group “ec group” designs engineers constructs petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities ec group provides direct technical management services purchases equipment materials services third party vendors subcontractors group industry leading technology delayed coking solvent deasphalting hydrogen production ec group also provides broad range environmental remediation services together related technical design regulatory services energy group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass full plant construction maintenance engineering plant upgrading life extension plant repowering energy group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition energy group builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries energy group generates revenues construction operating activities pursuant longterm sale project outputs ie electricity contracts operating maintenance agreements returns equity positions 2 going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well company maintaining credit facilities bonding capacity adequate conduct business company incurred significant losses years threeyear period ended december 26 2003 member’s deficit 872008 company substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail company received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance company able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates company compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts company violate covenants foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued company’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related company’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs company’s current cash flow forecasts indicate sufficient cash available fund company’s us foreign working capital needs throughout 2004 december 26 2003 company aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 company cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries company sometimes required cash collateralize bonding certain bank facilities amount restricted cash december 26 2003 52700 48000 relates nonus operations company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs company’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 company repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions company’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s company’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing company replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally company discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued failure company achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect company’s financial condition matters raise substantial doubt company’s ability continue going concern august 2002 company finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts also retains 50 share balance company’s sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates company compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility company agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 company made prepayment principal senior credit facility 100000 march 31 2004 company expects gross amount fee required approximately 14000 accrued included company’s liquidity forecast 2004 holders company’s senior notes due november 15 2005 security interest stock debt certain company’s subsidiaries facilities owned company subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility company finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility company initial noncancelable period 20 years proceeds saleleaseback sufficient repay balance outstanding previous operating lease arrangement 33000 second corporate office building longterm capital lease obligation included capital lease obligations accompanying consolidated statement financial position third quarter 2002 company entered receivables financing facility matures august 15 2005 secured portion certain company’s domestic trade receivables facility operates use wholly owned specialpurpose subsidiary foster wheeler funding ii llc “fw funding” described fw funding included consolidated financial statements company foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued fw funding party purchase sale contribution agreement “psca” six company’s wholly owned domestic subsidiaries pursuant psca fw funding obligated purchase eligible trade receivables defined psca companies obligated contribute capital ineligible trade accounts receivable defined psca fw funding simultaneously entered loan security agreement foothill capital corporation ableco finance corporation llc agreement fw funding ability borrow maximum 40000 using eligible trade accounts receivable collateral fw funding pays 10 interest outstanding borrowings addition fw funding pays monthly unused line fee equal 05 per annum maximum available amount less average daily amount borrowings preceding month facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 december 26 2003 fw funding held 94200 trade accounts receivable net allowances included consolidated statement financial position january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates company compliance debt covenants throughout 2004 however assurance actual financial results match forecasts company violate covenants company violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount company debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 company would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler llc significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations years 2003 2002 2001 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others december 26 2003 december 27 2002 december 28 2001 company claims 0 9000 135000 respectively decrease recorded claims 2002 resulted collection 11000 provision recorded balance 2002 company revised estimates claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual task contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits cost reimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings certain specialpurpose subsidiaries energy group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts company records revenues relating debt repayment obligations contracts straightline basis lives service contracts records depreciation facilities straightline basis estimated useful lives facilities consideration estimated residual value foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents approximately 305300 maintained foreign subsidiaries december 26 2003 subsidiaries require substantial portion funds support liquidity working capital needs well required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities restricted cash restricted cash december 26 2003 consists approximately 4000 held primarily special purpose entities restricted debt service payments approximately 44900 required collateralize letters credit bank guarantees approximately 3800 client escrow funds domestic restricted cash totals approximately 4700 relates funds held primarily special purpose entities restricted debt service payments client escrow funds foreign restricted cash totals approximately 48000 comprised cash collateralized letters credit bank guarantees client escrow funds restricted net assets one company’s subsidiaries entered bonding arrangement bank contains covenants limiting ability make distributions company covenants include restriction distribution dividends 75 statutory earnings requirement maintain equity ratio calculated equity divided sum equity total liabilities least 30 addition subsidiary permitted make intercompany loans company result net assets subsidiary distributed annually dividends subsidiary’s statutory financial statements issued december 26 2003 december 27 2002 37148 30638 respectively subsidiary’s retained earnings considered restricted shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale fasb statement 115 “accounting certain investments debt equity securities” realized gains losses sales based specificidentification method years ended 2003 2002 2001 unrealized gains losses immaterial proceeds sales shortterm investments 2000 gainloss trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 5 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily insurance claims receivable 60000 35000 foreign refundable valueadded tax 13600 6800 land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings effective december 29 2001 company adopted sfas 144 “accounting impairment disposal longlived assets” statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 “accounting impairment longlived assets longlived assets disposed of” provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years company’s results operations financial position affected initial adoption statement foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued company recorded impairment loss 15100 corporate office building third quarter 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated balance sheet 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility sold october 2003 loss 19000 also recorded 2002 charleston wastetoenergy facility sold october 2002 losses recorded deductions consolidated statement operations comprehensive loss third quarter 2002 management energy group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter 2002 impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive incomeloss fourth quarter 2002 company decided take necessary steps mothball facility additional charges 5300 recorded december 2002 investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates recorded using equity method income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 177500 december 26 2003 practicable estimate additional tax would incurred amounts repatriated foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates cumulative translation adjustment beginning year 85157 107398 97207 current year foreign currency adjustment 6762 22241 10191 cumulative translation adjustment end year 78395 85157 107398 foreign currency transaction gains 1700 2900 3400 foreign currency transaction gains net tax 1100 1900 2200 company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded approximately 3400 tax loss 2003 5500 tax gain 2002 inventories principally materials supplies stated lower cost market determined primarily averagecost method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents trademarks amortized straightline basis periods 12 40 years effective december 29 2001 company adopted sfas 142 “goodwill intangible assets” “sfas 142” supersedes apb opinion 17 “intangible assets” statement requires goodwill intangible assets indefinite lives longer amortized instead tested impairment least annually company tests impairment reporting unit level defined sfas 142 goodwill allocated reporting units based original purchase price allocation test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill impairment losses measured december 29 2001 recognized cumulative effect change accounting principle 2002 sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 december 26 2003 december 27 2002 company unamortized goodwill 51121 50214 respectively increase goodwill 907 resulted foreign currency exchange gains goodwill december 26 2003 27 goodwill december 27 2002 related energy group december 28 2001 company unamortized goodwill 200152 reduction goodwill 2002 due 150500 impairment losses discussed offset foreign currency translation adjustments 562 accordance sfas 142 company longer amortizing goodwill 2003 fair value reporting units exceeded carrying amounts company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated camden wastetoenergy facility 77000 associated north american power unit included operations energy group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 relates foster wheeler environmental corporation e c group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two determined full write goodwill required reporting units also subjected first step goodwill impairment test foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued december 26 2003 december 27 2002 company unamortized identifiable intangible assets 71568 72668 respectively following table details amounts relating assets amortization expense related patents trademarks 2003 2002 2001 3675 3535 3165 respectively amortization expense expected approximate 3500 year next five years following table presents current prior years reported amounts adjusted eliminate effect goodwill amortization accordance sfas 142 december 26 december 27 december 28 reported net loss 156953 525006 336251 add back goodwill amortization 5369 adjusted net loss 156953 525006 330882 stock option plans foster wheeler ltd two fixed option plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provisions statement financial accounting standards sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” accordingly compensation cost recognized company stock option plans compensation cost foster wheeler ltd’s stock option plans determined based fair value grant date awards 2003 2002 2001 consistent provisions sfas 123 company’s net loss would increased pro forma amounts indicated net loss reported 156953 525006 336251 deduct total stockbased employee compensation expense determined fair value based method awards net taxes 5 2003 390 2002 154 2001 3602 5868 net loss pro forma 157046 528608 342119 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions dividend yield 000 136 expected volatility 8823 8362 7920 risk free interest rate 322 290 423 expected life years 50 1995 stock option plan approved shareholders foster wheeler ltd april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 april 1990 shareholders foster wheeler ltd approved stock option plan directors company april 29 1997 shareholders foster wheeler ltd approved amendment directors’ stock option plan authorizes granting options 400000 shares common stock nonemployee directors foster wheeler ltd automatically receive option acquire 3000 shares year plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted foster wheeler ltd also granted 1300000 inducement options 2001 chief executive officer connection employment agreement 1000000 options 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter foster wheeler ltd granted 255000 inducement options president chief executive officer foster wheeler north america corp wholly owned subsidiary formerly known “foster wheeler power group inc” connection employment agreement 2002 granted 100000 inducement option 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire 10 years date granted 2002 foster wheeler ltd granted 250000 options one consultants price options granted fair market value date grant options fully vested march 31 2003 expire ten years date grant accordance sfas 123 company recognized 123 328 expense related options 2003 2002 respectively options part foster wheeler ltd’s employee stock option plans included information presented following page foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued information regarding option plans years 2003 2002 2001 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 26 2003 recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements annual periods ending december 15 2002 company 2002 form 10k implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements management however believe subsidiary trust issued mandatory redeemable preferred securities need deconsolidated 2004 interpretation impact company’s consolidated debt intercompany debt subsidiary trust become third party debt upon deconsolidation foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employers’ disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans january 12 2004 fasb issued fasb staff position “fsp” 1061 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp permits employers sponsor postretirement benefit plans provide prescription drug benefits retirees make onetime election defer accounting effects medicare prescription drug improvement modernization act 2003 “act” without fsp plan sponsors would required sfas 106 “employers’ accounting postretirement benefits pensions” account effects act fiscal period includes december 8 2003 date president bush signed act law deferral elected deferral must remain effect earlier issuance guidance fasb account federal subsidy provided plan sponsors act b remeasurement plan assets obligations subsequent january 31 2004 accordance fsp company reflected impact act measures accumulated postretirement benefit obligation net periodic postretirement benefit cost consolidated financial statements accompanying notes specific authoritative guidance accounting federal subsidy pending guidance issued could require company change previously reported information company currently assessing impact act whether postretirement plan amended consideration new legislation 4 research development years 2003 2002 2001 approximately 6200 10300 12300 respectively spent companysponsored research activities periods approximately 10200 18100 39200 respectively spent customersponsored research activities foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable following table shows components trade accounts notes receivable third quarter 2002 company entered receivables securitization facility matures august 15 2005 secured portion company’s domestic trade receivables facility operates use wholly owned special purpose subsidiary foster wheeler funding ii llc “fw funding” described fw funding included consolidated financial statements company fw funding entered purchase sale contribution agreement “psca” six company’s wholly owned domestic subsidiaries pursuant psca fw funding obligated purchase eligible trade receivables defined psca companies obligated contribute capital ineligible trade accounts receivable defined psca fw funding also entered loan security agreement foothill capital corporation ableco finance corporation llc agreement fw funding ability borrow maximum 40000 using eligible trade accounts receivable security fw funding pays 10 interest outstanding borrowings addition fw funding pays monthly unused line fee equal 05 per annum maximum available amount less average daily amount borrowings preceding month facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable continued amounts outstanding facility december 26 2003 december 27 2002 fw funding may increase decrease discretion use facility weekly basis subject availability sufficient eligible trade accounts receivable facility’s maximum amount 40000 december 26 2003 fw funding held 94200 trade accounts receivable net allowances included consolidated statement financial position approximately 11900 availability facility 6 contracts process inventories following table shows elements included contracts process related longterm contracts process costs plus accrued profits less earned revenues contracts currently process 238645 336074 less progress payments 72142 65582 net 166503 270492 costs inventories shown inventories materials supplies 5098 9102 finished goods 1692 total 6790 9332 7 land buildings equipment land buildings equipment stated cost set forth land improvements 24057 23806 buildings 142608 151462 equipment 450941 590295 construction progress 5123 4117 total 622729 769680 depreciation expense years 2003 2002 2001 31214 54492 44348 respectively 8 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs company’s policy fund plans current basis extent deductible existing federal tax regulations contributions made intended provide benefits attributed service date also expected earned future company also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees company froze serp april 2003 issued letters credit totaling 2250 certain employees support obligations serp third quarter 2003 cash payments approximately 500 made select serp participants foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 pensions postretirement benefits continued april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following domestic pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution net effect changes expected positively impact financial condition company reduced costs reduced cash outflow future years year ended december 26 2003 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 311746 resulting cumulative pretax charge comprehensive loss represents reduction minimum liability 58903 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes domestic subsidiaries company 401k plan salaried employees year 2003 company contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 4066 years 2002 2001 company contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507and 5008 respectively benefits addition providing pension benefits company’s domestic subsidiaries provide certain health care life insurance benefits retired employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s domestic subsidiaries also plan provides coverage employee’s beneficiary upon death employee foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 pensions postretirement benefits continued following chart contains disclosures pension benefits years 2003 2002 2001 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 pensions postretirement benefits continued provision sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” charges recorded provision impact freezing domestic pension plans 2003 provision mothballing domestic manufacturing facility 900 provision employee terminations part workforce reduction 100 provision retirement company’s vice president human resources approximately 900 2002 provision retirement company’s chief executive officer resulted charge 1900 2001 health care cost trend 85 decline 2010 50 assumed health care cost trend rates significant effect amounts reported benefit plans onepercentagepoint change assumed health care cost trend rates would following effects 1percentage point increase 1percentage point decrease effect total service interest cost components 495 effect accumulated postretirement benefit obligations 5207 4587 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligations abo company’s plans totaled approximately 812000 738000 year end 2003 2002 respectively previously discussed company recorded net cumulative charge comprehensive loss years 2000 2003 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy us plans allocates assets accordance policy guidelines asset mix target plans 70 equities 30 fixed income securities investment policy currently undergoing review company ensure investment strategy aligned plan liabilities considering changes domestic benefits program made 2003 investment policy canadian plans uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weighted average expected longterm rate return plan assets declined 93 79 past three years foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 pensions postretirement benefits continued plan asset allocation uk plans uk equities nonuk equities uk fixed income securities nonuk fixed income securities total us plans us equities nonus equities us fixed income securities nonus fixed income securities total canadian plans canandian equities noncanadian equities canadian fixed income securities noncanadian fixed income securities total contributions company expects contribute total approximately 64700 foreign domestic pension plans 2004 estimated future benefit payments following benefit payments reflect expected future service expected paid domestic defined benefit plans pension benefits 22200 7900 20600 7900 20700 8000 20800 8000 21200 8000 20092013 109900 38000 9 bank loans approximate weightedaverage interest rates borrowings outstanding primarily foreign end 2003 2002 491 438 respectively unused lines credit shortterm bank borrowings aggregated 8255 yearend 2003 available outside united states canada various currencies interest rates consistent market conditions respective countries interest costs incurred including dividends preferred security 2003 2002 2001 95720 84296 85184 respectively 307 1368 718 respectively capitalized foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 corporate debt notes payable affiliate corporate debt company 200000 senior notes public market bear interest fixed rate 675 per annum payable semiannually mature november 15 2005 senior notes issued indenture company bny midwest trust company senior notes redeemable prior maturity subject sinking fund requirements result reorganization may 25 2001 foster wheeler llc successor foster wheeler corporation became obligor senior notes due november 15 2005 connection company’s finalizing senior credit facility foster wheeler ltd following 100 owned companies issued guarantees favor holders senior notes equipment consultants inc foster wheeler holdings ltd formerly known foreign holdings ltd foster wheeler asia limited foster wheeler capital finance corporation foster wheeler constructors inc foster wheeler development corporation foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler enviresponse inc foster wheeler environmental corporation foster wheeler facilities management inc foster wheeler inc foster wheeler international corporation foster wheeler international holdings inc foster wheeler north america corp formerly known “foster wheeler power group inc” foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corporation foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler zack inc fw mortshal inc fw technologies holding llc hfm international inc process consultants inc pyropower operating services company inc perryville iii trust guarantees full unconditional joint several company subsidiary guarantors 100 owned directly indirectly foster wheeler ltd holders company’s senior notes due november 15 2005 security interest stock debt certain company’s subsidiaries facilities owned company subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility august 2002 company finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts also retains 50 share balance company’s sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 term loan revolving loans bear interest company’s option libor plus 600 b base rate plus 500 “base rate” means higher bank america prime rate ii federal funds rate plus 05 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded company third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation incurred december 31 2003 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement company made prepayment principal aggregate amount 10000 march 2003 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 corporate debt notes payable affiliate continued amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility company agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 company made prepayment principal senior credit facility 100000 march 31 2004 company expects gross amount fee required approximately 14000 accrued included company’s liquidity forecast 2004 december 26 2003 128163 borrowed senior credit facility amount appears consolidated statement financial position caption “corporate debt” december 26 2003 105777 standby letters credit outstanding corporate debt consisted following senior credit facility average interest rate 716 128163 140000 senior notes 675 due november 15 2005 200000 5637 6707 333800 346707 less current portion 5005 333729 341702 principal payments payable annual installments 333039 333729 notes payable affiliate guarantee convertible subordinated notes may june 2001 foster wheeler ltd issued convertible subordinated notes aggregate principal amount 210000 notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 proceeds securities loaned company included caption “notes payable affiliate” accompanying consolidated financial statements debt issuance costs amortized term notes component interest expense interest expense 14927 14917 2003 2002 respectively company issued guarantee favor holders convertible subordinated notes years ended december 26 2003 december 27 2002 company recorded 14927 14917 respectively intercompany interest expense note payable interest expense included caption interest expense accompanying consolidated statement operations comprehensive loss amounts 1138 december 26 2003 december 27 2002 respectively unpaid included accrued expenses accompanying consolidated statement financial position 11 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded years ended december 26 2003 december 27 2002 5160 pretax 3400 tax net loss 8470 pretax 5500 tax net gains derivative instruments respectively recorded reductions cost operating revenues consolidated statement operations comprehensive loss company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “a” better standard poor’s “a2” better moody’s december 26 2003 approximately 67100 owed company counterparties 17800 owed company counterparties 3834 net tax gain recorded comprehensive loss december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 11 derivative financial instruments continued maximum term company hedging exposure variability cash flows 12 months 12 subordinated robbins facility exit funding obligations foster wheeler’s subordinated obligations entered connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois “exit funding agreement” limited funding 1999c bonds 7¼ interest due october 15 2009 12130 october 15 2024 77155 89285 1999d accretion bonds 7 interest due october 15 2009 23994 total 113279 1999c bonds 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date application trustee funds deposit credit 1999c sinking fund installment subaccount october 15 years principal amounts follows 1999d bonds 1999d accretion bonds originally issued 18000 total amount due october 15 2009 35817 13 mandatorily redeemable preferred securities january 13 1999 fw preferred capital trust delaware business trust 100 owned finance subsidiary company issued 175000 preferred trust securities preferred trust securities fully unconditionally guaranteed company foster wheeler ltd preferred trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 deferred interest totals 38021 maturity date january 15 2029 foster wheeler redeem preferred trust securities january 15 2004 14 specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 14 specialpurpose project debt continued note payable interest varies based one several money market rates 2003yearend rate 1985 due semiannually july 30 2006 21887 1 27907 senior secured notes interest 11443 due annually april 15 2004 2015 37782 2 40077 solid waste disposal resource recovery system revenue bonds interest 7125 75 due annually december 1 2004 2010 77508 3 88920 resource recovery revenue bonds interest 79 10 due annually december 15 2003 2012 48936 4 137177 205840 less current portion 17896 24227 total 119281 181613 principal payments payable annual installments follows 19215 20422 12972 13792 14588 thereafter 38292 total 119281 15 guarantees warranties company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale maximum potential payment carrying amount liability environmental indemnifications limit 5300 tax indemnifications limit company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 15 guarantees warranties continued balance december 28 2001 52700 accruals 45600 settlements 8600 adjustments provisions 7800 balance december 27 2002 81900 accruals 72800 settlements 13800 adjustments provisions 9300 balance december 26 2003 131600 16 equity interests company owns noncontrolling equity interest three energy projects one wastetoenergy project three located italy one chile two projects italy 42 owned third 49 owned company project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates december 26 2003 company’s share net earnings investment equity affiliates totaled 17142 98651 respectively dividends 7997 received year 2003 company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 2700 per year four projects company provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments amounts drawn letter credit undistributed retained earnings company’s equity investees amounted approximately 28765 20143 december 26 2003 december 27 2002 respectively foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 income taxes components loss income taxes years 2003 2002 2001 taxed following jurisdictions domestic 155538 506639 244809 foreign 46011 3710 32012 total 109527 510349 212797 provision income taxes earnings follows current tax expense domestic 14939 5931 5486 foreign 31887 10978 22604 total current 46826 16909 28090 deferred tax benefitexpense domestic 84 102147 foreign 2252 6783 total deferred 2252 95364 total provision income taxes 47426 14657 123454 deferred tax assets liabilities consist following difference book tax depreciaion 13654 35002 34369 pensions 46160 61279 7584 capital lease transactions 7376 8612 revenue recognition 12192 7210 5999 192 gross deferred tax assets liabilities 44961 26111 56756 current taxability estimated costs complete longterm contracts 19039 14278 4297 income currently taxable deferred financial reporting 1706 4175 5307 expenses currently deductible tax purposes 200084 129917 122983 investment tax credit carryforwards 20538 30893 postretirement benefits pensions 62369 67113 47242 asbestos claims 40328 6200 7000 minimum tax credits 17917 10883 11073 foreign tax credits 28178 9579 6485 net operating loss carryforwards 99076 178067 15332 effect writedowns restructuring reserves 11234 40873 63680 30020 15621 19871 valuation allowance 502444 444427 268851 28045 63172 65312 net deferred tax assets 73006 89283 8556 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 income taxes continued domestic investment tax credit carryforwards used expire years 2004 2008 foreign tax credit carryforwards recognized based potential utilization used expire years 2004 2008 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed 2003 2002 valuation allowance increased 58017 175576 respectively increase required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2020 beyond based current tax laws company completes exchange offer discussed note 2 subject substantial limitations use prechange losses credits offset us federal taxable income postchange year since valuation allowance already reflected offset losses credits limitation result significant writeoff company provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following tax benefit us statutory rate 350 state income taxes net federal income tax benefit 68 04 19 increase valuation allowance 529 344 862 difference estimated income taxes foreign income losses net previously provided amounts 151 20 22 deferred charge 17 4 9 18 7 17 433 29 579 18 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases total 26700 2003 32000 2002 29800 2001 future minimum rental commitments noncancelable leases follows fiscal year 25100 22800 19400 17200 15700 thereafter 159500 259700 company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 3622 3197 3080 years ended december 26 2003 december 27 2002 december 28 2001 respectively december 27 2003 december 27 2002 balance deferred gains 74151 69540 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 19 capital leases 2002 company entered saleleaseback transactions office buildings finland united states transactions qualified capital leases assets capital leases summarized follows buildings improvements 38522 35755 less accumulated amortization 1276 net assets capital leases 37246 35413 following minimum lease payments made years indicated capital leases effect december 26 2003 fiscal year 6830 6797 7246 6973 7449 thereafter 131435 less interest 103035 net minimum lease payments capital leases 63695 less current portion net minimum lease payments 1322 longterm net minimum lease payments 62373 20 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts company’s us subsidiaries along many companies codefendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company’s subsidiaries 1970s prior summary claim activity three years ended december 26 2003 follows foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 66000 2003 57200 2002 66900 2001 overall average combined indemnity defense cost per closed claim since 1993 approximately 18 view many uncertainties associated asbestos bodily injury claims company believes average cost may increase future company recorded assets 555400 relating probable insurance recoveries approximately 60000 recorded accounts notes receivables 495400 recorded longterm asset estimate recoveries insurers based upon assumptions relating cost allocation resolution pending proceedings certain insurers well recoveries settlements insurers total liability recorded comprised estimated liability relating open outstanding claims approximately 372200 estimated liability relating future unasserted claims approximately 214000 total 60000 recorded accrued expenses 526200 recorded asbestosrelated liability consolidated statement financial position estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type breakdown known future claims disease type total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments expected incurred next fifteen years period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2018 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2018 nonetheless company plans update forecasts periodically take consideration future experience considerations legislation continuously update estimate future costs expected insurance recoveries historically defense costs represented approximately 24 total costs december 26 2003 total indemnity costs paid prior insurance recoveries approximately 354000 total defense costs paid approximately 109000 company recorded charges related increases valuation allowance insurance claims receivable 68100 26200 0 years ended 2003 2002 2001 respectively charges recorded deductions consolidated statement operations 2003 noncash asbestos charge due company receiving somewhat larger number claims 2003 expected resulted increase projected liability related asbestos addition size company’s insurance assets reduced due insolvency significant carrier 2003 2002 charge recorded due allocation future costs insurer became insolvent december 26 2003 257700 contested subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries various insurers subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurer would immaterial based nature litigation opinions received outside counsel company also believes possibility recovering full amount asset remote july 2003 several subsidiaries company liberty mutual insurance company one insurers entered settlement release agreement resolves coverage litigation subsidiaries liberty mutual state courts new york new jersey agreement provides buyback insurance policies settlement disputes subsidiaries liberty mutual respect asbestosrelated claims agreement requires liberty mutual make payments nineteenyear period subject annual caps payments decline time special account established pay subsidiaries’ indemnity defense costs asbestos claims payments however would available fund subsidiaries’ required contributions national settlement trust may established future federal legislation subsidiaries received july initial payment agreement approximately 6000 used pay asbestosrelated defense indemnity costs september 2003 company’s subsidiaries entered settlement release agreement resolves coverage litigation certain london market north river insurers agreement provides cash payment 5900 received subsidiaries additional amounts deposited trust use subsidiaries defense indemnity asbestos claims january 2004 company’s subsidiaries entered settlement release agreement resolves coverage litigation hartford accident indemnity company certain affiliates agreement provides cash payment 5000 received subsidiaries additional amount deposited trust use subsidiaries amount deposited trust 2005 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued pending litigation negotiations insurers continuing company’s management consultation counsel considered ongoing proceedings insurers financial viability legal obligations insurers believes except insurers become may become insolvent insurers guarantors continue adequately fund claims defense costs relating asbestos litigation noted estimate assets liabilities related asbestos claims recovery subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows subsidiary company united kingdom also received limited number claims alleging personal injury arising exposure asbestos none claims resulted material costs company san francisco california jury returned verdict march 26 2002 finding foster wheeler corporation liable 10600 case todak vs foster wheeler corporation case brought foster wheeler corporation us navy several companies 59yearold man suffering mesothelioma allegedly resulted exposure asbestos case amicably resolved parties appeal verdict dismissed terms settlement confidential company’s financial obligation covered insurance april 3 2002 united states district court northern district texas entered amended final judgment matter koch engineering company et al vs glitsch inc et al glitsch inc known tray inc indirect subsidiary company lawsuit claimed damages patent infringement trade secret misappropriations pending 18 years judgment entered case november 29 1999 awarding plaintiffs compensatory punitive damages plus prejudgment interest amount yet calculated amended final judgment amount 54283 included interest period beginning 1983 lawsuit filed entry judgment postjudgment interest accrued rate 5471 percent per annum november 29 1999 management tray inc believes court’s decision contained numerous factual legal errors subject reversal appeal tray inc filed notice appeal united states court appeals fifth circuit april 1 2003 tray inc filed bankruptcy third quarter 2003 parties amicably resolved cases management assessed liability associated legal proceeding determined previously recorded provision financial statements liability adequate address terms settlement company longterm contract government agency completed four phases first phase design permitting licensing spent fuel facility phase completed price 66700 first phase project profitable close phase resulted increased costs 11900 charge recorded 2003 remaining cash outlay 4000 expended 2004 company process submitting requests equitable adjustment related contract december 26 2003 december 27 2002 company’s financial statements reflect anticipated collection 0 9000 respectively requests equitable adjustment second phase billed cost plus fee basis expected conclude june 2004 phase company must respond questions regarding initial design included phase one phase three construction startup testing facility fixed price 114000 subject escalation scheduled commence 2004 phase begin purchase long lead items followed 2005 construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency interested restructuring contract commenced discussions possible restructuring withdrawal contract project proceed company intends seek third party financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot obtain third party financing required surety bond company’s participation would uncertain could material adverse effect company’s financial condition results operations cash flow foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations immediate effect eliminate guaranteed supply municipal solid waste camden county wastetoenergy project “project” corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project marketbased revenues expected sufficient service debt outstanding bonds issued construct project acquire landfill camden county’s use company’s project subsidiary camden country energy recovery associates lp “ccera” filed suit involved parties including state new jersey seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due january 2002 state new jersey enacted legislation providing mechanism statesupported refinancing bond debt solid waste facilities located within state legislation expired december 31 2002 without refinancing accomplished press reports indicate unlikely statesupported refinancing occur near future reports include statements state officials state continue ensure debt service payments made due us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act “cercla” clean water act clean air act similar state local laws current owner operator real property past owners operators real property disposal release took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances subject additional liabilities comply applicable laws regulating hazardous substances either case liabilities substantial moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal mediation substances disposal treatment site whether site owned operated person “offsite facility” liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors company currently owns operates industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances company aware conditions currently owned facilities united states expects cause company incur material costs accrued company also may receive claims pursuant indemnity obligations owners recently sold facilities may require company incur costs investigation andor remediation based available information company believe costs material assurance provided company discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring company incur material expenditures investigate andor remediate conditions company notified potentially responsible party “prp” cercla similar state laws three offsite facilities excluding sites company resolved liability sites company’s liability substantially less total site remediation costs percentage waste attributable company compared attributable prps low company believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued company’s project claims increased result increase lumpsum contracts years 1992 2000 project claims brought company project owners costs exceeding contract price amounts included original contract price claims typically arise changes initial scope work ownercaused delays claims often subject lengthy arbitration litigation proceedings costs associated changes ownercaused delays include additional direct costs labor material costs associated performance additional works well indirect costs may arise due delays completion project increased labor costs resulting changes labor markets company used significant additional working capital projects cost overruns pending resolution relevant project claims company cannot assure project claims continue future company established provision balance outstanding commercial claims december 27 2002 bring net book value claims 0 time company revised estimates claim revenues reflect recent adverse recovery experience due management’s desire monetize claims poor economic conditions impacting markets served company continues pursue claims assurance recover full amount claims anything company also faces number counterclaims brought certain project owners connection several project claims described company found liable counterclaims would incur writedowns charges earnings extent reserve established failure recover amounts claims charges related counterclaims could material adverse impact company’s liquidity financial condition ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 21 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “a” better standard poor’s “a2” better moody’s see notes 3 11 carrying amounts fair values estimated fair values company’s financial instruments follows foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 21 financial instruments risk management continued ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 609000 1182394 december 26 2003 december 27 2002 respectively balances include standby letters credit issued senior credit facility discussed note 10 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 26 2003 company 84922 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 26 2003 december 27 2002 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 yearend 2003 2750 yearend 2002 respect partnership interest commercial real estate project 22 business segments data business company subsidiaries falls within two business groups engineering construction group “e c” designs engineers constructs petroleum chemical petrochemical alternativefuels facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities process plants production fine chemicals pharmaceuticals dyestuffs fragrances flavors food additives vitamins also e c group provides broad range environmental remediation services together related technical design regulatory services however domestic environmental remediation business sold 2003 energy group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering energy group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition energy group also builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries company conducts business global basis e c group accounted largest portion company’s operating revenues operating income last ten years 2003 e c group accounted approximately 62 operating revenues geographic dispersion operating revenues follows 12 north america 11 asia 58 europe 6 middle east 13 energy group accounted 38 operating revenues company geographic dispersion operating revenues follows 42 north america 43 europe 6 asia 8 middle east 1 south america management uses several financial metrics measure performance company’s business segments ebitda discussed defined primary earnings measure used company’s chief decision makers previously gross margin equal operating revenues less cost operating revenues considered primary financial measure segment information 2002 2001 restated conform current presentations foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 22 business segments data continued ebitda supplemental nongaap financial measure ebitda defined earningsloss taxes goodwill charge interest expense depreciation amortization company presented ebitda believes important supplemental measure operating performance ebitda adjusted certain unusual infrequent items specifically excluded terms senior credit facility also used measure certain covenants senior credit facility company believes line item consolidated statement earnings entitled “net earningsloss” directly comparable gaap measure ebitda since ebitda measure performance calculated accordance gaap considered isolation substitute net earningsloss indicator operating performance ebitda company calculates may comparable similarly titled measures employed companies addition measure necessarily represent funds available discretionary use necessarily measure company’s ability fund cash needs ebitda excludes certain financial information compared net earningsloss directly comparable gaap financial measure users financial information consider type events transactions excluded reconciliation ebitda nongaap financial measure net earningsloss gaap measure shown next page export revenues account 45 operating revenues single customer represented 10 operating revenues 2003 2002 2001 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 22 business segments data continued summary financial information concerning company’s reportable segments shown following table total engineering construction energy group corporate financial services 1 third party revenue 3801308 2342660 1450162 8486 intercompany revenue 10733 4315 15048 total revenue 3801308 2353393 1454477 6562 ebitda 21460 60655 140394 179589 less interest expense 23 95413 3201 17453 74759 3 less depreciation amortization 35574 10133 4 5 21713 4 5 3728 lossearnings income taxes 109527 47321 101228 258076 5 tax provisionbenefits 47426 15906 43403 11883 net lossearnings 156953 31415 57825 246193 identifiable assets 2507015 1030737 1229270 247008 capital expenditures 12870 5688 6582 third party revenue 3574537 2014678 1544706 15153 intercompany revenue 12853 32068 44921 total revenue 3574537 2027531 1576774 29768 ebitda 219096 41438 31148 146510 less interest expense 23 82928 415 21621 61722 3 less depreciation amortization 57825 15490 9 37622 9 4713 loss income taxes cumulative effect change accounting principle goodwill 359849 56513 6 8 90391 6 78 212945 6 78 tax provisionbenefits 14657 11485 62859 89001 net loss prior cumulative effect change accounting principle goodwill 374506 45028 27532 301946 cumulative effect prior years change accounting principle goodwill 150500 48700 101800 net loss 525006 93728 129332 301946 identifiable assets 2842658 1100401 1431211 311046 capital expenditures 53395 9907 9317 34171 third party revenue 3392474 1931523 1439153 21798 intercompany revenue 12495 29691 42186 total revenue 3392474 1944018 1468844 20388 ebitda 72581 32661 27223 78019 less interest expense 23 84466 179 26493 58152 3 less depreciation amortization 55750 17721 34470 3559 lossearnings income taxes 212797 15119 10 88186 10 11 139730 10 11 tax provisionbenefits 123395 10982 27430 139843 12 net lossearnings 336192 4137 60756 279573 identifiable assets 3326005 1289207 1758399 278399 capital expenditures 33998 11494 15463 7041 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 22 business segments data continued 1 includes general corporate income expense company’s captive insurance operation eliminations 2 includes intercompany interest charged corporate financial services business groups outstanding borrowings 3 includes dividends preferred security 18130 2003 16610 2002 15750 2001 4 includes 2003 revaluation contract estimates revisions contract claims 30800 engineering construction group e c 33900 energy group energy 3100 5 includes 2003 gain sale environmental e c 16700 impairment anticipated sale domestic corporate office building corporate financial services c f 15100 includes gain sale wastetoenergy plant 4300 energy provision asbestos claims 68100 c f 2003 58700 performance intervention activities debt restructuring efforts accrual legal settlement severance costs increased pension post retirement costs 8900 e c 2800 energy 47000 c f 6 includes 2002 revaluation contract estimates provisions uncollectible receivables 216700 210800 aftertax engineering construction group e c 121650 energy group energy 86450 corporate financial services c f 8600 provision mothballing domestic manufacturing facility 18700 energy 7 includes 2002 anticipated loss sale assets 54500 energy provisions asbestos claim 26200 c f 8 includes 2002 79300 79000 net tax performance intervention activities debt restructuring efforts accrual legal settlements severance costs increased pension postretirement cost 6500 e c 12700 energy 60100 c f 9 excluded cumulative effect 2002 goodwill change accounting principle 48700 e c 101800 energy 10 includes 2001 contract writedowns 160600 104400 aftertax engineering construction group 51700 energy group 103900 corporate financial services 5000 11 includes 2001 loss sale cogeneration plants energy group 40300 27900 aftertax increased pension postretirement benefit cost corporate financial services 9100 6000 aftertax provision domestic plant impairment 6100 4000 aftertax severance 4700 3100 aftertax cancellation company owned life insurance 20000 13000 aftertax legal settlements provisions 13500 8800 aftertax 12 includes 2001 valuation allowance deferred tax assets 194600 corporate financial services foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 22 business segments data continued equity earnings unconsolidated subsidiaries follows engineering construction group 9738 7334 4432 energy group 7404 6672 8404 total 17142 14006 12836 geographic concentration revenues united states 996831 1544827 1673457 europe 2741413 1923211 1669409 canada 69626 136267 126851 corporate financial services including eliminations 6562 29768 77243 total 3801308 3574537 3392474 longlived assets united states 258261 345934 534345 europe 215101 195359 174058 canada 1255 1537 1958 corporate financial services including eliminations 56338 76394 47894 total 530955 619224 758255 revenues longlived assets based country contracting subsidiary located operating revenues industry segment three years ending december 2003 follows power 1731339 1647135 1399450 oil gasrefinery 1254052 922267 807367 pharmaceutical 300507 404825 485786 chemical 204738 156606 177777 environmental 124724 353981 337248 power production 167594 130843 150990 eliminations 59139 96480 43304 total operating revenues 3723815 3519177 3315314 23 related party transactions mr kenneth hiltz served chief financial officer foster wheeler ltd april 7 2003 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners provide financial management consulting services mr hiltz also principal alixpartners llc mr ryan j esko employee alixpartners served treasurer company november 26 2002 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners also provide financial management services company paid alixpartners llc approximately 743 mr hiltz’s services 1017 mr esko’s services 2003 based upon agreement terms additional 8613 paid alixpartners financial management consulting services foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 24 subsequent events company entered agreement first quarter 2004 sell domestic corporate office building estimated net cash proceeds 17000 approximates carrying value company recorded impairment loss 15100 building third quarter 2003 anticipation sale loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated statement financial position sale expected close second quarter 2004 terms senior credit facility 50 net proceeds transaction paid lenders 25 valuation qualifying accounts 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance 2 primarily due additional recoveries insurers 3 2002 provisions nonpayments customer balances reclassified allowance doubtful accounts conform current period presentation foster wheeler international holdings inc subsidiaries consolidated financial statements december 26 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows shareholder’s deficit equity present fairly material respects financial position foster wheeler international holdings inc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 26 2003 december 27 2002 results operations cash flows three years period ended december 26 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying consolidated financial statements prepared assuming company parent continue going concern discussed note 2 consolidated financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business stock debt company pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 consolidated financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 2004 foster wheeler international holdings inc subsidiaries consolidated statements operations comprehensive incomeloss thousand dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated balance sheet thousand dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated statement shareholder’s deficitequity thousand dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated statement cash flows thousand dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries notes consolidated financial statements thousand dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international holdings inc subsidiaries “company” wholly owned subsidiary foster wheeler llc “fwllc” indirectly wholly owned subsidiary foster wheeler ltd principal operations company design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company operates primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 918 19 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltd received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurances actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 2 liquidity going concern continued wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s company’s financial condition matters raise substantial doubt foster wheeler ltd’s company’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 2 liquidity going concern continued financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster wheeler ltd compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 2 liquidity going concern continued debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 sale investment foster wheeler energia sa october 2003 company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited wholly owned subsidiary company proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly accompanying financial statements revised eliminate activity foster wheeler energia sa consolidated statements financial position results operations cash flows periods presented following summarizes financial position foster wheeler energia sa excluded company’s financial statements foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies principles consolidation consolidated financial statements prepared based accounting principles generally accepted united states america include accounts foster wheeler international holdings inc significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies years 2003 2002 2001 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others december 26 2003 december 27 2002 december 28 2001 company recorded commercial claims 0 50200 respectively 2002 decreases recorded claims resulted collection 6500 provision established outstanding balance commercial claims company revised estimates 2002 claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed efforts decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents approximately 178000 maintained foreign subsidiaries december 26 2003 subsidiaries require substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation restricted cash restricted cash consists approximately 21000 30000 december 26 2003 december 27 2002 company required deposit collateralize letters credit bank guarantees shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale financial accounting standards board “fasb” statement 115 “accounting certain investments debt equity securities” realized gains losses sales based specificidentification method years ended 2003 2002 2001 investment balances realized unrealized gains losses immaterial trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 6 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history within various markets served general economic trends also evaluated considering necessity provision accounts notes receivable accounts receivable notes receivable consist primarily receivables affiliated companies 18658 december 26 2003 27322 december 27 2002 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings july 2001 fasb issued sfas 143 “accounting asset retirement obligations” statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 adoption statement material company effective january 1 2002 company adopted sfas 144 “accounting impairment disposal longlived assets” statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 “accounting impairment longlived assets longlived assets disposed of” provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years company’s results operations financial position affected initial adoption statement investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statements operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies continued investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 165952 december 26 2003 practicable estimate additional tax would incurred amounts repatriated foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates cumulative transition adjustment beginning year 49257 73277 64426 current year foreign currency adjustment 13640 24020 8851 cumulative transition adjustment end year 62897 49257 73277 years 2003 2002 2001 company recorded aftertax net foreign currency transaction gain 4701 1918 3294 respectively company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 26 2003 aftertax gain derivative instruments approximately 401 year ended december 27 2002 recorded aftertax loss derivative instruments approximately 261 inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd fixed option plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” accordingly compensation cost recognized company relating stock option plans compensation cost company’s stock option plans determined based fair value grant date awards 2003 2002 2001 consistent provisions sfas 123 company’s net earningsloss would reduced pro forma amounts indicated net earningsloss reported 2142 30494 deduct total stockbased employee compensation expense determined fair value based method awards net taxes 5 2003 286 2002 144 2001 net earningsloss pro forma 2134 31066 11 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies continued fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions dividend yield 000 136 expected volatility 8823 8362 7920 riskfree interest rate 322 290 423 expected life years 50 foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant information regarding option plans years 2003 2002 2001 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 26 2003 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies continued recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 consolidated financial statements implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 4 summary significant accounting policies continued • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employers’ disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans 5 research development years 2003 2002 2001 approximately 0 500 1800 respectively spent companysponsored research activities periods approximately 3500 2300 2400 respectively spent customersponsored research activities foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 6 accounts notes receivable trade following table shows components trade accounts notes receivable unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts 2003 2002 2001 presented balance beginning year 14399 2988 3347 additions charged expense 7631 19019 1207 deductionsamounts recovered 7024 7608 1566 balance end year 15006 14399 2988 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 7 contracts process inventories following table shows elements included contract process related longterm contracts process costs plus accrued profits less earned revenues contracts currently process 32501 56032 less progress payments 3873 net 28628 56032 costs inventories shown inventories materials supplies finished goods 8 land buildings equipment land buildings equipment stated cost set forth land improvements buildings 22791 20384 equipment 101890 92216 construction progress 124713 112676 depreciation expense years 2003 2002 2001 7440 9257 10082 respectively 9 advances investments equity interests company owns noncontrolling equity interest two energy projects one wastetoenergy project located italy two projects 42 owned third 49 owned company following summarized financial information company’s equity affiliates combined well company’s interest affiliates balance sheet data current assets 94525 79569 assets primarily buildings equipment 409267 344993 current liabilities 31445 19429 liabilities primarily longterm debt 385047 344148 net assets 87300 60985 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 9 advances investments equity interests continued total revenues 216006 168421 156639 gross earnings 56355 42819 44118 income taxes 38062 31013 21290 net earnings 22082 17303 11627 december 26 2003 company’s share net earnings investment equity affiliates totaled 9738 36681 respectively company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 1800 per year total three projects undistributed retained earnings company’s equity investees amounted approximately 28500 17000 december 26 2003 december 27 2002 respectively additionally december 26 2003 company holds investments unconsolidated affiliates 51544 carried cost since company hold controlling financial interest company made advances 29046 thirdparty equity investees 10 bank loans bank loan outstanding end 2002 13266 paid 2003 approximate weighted average interest rate borrowings 2002 414 company unused lines credit shortterm bank borrowings 1860 end 2003 interest costs bank loans incurred 2003 2002 2001 440 702 1774 respectively 11 income taxes components earningsloss income taxes years 2003 2002 2001 taxed following jurisdictions domestic 17954 13761 7212 foreign 2261 37642 7022 total 20215 23881 14234 provisionbenefit income taxes earningsloss follows current tax benefitexpense domestic 5000 1646 foreign 22481 14643 9331 total current 27481 16289 9544 deferred tax benefitexpense domestic foreign 9408 9676 4387 total deferred 9408 9676 4387 total provision incomes taxes 18073 6613 13931 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 11 income taxes continued deferred tax assets liabilities consist following net operating loss carryforwards 31794 29146 27177 valuation allowance 39353 36324 30803 fixed assets operating leases 26252 27605 19973 pension 25839 38603 29742 4303 1596 difference book tax recognition income 87 580 157 tax credit carryforwards 1354 5097 contract bonus reserve 22109 17500 10036 net deferred tax assets liabilities 72211 81691 1385 tax credit carryforwards generated foreign subsidiaries reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 3029 2003 5521 2002 increase required sfas no109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2013 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable us statutory rate earningsloss income taxes result following tax provisionbenefit us statutory rate 350 permanent differencesnondeductible expenses 327 1263 27 alternative minimum tax 186 51 15 valuation allowance 150 232 346 foreign rate differential 219 68 277 foreign tax credit utilized 328 899 00 10 48 18 894 277 979 12 pensions postretirement employee benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 26 2003 company recognized cumulative minimum liability consolidated financial statements underfunded amount 200109 pretax resulting cumulative pretax charge comprehensive incomeloss represents reduction minimum liability 43612 prior year including impact foreign currency translation december 27 2002 company recognized cumulative minimum liability consolidated financial statements underfunded amount 243721 pretax resulting aftertax charge comprehensive incomeloss 170303 minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes following table contains disclosures pension benefits years 2003 2002 2001 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 12 pensions postretirement employee benefits continued foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 12 pensions postretirement employee benefits continued plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligations abo company’s plans totaled approximately 500000 444000 year end 2003 2002 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2003 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plans uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 900 750 past three years foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 12 pensions postretirement employee benefits continued plan asset allocations uk plans uk equities nonuk equities uk fixed income securities nonuk fixed income securities total canadian plans canadian equities noncanadian equities canadian fixed income securities noncanadian fixed income securities total contributions company expects contribute approximately 26664 pension plan 2004 employee benefits company’s subsidiaries italy participate government mandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2003 2002 2001 company recorded expense approximately 3700 3300 3200 respectively liability 25176 2003 20639 2002 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 13 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 3622 3197 3080 years ended 2003 2002 2001 respectively december 26 2003 december 27 2002 balance deferred gains 74151 69540 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 14 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 19588 2003 16084 2002 16481 2001 future minimum rental commitments noncancelable leases follows fiscal year 19984 18648 15795 13766 12208 thereafter 149771 230172 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 15 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 26 2003 pretax gain derivative instruments 617 year ended december 27 2002 pretax loss 402 recorded cost operating revenues consolidated statement operations comprehensive incomeloss company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poor’s a2 better moody’s december 26 2003 approximately 19900 owed company counterparties approximately 7800 owed company counterparties 517 net tax loss recorded comprehensive income december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas no133 maximum term company hedging exposure variability cash flows 12 months 16 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 28 2001 16500 accruals 12300 settlements 1500 adjustments provisions 4000 balance december 27 2002 23300 accruals 21200 settlements 1900 adjustments provisions 900 balance december 26 2003 41700 ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts 2002 approximately 5000 accrued related exposures charge recorded deductions consolidated statement operations comprehensive incomeloss ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty 18 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 18 financial instruments risk management continued cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated better standard poor’s a2 better moody’s carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 159298 216389 december 26 2003 december 27 2002 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 26 2003 company 27724 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 26 2003 december 27 2002 company significant concentrations credit risk 19 related party transactions company enters longterm contracts subcontractor andor performs subcontract work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2002 2001 2000 related contracts intercompany borrowings following foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousand dollars 19 related party transactions continued operating revenues 4272 8882 12648 cost operating revenues 10757 29926 53604 interest income 4816 6293 6362 interest expense 4105 5899 6239 costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 18886 23146 14503 2003 2002 2001 respectively included consolidated balance sheet 2003 2002 related longterm contract activity intercompany borrowings foster wheeler affiliates following accounts notes receivable 18658 27322 intercompany notes receivable 26447 63875 accounts payable 49439 65915 intercompany notes payable 139174 153551 intercompany notes payable includes 103400 bears interest libor plus 375 25883 bears interest 20 also reflected consolidated balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficitequity consolidated statement cash flows impact shareholder’s deficit reduction 65151 10539 december 26 2003 december 27 2002 respectively additionally december 26 2003 company held investments unconsolidated affiliates 51544 cost related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 20 security pledged collateral foster wheeler llc issued 200000 notes “senior notes” public market bear interest fixed rate 675 due november 15 2005 holders senior notes security interest stock debt foster wheeler llc’ subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility 21 subsequent events january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional liquidity provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn foster wheeler international corporation subsidiaries consolidated financial statements december 26 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows shareholder’s deficitequity present fairly material respects financial position foster wheeler international corporation subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 26 2003 december 27 2002 results operations cash flows three years period ended december 26 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying consolidated financial statements prepared assuming company parent continue going concern discussed note 2 consolidated financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business stock debt company pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 consolidated financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 2004 foster wheeler international corporation subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated balance sheet thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement changes shareholders’ equity thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international corporation subsidiaries “company” wholly owned subsidiary foster wheeler international holdings inc indirectly wholly owned subsidiary foster wheeler ltd principal operations company design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company operates primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 9 18 19 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltd received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurances actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s company’s financial condition matters raise substantial doubt foster wheeler ltd’s company’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster wheeler ltd compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 sale investment foster wheeler energia sa october 2003 company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited wholly owned subsidiary company proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly accompanying financial statements revised eliminate activity foster wheeler energia sa consolidated statements financial position results operations cash flows periods presented following summarizes financial position foster wheeler energia sa excluded company’s financial statements foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies principles consolidation consolidated financial statements prepared based accounting principles generally accepted united states america include accounts foster wheeler international corporation significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies years 2003 2002 2001 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others december 26 2003 december 27 2002 december 28 2001 company recorded commercial claims 0 50200 respectively 2002 decreases recorded claims resulted collection 6500 provision established outstanding balance commercial claims company revised estimates 2002 claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed efforts decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents approximately 178000 maintained foreign subsidiaries december 26 2003 subsidiaries require substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation restricted cash restricted cash consists approximately 21000 30000 december 26 2003 december 27 2002 company required deposit collateralize letters credit bank guarantees shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale financial accounting standards board “fasb” statement 115 “accounting certain investments debt equity securities” realized gains losses sales based specificidentification method years ended 2003 2002 2001 investment balances realized unrealized gains losses immaterial trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 6 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history within various markets served general economic trends also evaluated considering necessity provision accounts notes receivable accounts receivable notes receivable consist primarily receivables affiliated companies 18658 december 26 2003 27322 december 27 2002 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings july 2001 fasb issued sfas 143 “accounting asset retirement obligations” statement addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement effective financial statements issued fiscal years beginning june 15 2002 adoption statement material company effective january 1 2002 company adopted sfas 144 “accounting impairment disposal longlived assets” statement addresses accounting longlived assets disposed sale resolves significant implementation issues relating sfas 121 “accounting impairment longlived assets longlived assets disposed of” provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years company’s results operations financial position affected initial adoption statement investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statements operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service extent credits currently utilized company’s tax return deferred tax assets subject considerations need valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 165952 december 26 2003 practicable estimate additional tax would incurred amounts repatriated foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates years 2003 2002 2001 company recorded aftertax net foreign currency transaction gain 4701 1918 3294 respectively company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 26 2003 aftertax gain derivative instruments approximately 401 year ended december 27 2002 recorded aftertax loss derivative instruments approximately 261 inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd fixed option plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” accordingly compensation cost recognized company relating stock option plans compensation cost company’s stock option plans determined based fair value grant date awards 2003 2002 2001 consistent provisions sfas 123 company’s net earningsloss would reduced pro forma amounts indicated foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant information regarding option plans years 2003 2002 2001 follows presented actual number shares foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 26 2003 recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 consolidated financial statements implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employers’ disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans 5 research development years 2003 2002 2001 approximately 0 500 1800 respectively spent companysponsored research activities periods approximately 3500 2300 2400 respectively spent customersponsored research activities foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 6 accounts notes receivable trade following table shows components trade accounts notes receivable december 26 december 27 amounts billed due within one year 171603 150487 retention billed estimated due 18574 2868 5702 total billed 3652 24276 retention unbilled estimated due 51564 51731 2698 total unbilled 54663 51568 total retentions 58315 75844 total receivables longterm contracts 229918 226331 trade accounts notes receivable gross trade accounts notes receivable 229974 226720 less allowance doubtful accounts 15006 14399 net trade accounts notes receivable 214968 212321 unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts 2003 2002 2001 presented foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 7 contracts process inventories following table shows elements included contract process related longterm contracts costs inventories shown 8 land buildings equipment land buildings equipment stated cost set forth depreciation expense years 2003 2002 2001 7440 9257 10082 respectively 9 advances investments equity interests company owns noncontrolling equity interest two energy projects one wastetoenergy project located italy two projects 42 owned third 49 owned company following summarized financial information company’s equity affiliates combined well company’s interest affiliates foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 9 advances investments equity interests continued december 26 2003 company’s share net earnings investment equity affiliates totaled 9738 36681 respectively company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 1800 per year total three projects undistributed retained earnings company’s equity investees amounted approximately 28500 17000 december 26 2003 december 27 2002 respectively additionally december 26 2003 company holds investments unconsolidated affiliates 51544 carried cost since company hold controlling financial interest company made advances 29046 thirdparty equity investees 10 bank loans bank loan outstanding end 2002 13266 paid 2003 approximate weighted average interest rate borrowings 2002 414 company unused lines credit shortterm bank borrowings 1860 end 2003 interest costs bank loans incurred 2003 2002 2001 440 702 1774 respectively 11 income taxes components earningsloss income taxes years 2003 2002 2001 taxed following jurisdictions provisionbenefit income taxes earningsloss follows foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 11 income taxes continued deferred tax assets liabilities consist following tax credit carryforwards generated foreign subsidiaries reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 3029 2003 5521 2002 increase required sfas no109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2013 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable us statutory rate earningsloss income taxes result following tax provisionbenefit us statutory rate 350 permanent differencesnondeductible expenses 326 1264 27 alternative minimum tax 186 51 15 valuation allowance 150 232 346 foreign rate differential 219 68 277 foreign tax credit utilized 328 899 00 10 48 18 893 278 979 12 pensions postretirement employee benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 26 2003 company recognized cumulative minimum liability consolidated financial statements underfunded amount 200109 pretax resulting cumulative pretax charge comprehensive incomeloss represents reduction minimum liability 43612 prior year including impact foreign currency translation december 27 2002 company recognized cumulative minimum liability consolidated financial statements underfunded amount 243721 pretax resulting aftertax charge comprehensive incomeloss 170303 minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes following table contains disclosures pension benefits years 2003 2002 2001 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions postretirement employee benefits continued foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions postretirement employee benefits continued assumptions periodic benefit cost discount rate 560 575 longterm rate return 750 800 900 salary scale 240 400 benefit obligations discount rate 540 560 salary rate 300 330 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligations abo company’s plans totaled approximately 500000 444000 year end 2003 2002 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2003 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plans uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 900 750 past three years foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions postretirement employee benefits continued plan asset allocations uk plans uk equities nonuk equities uk fixed income securities nonuk fixed income securities total canadian plans canadian equities noncanadian equities canadian fixed income securities noncanadian fixed income securities total contributions company expects contribute approximately 26664 pension plan 2004 employee benefits company’s subsidiaries italy participate government mandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2003 2002 2001 company recorded expense approximately 3700 3300 3200 respectively liability 25176 2003 20639 2002 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 13 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 3622 3197 3080 years ended 2003 2002 2001 respectively december 26 2003 december 27 2002 balance deferred gains 74151 69540 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 14 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 19588 2003 16084 2002 16481 2001 future minimum rental commitments noncancelable leases follows fiscal year 19984 18648 15795 13766 12208 thereafter 149771 230172 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 15 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 26 2003 pretax gain derivative instruments 617 year ended december 27 2002 pretax loss 402 recorded cost operating revenues consolidated statement operations comprehensive incomeloss company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poor’s a2 better moody’s december 26 2003 approximately 19900 owed company counterparties approximately 7800 owed company counterparties 517 net tax loss recorded comprehensive income december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas no133 maximum term company hedging exposure variability cash flows 12 months 16 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 28 2001 16500 accruals 12300 settlements 1500 adjustments provisions 4000 balance december 27 2002 23300 accruals 21200 settlements 1900 adjustments provisions 900 balance december 26 2003 41700 17 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts 2002 approximately 5000 accrued related exposures charge recorded deductions consolidated statement operations comprehensive incomeloss ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty 18 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 18 financial instruments risk management continued longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated better standard poor’s a2 better moody’s carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 159298 216389 december 26 2003 december 27 2002 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 26 2003 company 27724 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 26 2003 december 27 2002 company significant concentrations credit risk foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 19 related party transactions company enters longterm contracts subcontractor andor performs subcontract work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2002 2001 2000 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 18886 23146 14503 2003 2002 2001 respectively included consolidated balance sheet 2003 2002 related longterm contract activity intercompany borrowings foster wheeler affiliates following intercompany notes payable includes 103400 bears interest libor plus 375 25883 bears interest 20 also reflected consolidated balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficitequity consolidated statement cash flows impact shareholder’s deficit reduction 65151 10539 december 26 2003 december 27 2002 respectively additionally december 26 2003 company held investments unconsolidated affiliates 51544 cost related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 20 security pledged collateral foster wheeler llc issued 200000 notes “senior notes” public market bear interest fixed rate 675 due november 15 2005 holders senior notes security interest stock debt foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility 21 subsequent events january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional liquidity provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn foster wheeler europe limited subsidiaries consolidated financial statements december 31 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows shareholder’s deficit present fairly material respects financial position foster wheeler europe limited subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 26 2003 december 27 2002 results operations cash flows three years period ended december 26 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying consolidated financial statements prepared assuming company parent continue going concern discussed note 2 consolidated financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business stock debt company pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 consolidated financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 foster wheeler europe limited subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated balance sheet thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement changes shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler europe limited “company” wholly owned subsidiary foster wheeler international corporation indirectly wholly owned subsidiary foster wheeler ltd principal operations company provide design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company principally operates one segment primarily outside united states operations united kingdom italy france turkey spain singapore south africa company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 9 18 19 functional currency company pound sterling reporting currency us dollar 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltd received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurances actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt preferred trust securities subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s company’s financial condition matters raise substantial doubt foster wheeler ltd’s company’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster wheeler ltd compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s company’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 sale investment foster wheeler energia sa october 2003 company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly accompanying financial statements revised eliminate activity foster wheeler energia sa consolidated statements financial position results operations cash flows periods presented following summarizes financial position foster wheeler energia sa excluded company’s financial statements foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 3 sale investment foster wheeler energia sa continued 4 summary significant accounting policies principles consolidation consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler europe limited significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year ends december 31 use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others december 31 2003 2002 2001 company recorded commercial claims 0 50200 respectively decreases recorded claims resulted collection 6500 2002 provision established outstanding balance commercial claims company revised estimates 2002 claim revenues reflect recent adverse recovery experience management’s desire monetize claims poor economic conditions impacting markets served company revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 21000 30000 december 31 2003 2002 respectively company required deposit collateralize letters credit bank guarantees shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale financial accounting standards board “fasb” statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” realized gains losses sales based specificidentification method years ended december 31 2003 2002 2001 investment balances realized unrealized gains losses immaterial trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 6 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 17681 december 31 2003 22186 december 31 2002 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statements operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued cumulative translation adjustment beginning year 30003 66465 57093 current year foreign currency adjustment 14824 36462 9372 cumulative translation adjustment end year 44827 30003 66465 year ended december 31 2003 company recorded aftertax net foreign currency transaction gain 129 years ended december 31 2002 2001 recorded aftertax net foreign currency transaction losses 1289 581 respectively company enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2003 2002 company meet requirements deferral sfas 133 recorded year ended december 31 2003 aftertax gain derivative instruments approximately 400 year ended december 31 2002 recorded aftertax loss derivative instruments approximately 297 inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd two fixed option plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” accordingly compensation cost recognized company relating stock option plans compensation cost company’s stock option plans determined based fair value grant date awards 2003 2002 2001 consistent provisions sfas 123 company’s net earnings would reduced pro forma amounts indicated net loss reported 5625 43073 6930 deduct total stockbased employee compensation expense determined fair value based method awards net taxes 5 2003 286 2002 133 2001 net loss pro forma 5633 43645 7225 fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions dividend yield 000 136 expected volatility 8823 8362 7920 riskfree interest rate 322 290 423 expected life years 50 foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant information years ended december 31 2003 2002 2001 relating options granted company personnel options available grant follows presented actual number shares weighted average exercise price shares weighted average exercise price shares weighted average exercise price options outstanding beginning year 1341778 880 591233 1798 462483 2161 options exercised 24000 956 options granted 17145 117 756545 164 152750 569 options cancelled expired 12500 357 6000 998 options outstanding end year 1346423 876 1341778 880 591233 1798 option price range end year 117 421875 1647 421875 56875 421875 option price range exercised shares 900 1350 options available grant end year 506846 445069 430180 weightedaverage fair value options granted year 079 111 280 options exercisable end year 782081 585233 438483 weightedaverage price exercisable options end year 1364 1806 2227 following table summarizes information fixedprice stock options outstanding december 31 2003 recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 company 2002 consolidated financial statements implemented disclosure requirements interpretation company implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based company’s preliminary assessment impact interpretation management believe company’s currently unconsolidated variable interest entities required included consolidated financial statements april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact company may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued company prior may 31 2003 issuances financial instruments company since date december 2003 fasb issued sfas 132r “employers’ disclosure pensions postretirement benefits” sfas 132r requires following disclosures 1 dates plan’s assets obligations measured 2 reporting entities must segregate data market values plan assets broad asset categories 3 narrative description investment policy plan assets 4 narrative description basis development expected longterm rate return plan assets 5 expected contributions made plan cash basis next fiscal year 6 expected benefit payments next ten fiscal years changes effective fiscal years ending december 15 2003 exception 1 expected benefit payments 2 foreign plans delayed fiscal years ending june 15 2004 sfas 132r requires disclosure two items quarterly interim reports requirements net benefit cost contribution made fiscal year company adopted disclosure requirements standard including foreign plans 5 research development years 2003 2002 2001 approximately 0 300 respectively spent companysponsored research activities periods approximately 3500 2300 2400 respectively spent customersponsored research activities 6 accounts notes receivable trade following table shows components trade accounts notes receivable foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 6 accounts notes receivable trade continued december 31 longterm contracts amounts billed due within one year 138677 109886 retention billed estimated due 18574 2868 5701 total billed 3652 24275 retention unbilled estimated due 49694 51731 total unbilled 51731 49698 total retentions 55383 73973 total receivables longterm contract 194060 183859 trade accounts notes receivable 194116 183859 less allowance doubtful accounts 11075 3343 net trade accounts notes receivable 183041 180516 unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts periods ended december 31 2001 2003 presented balance beginning year 3343 2426 additions charged expense 9149 9063 deductionsamounts recovered 1417 6682 1617 balance end year 11075 3343 7 contracts process inventories following table shows elements included contracts process related longterm contracts process costs plus accrued profits less earned revenues contracts currently process 29373 52437 less progress payments 3873 net 25500 52437 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 7 contracts process inventories continued costs inventories shown inventories materials supplies finished goods total 8 land buildings equipment land buildings equipment stated cost set forth land improvements buildings 22263 19926 equipment 91929 83746 construction progress total 114225 103748 depreciation expense years 2003 2002 2001 8203 8126 8896 respectively 9 advances investments equity interests company owns noncontrolling equity interest two energy projects one wastetoenergy project located italy two projects 42 owned third 49 owned company following summarized financial information company’s equity affiliates combined well company’s interest affiliates december 31 balance sheet data current assets 94525 79569 assets primarily buildings equipment 409267 344993 current liabilities 31445 19429 liabilities primarily longterm debt 385047 344148 net assets 87300 60985 year ended december 31 total revenues 216006 168421 156639 gross earnings 56355 42819 44118 income taxes 38062 31013 21290 net earnings 22802 17303 11627 december 31 2003 company’s share net earnings investment equity affiliates totaled 9738 36681 respectively company guaranteed certain performance obligations projects company’s average contingent obligations guarantees approximately 1800 per year total three projects undistributed retained earnings company’s equity investees amounted approximately 28500 17000 december 31 2003 2002 respectively additionally december 31 2003 company holds investments unconsolidated affiliates 50680 carried cost since company hold controlling financial interest company made advances 29046 thirdparty equity investees foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 10 bank loans bank loan outstanding end 2002 13266 paid 2003 approximate weightedaverage interest rate borrowings outstanding 2002 414 company unused lines credit shortterm bank borrowings 1860 end 2003 interest costs incurred bank loans 2003 2002 2001 422 690 1454 respectively 11 income taxes company’s earningslosses income taxes years 2003 2002 2001 taxed foreign jurisdictions earningsloss income taxes 8171 46912 7179 provision income taxes earningslosses follows current tax expense 22356 8355 7540 deferred tax benefitexpense 8560 12194 6569 total provisionbenefit income taxes 13796 3839 14109 deferred tax assets liabilities consist following net operating loss carryforwards 31794 29146 24566 valuation allowance 35053 32483 24280 fixed assets operating leases 26252 27605 19973 pension 23501 36490 29742 3781 1714 1549 difference book tax recognition income 930 157 tax credit carryforwards 1354 5097 contract bonus reserve 18331 13601 4297 net deferred tax assets liabilities 70035 80240 3259 tax credit carryforwards generated foreign subsidiaries reflected company recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 2570 8203 2003 2002 respectively increase required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2013 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable uk statutory rate earningsloss income taxes result following tax provisionbenefit uk statutory rate 300 nondeductible expenses 459 113 12 valuation allowance 315 175 1216 foreign rate differential 631 84 428 17 14 33 1688 82 1965 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions employee benefits pension benefits company’s subsidiary united kingdom pension plan covers fulltime employees plan retirement benefits primarily function years service level compensation december 31 2003 company recognized cumulative minimum liability consolidated financial statements underfunded amount 193635 pretax resulting cumulative pretax charge comprehensive incomeloss represents reduction minimum liability 44050 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes following chart contains disclosures pension benefits years 2003 2002 2001 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions employee benefits continued assumptions periodic benefit cost discount rate 560 575 longterm rate return 750 800 900 salary scale 330 400 benefit obligations discount rate 540 560 salary scale 300 330 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligations abo company’s plans totaled approximately 481000 427000 year end 2003 2002 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2003 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 90 75 past three years plan asset allocations uk equities 38 39 nonuk equities 25 24 uk fixed income securities 32 34 nonuk fixed income securities 0 5 3 total 100 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 12 pensions employee benefits continued contributions company expects contribute approximately 26500 pension plan 2004 employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2003 2002 2001 company recorded expense approximately 3700 3300 3200 respectively liability 24324 2003 19908 2002 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 13 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 3622 3197 3080 years ended december 31 2003 2002 2001 respectively december 31 2003 december 31 2002 balance deferred gains 74151 69540 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 14 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 19235 2003 15416 2002 16212 2001 future minimum rental commitments noncancelable leases follows fiscal year 19571 18189 15363 13385 11827 thereafter 149772 228107 15 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2003 2002 company meet requirements deferral sfas 133 recorded year ended december 31 2003 pretax gain derivative instruments 616 year ended december 31 2002 pretax loss 457 recorded cost operating revenues consolidated statement operations comprehensive incomeloss company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poor’s a2 better moody’s december 31 2003 approximately 19900 owed company counterparties approximately 7800 owed company counterparties 553 aftertax loss recorded comprehensive income december 31 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 16 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 31 2001 13700 accruals 10400 settlements 900 adjustments provisions 3300 balance december 31 2002 19900 accruals 21600 settlements 1300 adjustments provisions balance december 31 2003 40800 17 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts 2002 approximately 5000 accrued related estimated exposures charge recorded deductions consolidated statement operations comprehensive incomeloss ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty 18 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated better standard poor’s a2 better moody’s carrying amounts fair values estimated fair values company’s financial instruments follows foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 18 financial instruments risk management continued carrying amount fair value carrying amount fair value nonderivatives cash shortterm investments 169321 129049 restricted cash 20747 30169 intercompany notes receivable current 5486 42141 thirdparty longterm debt 1423 intercompany notes payable current 3903 13606 intercompany notes payable longterm 306871 309795 derivatives foreign currency contracts 457 ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 137592 211480 december 31 2003 december 31 2002 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2003 company 27724 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2003 2002 company significant concentrations credit risk 19 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2003 2002 2001 related contracts intercompany borrowings following operating revenues 3373 5377 7956 cost operating revenues 2986 6348 6176 interest income 3516 7079 6370 interest expense 23336 22558 24951 costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 17254 20018 10949 2003 2002 2001 respectively included consolidated balance sheet 2003 2002 related longterm contract activity intercompany borrowings foster wheeler affiliates following foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 19 related party transactions continued accounts notes receivable 17681 22186 intercompany notes receivable 5486 42141 accounts payable 50920 65270 intercompany notes payable 310774 323401 intercompany notes payable includes 270000 due 2016 interest rates 75 2003 80 2002 825 2001 also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 66251 41259 december 31 2003 2002 respectively additionally december 31 2003 2002 company held investments unconsolidated affiliates 50680 47038 cost 2001 company purchased investments subsidiaries parent foster wheeler international corporation transfer ownership occurred entities common control difference purchase price net equity subsidiaries 250291 charged paidin capital amount 86886 accumulated deficit amount 163405 company’s paidin capital could absorb full amount excess purchase price related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 20 security pledged collateral foster wheeler llc issued 200000 notes “senior notes” public market bear interest fixed rate 675 due november 15 2005 holders senior notes security interest stock debt foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility 21 subsequent events january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn fw netherlands cv subsidiaries consolidated financial statements december 31 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive incomeloss cash flows changes partners’ capital present fairly material respects financial position fw netherlands cv subsidiaries “partnership” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2003 december 31 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 4 consolidated financial statements effective december 29 2001 partnership adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying financial statements prepared assuming partnership parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business partnership interests partnership pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt partnership’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 10 2004 fw netherlands cv subsidiaries consolidated statement earnings comprehensive incomeloss thousands dollars see notes consolidated financial statements f w netherlands cv subsidiaries consolidated balance sheet thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries consolidated statement changes partners’ capital thousands dollars restated see note 3 accumulated earnings contributed capital accumulated translation adjustment capitalization intercompany notes receivable total balance december 31 2000 13962 75312 42804 7151 39319 allocation net earnings partners 4100 capitalization intercompany notes receivable 7274 cumulative effect prior years change accounting principle derivative instruments designated cash flow hedges 2022 change net loss derivative instruments designated cash flow hedges 1787 change translation adjustment 6118 balance december 31 2001 18062 75312 48922 14425 30262 allocation net earnings partners 13835 capitalization intercompany notes receivable 2800 derivative instruments 235 change translation adjustment 14201 balance december 31 2002 31897 75312 34721 11625 60863 allocation net earnings partners capitalization intercompany notes receivable 317 change translation adjustment 23776 balance december 31 2003 32484 75312 10945 11942 84909 see notes consolidated financial statements foster wheeler netherlands cv subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 1 description business fw netherlands cv limited liability partnership registered netherlands subsidiaries collectively referred herein “partnership” owned pgi holdings inc 90 energy holdings inc 10 indirectly wholly owned foster wheeler ltd principal operations partnership design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering partnership also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics partnership principally operates one segment primarily finland poland spain partnership transactions relationships foster wheeler affiliates financial position results operations cash flows partnership impacted transactions relationships discussed notes 2 3 9 18 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business partnership’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltd received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s partnership’s financial condition matters raise substantial doubt foster wheeler ltd’s partnership’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster wheeler ltd compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn back content fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s partnership’s ability continue going concern consolidated financial statements include adjustments might result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 purchase foster wheeler energia sa october 2003 partnership acquired foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary purchased wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly accompanying financial statements revised include historical activity foster wheeler energia sa consolidated statements financial position results operations cash flows periods presented 4 summary significant accounting policies principles consolidation consolidated financial statements prepared based accounting principles generally accepted united states america include accounts significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated back content fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued partnership’s fiscal year ends december 31 use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others december 31 2003 2002 2001 partnership claims 0 year revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual task contracts value 5000 greater progress toward completion fixedprice contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred partnership includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts partnership responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” partnership numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs partnership records claims accordance paragraph 65 american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less one partnership’s subsidiaries entered several bonding arrangements various financial institutions include covenants may restrict ability subsidiary pay dividends parent company restrictive covenants require subsidiary maintain least 30 equity ratio limit dividend payments exceed 75 statutory earnings subsidiary maintained compliance covenants restricted cash december 31 2003 december 31 2002 restricted cash consisted 9228 22081 respectively required collateralize letters credit bank guarantees shortterm investments shortterm investments consist primarily bonds foreign governments classified available sale statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” realized gains losses sales based specific identification method years ended 2003 2002 2001 realized gains losses unrealized gains losses immaterial december 31 2003 shortterm investments consisted bank deposits 8033 certificates deposit 5357 2002 certificates deposit recorded investments advances back content fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 6 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various served markets general economic trends also evaluated considering necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily vat value added tax deposits 1900 500 receivables affiliates 1270 13620 december 31 2003 2002 respectively land buildings equipment land buildings equipment stated cost depreciation computed straightline basis using composite estimated lives ranging 10 25 years buildings 3 20 years equipment expenditures maintenance repairs charged operations renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances partnership uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 partnership controlling financial interest investment ownership less 20 affiliates carried cost currently partnership’s significant investments affiliates recorded using equity method investments advances also include certificates deposits maturities excess twelve months totaling 5207 december 31 2002 certificates reported shortterm investments 2003 income taxes fw netherlands cv subject income taxes taxable income loss applicable operation partnership includable income tax return partners income tax expense partnership’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carry forwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foreign currency fw netherlands cv’s functional reporting currency us dollar assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 31 2003 partnership recorded aftertax net foreign currency transaction loss 850 years ended december 31 2002 2001 recorded aftertax net foreign currency transaction gains 127 3202 respectively partnership enters foreign exchange contracts management foreign currency exposures related commercial contracts changes fair value derivative contracts qualify designated cash flow hedges deferred hedged forecasted transaction affects earnings amounts receivable gains payable losses foreign exchange hedges recognized deferred gains losses included either contracts process estimated costs complete longterm contracts partnership utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” “sfas 133” december 31 2003 2002 partnership meet requirements deferral sfas 133 recorded years ended december 31 2003 2002 aftertax loss derivative instruments approximately 5249 aftertax gain approximately 7718 respectively inventories principally materials supplies stated lower cost market determined primarily average cost method back content fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents trademarks amortized straightline basis periods 12 40 years effective january 1 2002 partnership adopted sfas 142 “goodwill intangible assets” “sfas 142” supersedes apb opinion 17 “intangible assets” statement requires goodwill intangible assets indefinite lives longer amortized instead tested impairment least annually partnership tests impairment reporting unit level defined sfas 142 test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 december 31 2003 2002 partnership unamortized goodwill 48690 47786 respectively yeartoyear difference due change foreign currency translation rates december 31 2003 2002 partnership unamortized identifiable intangible assets 15219 13635 respectively following table details amounts relating assets december 31 2003 2002 amortization expense related patents trademarks 2003 2002 2001 990 850 480 respectively amortization expense expected approximate 990 year next five years following table presents current prior years reported amounts adjusted eliminate effect goodwill amortization accordance sfas 142 stock option plans foster wheeler ltd fixed option plans reserve shares common stock issuance executives key employees directors employees partnership participate plans foster wheeler ltd partnership adopted disclosureonly provisions sfas 123 “accounting stockbased compensation” “sfas 123” amended sfas 148 “accounting stock based compensationtransition disclosure” accordingly compensation cost recognized stock option plans compensation cost stock option plans determined based fair value grant date awards 2002 2001 consistent provisions sfas 123 partnership’s net earnings would reduced pro forma amounts indicated fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued stock options issued 2003 fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions 1995 stock option plan approved foster wheeler ltd’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 5300000 plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plan less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted information regarding option plan years 2003 2002 2001 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2003 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued pensions postretirement benefits partnership offers government sponsored retirement program employees subsidiary finland plans exist partnership’s subsidiaries recent accounting developments november 2002 fasb issued fasb interpretation “fin” 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation elaborates disclosures made guarantor interim annual financial statements obligations certain guarantees issued also clarifies guarantor required recognize inception guarantee liability fair value obligation undertaken issuing guarantee interpretation prescribe specific approach subsequently measuring guarantor’s recognized liability term related guarantee fin 45 also incorporates without change guidance fin 34 “disclosure indirect guarantees indebtedness others” superseded interpretation apply certain guarantee contracts provisions related recognizing liability inception fair value guarantor’s obligation apply following product warranties b guarantees accounted derivatives c guarantees represent contingent consideration business combination guarantees guarantor’s obligations would reported equity item rather liability e original lessee’s guarantee lease payments lessee remains secondarily liable conjunction relieved primary obligor principal debtor lease restructuring f guarantees issued either parents subsidiaries corporations common control g parent’s guarantee subsidiary’s debt third party subsidiary’s guarantee debt owed third party either parent another subsidiary parent however guarantees described ag subject disclosure requirements initial recognition initial measurement provisions fin 45 applicable prospective basis guarantees issued modified december 31 2002 irrespective guarantor’s fiscal yearend disclosure requirements fin 45 effective financial statements interim annual periods ending december 15 2002 partnership 2002 consolidated financial statements implemented disclosure requirements interpretation partnership implemented recognition measurement provisions interpretation first quarter 2003 january 2003 fasb issued fin 46 “consolidation variable interest entities” interpretation requires consolidation business enterprises variable interest entities one following characteristics fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued • equity investment risk sufficient permit entity finance activities without additional subordinated financial support parties provided interest absorb expected losses entity • equity investors lack one following essential characteristics controlling financial interest direct indirect ability make decisions entity’s activities voting rights similar rights b obligation absorb expected losses entity occur makes possible entity finance activities c right receive expected residual returns entity occur compensation risk absorbing expected loss fin 46 applies immediately variable interest entities created january 31 2003 variable interest entities enterprise obtains interest date october 9 2003 effective date fin 46 variable interest entities enterprise holds variable interest acquired february 1 2003 deferred end first interim annual period ending march 15 2004 based partnership’s preliminary assessment impact interpretation management believe partnership’s currently unconsolidated variable interest entities required included consolidated financial statements april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” sfas 149 amends sfas 133 decisions made 1 part derivatives implementation group process effectively required amendments sfas 133 2 connection fasb projects dealing financial instruments 3 connection implementation issues raised relation application definition derivative provisions sfas 149 effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption standard impact partnership may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability many previously classified equity sfas 150 effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 except mandatorily redeemable financial instruments nonpublic entities implemented reporting cumulative effect change accounting principle financial instruments created issuance date statement still existing beginning interim period adoption restatement permitted statement impact financial instruments issued partnership prior may 31 2003 issuances financial instruments partnership since date 5 research development years 2003 2002 2001 approximately 3700 2600 3100 respectively spent partnershipsponsored research activities periods approximately 2300 2600 5200 respectively spent customersponsored research activities fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 6 accounts notes receivable following table shows components trade accounts notes receivable unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts periods ended december 31 2001 2003 presented 7 contracts process inventories following table shows elements included contract process relates longterm contracts costs inventories shown inventories materials supplies 1594 4570 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 8 land buildings equipment land buildings equipment stated cost set forth depreciation expense years 2003 2002 2001 4189 3872 2912 respectively 9 notes payable longterm debt notes payable longterm debt consisted following notes payable affiliates primarily composed two 20000 notes one note interest rate 10 note interest rate 75 notes due full december 2006 current portion 2002 notes payable fw continental us inc related sale spain see note 3 200 notes payable third parties composed two notes one note payable state finland 130 interest rate 225 due 2007 second note payable ministry finance finland 70 interest rate tied wibor warsaw interbank offered rate due 2004 10 derivative financial instruments partnership’s activities expose risks related effect changes foreigncurrency exchange rates partnership maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates partnership utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2003 2002 partnership meet requirements deferral sfas 133 recorded year ended december 31 2003 6232 pretax net loss year ended december 31 2002 9332 pretax net gain derivative instruments reflected cost operating revenues consolidated statement earnings comprehensive incomeloss partnership exposed credit loss event nonperformance counterparties significant financial institutions primarily rated better standard poor’s a2 better moody’s december 31 2003 approximately 47198 owed partnership counterparties 10000 owed partnership counterparties 235 net tax gain recorded comprehensive incomeloss december 31 2001 amount reclassified earnings 2002 partnership longer qualified deferral sfas 133 maximum term partnership hedging exposure variability cash flows twelve months fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 11 warranty reserves partnership provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 31 2001 2400 accruals 11200 settlements adjustments provisions balance december 31 2002 13900 accruals 27400 settlements 5300 adjustments provisions 1100 balance december 31 2003 34900 12 income taxes partnership’s earnings income taxes years 2003 2002 2001 taxed foreign jurisdictions provisionbenefit income taxes earnings follows deferred tax assets liabilities consist following fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 12 income taxes continued provision income taxes differs amount income tax determined applying applicable finland statutory rate earnings income taxes result following tax provision finland statutory rate 290 nondeductible book expenses 35 04 94 foreign rate differential 198 28 84 valuation allowance 440 41 nondeductible losses 144 30 67 tax credits reserves 128 30 11 effect tax rate change 113 04 01 09 956 366 555 reflected partnership recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 5900 904 2003 2002 respectively increase required sfas 109 “accounting income taxes” evidence losses certain foreign tax jurisdictions three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2018 beyond based current tax laws 13 operating leases partnership certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 2151 2003 1413 2002 1051 2001 future minimum rental commitments noncancelable leases follows fiscal year 1981 1859 1717 thereafter 2672 11663 14 capital leases 2002 partnership entered lease transaction office building finland transaction qualified capital lease summarized follows fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 14 capital leases continued following minimum lease payments made years indicated capital lease effect december 31 2003 fiscal year 1112 thereafter 27699 less interest 15686 net minimum lease payments capital leases 17573 15 litigation uncertainties ordinary course business partnership subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought partnership customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating partnership’s liabilities insurance coverage management partnership believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts ultimate legal financial liability partnership respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used partnership becomes known partnership reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause partnership increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 16 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value partnership’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered partnership debt remaining maturities practicable estimate fair value partnership’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers partnership exposed market risks fluctuations foreign exchange rates financial instruments utilized partnership reduce risk partnership hold issue financial instruments trading purposes partnership exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated better standard poor’s a2 better moody’s see notes 2 10 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 16 financial instruments risk management continued carrying amounts fair values estimated fair values partnership’s financial instruments follows ordinary course business partnership contingently liable performance letters credit bank guarantees totaling 264262 252163 december 31 2003 december 31 2002 respectively partnership’s past experience material claims made financial instruments management partnership expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2003 partnership 57198 foreign currency contracts outstanding foreign currency contracts mature 2004 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject partnership concentrations credit risk consist principally cash equivalents trade receivables partnership places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising partnership’s customer base dispersion across different business geographic areas except indicated note 17 december 31 2003 2002 partnership significant concentrations credit risk 17 concentrations year ended december 31 2003 nearly 49 partnership’s operating revenues two thirdparty customers approximately 11 operating revenues one affiliated company management considers credit risk low third party customers pay monthly according project progress related accounts receivable current fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 18 related party transactions partnership enters longterm contracts subcontractor subcontracts work certain foster wheeler affiliates included statement earnings relating contracts follows operating revenues 72820 73807 70344 cost operating revenues 1127 interest income cost expenses royalty management fees 10563 9297 6072 interest expense 3500 included balance sheet relating foster wheeler affiliates longterm contract activity follows december 31 accounts notes receivable 1270 13620 intercompany notes receivable 1523 11165 accounts payable 7913 11091 intercompany notes payable 40893 78851 also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 partnership reduced intercompany notes receivable charged partners’ capital notes receivable us affiliates yearoveryear change reflected consolidated statement changes partners’ capital consolidated statement cash flows impact partners’ capital reduction 11942 11625 december 31 2003 2002 respectively costs incurred foster wheeler ltd certain affiliates behalf partnership charged partnership management fee fees 1186 752 2003 2002 respectively fees represent management’s estimation reasonable allocation partnership’s share costs related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 19 condensed financial information parent condensed financial information parent required per sec regulation sx rule 408e3 “restricted net assets” consolidated subsidiaries exceed 25 percent consolidated net assets end recent fiscal year one partnership’s subsidiaries entered bonding arrangement bank contains covenants limiting ability make distributions partnership covenants include restriction distribution dividends 75 statutory earnings requirement maintain equity ratio calculated equity divided sum equity total liabilities least 30 addition subsidiary permitted make intercompany loans partnership result net assets subsidiary distributed annually dividends subsidiary’s statutory financial statements issued december 31 2003 2002 37148 30638 respectively subsidiary’s retained earnings considered restricted condensed financial statements parent presented using equity method accounting fw netherlands cv condensed statement earnings fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 19 condensed financial information parent continued fw netherlands cv condensed balance sheet assets december 31 2003 december 31 2002 current assets cash equivalents accounts notes receivable intercompany accounts receivable 1320 1276 total current assets 1321 1302 intercompany notes receivable longterm 23935 27000 investment advances 111722 82198 total assets 136978 110500 liabilities partners’ capital current liabilities accounts payable 6657 4865 intercompany notes payable 5412 4772 total current liabilities 12069 9637 intercompany notes payable longterm 40000 total liabilities 52069 49637 total partners’ capital 84909 60863 total liabilities partners’ capital 136978 110500 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 19 condensed financial information parent continued fw netherlands cv condensed statement cash flows fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 19 condensed financial information parent continued notes payable longterm debt intercompany notes payable revolving credit note payable demand maximum amount line 5 million euros bearing interest 517 per year 40000 longterm notes payable affiliate composed two 20000 notes one note interest rate 10 note interest rate 75 notes due full december 2006 related party transactions parent enters debt arrangements foster wheeler affiliates included condensed statement earnings arrangements years ending december 31 equity earnings subsidiaries 2805 16274 6657 interest income 1522 1276 1211 interest expense interest expense long term note 3500 included condensed balance sheet arrangements december 31 accounts payable interest costs 6657 4865 intercompany notes payable 5412 4772 intercompany notes payable long term 40000 additionally subsidiary paid parent cash dividends 1800 year ended december 31 2001 related party transactions discussed eliminated partnership’s consolidated financial statements exception intercompany notes payable long term related interest expense 3500 interest payable 6657 4865 december 31 2003 2002 respectively related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 20 security pledged collateral foster wheeler llc issued 200000 notes “senior notes” public market bear interest fixed rate 675 due november 15 2005 holders senior notes due november 15 2005 security interest stock debt foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility security interest includes partnership interests partnership term loan obligations letter credit facility collectively approximately 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility financial services sarl subsidiary consolidated financial statements three years ended december 31 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations cash flows shareholders’ deficit present fairly material respects financial position financial services sarl subsidiary “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2003 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying consolidated financial statements prepared assuming company parent continue going concern discussed note 2 consolidated financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintainance credit facilities bonding capacity adequate conduct business shareholders’ deficit debt company pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 consolidated financial statements include adjustments might result outcome uncertainty discussed notes consolidated financial statements company significant transactions parent’s subsidiaries pricewaterhousecoopers llp florham park new jersey march 10 2004 financial services sarl subsidiary consolidated statement operations years ended december 31 thousands dollars see notes consolidated financial statements financial services sarl subsidiary consolidated balance sheet thousands dollars except per share amount see notes consolidated financial statements financial services sarl subsidiary consolidated statement cash flows years ended december 31 thousands dollars noncash investing financing activities date formation company received 405000 notes receivable affiliated companies assumed 405000 notes payable affiliated company april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc note 5 effective december 22 2000 company acquired membership interest foster wheeler licensing services gp “gp” exchange note payable 190000 may 18 2001 company acquired licensed property 190000 exchange membership interest gp note 5 see notes consolidated financial statements financial services sarl subsidiary consolidated statement changes shareholders’ deficit thousands dollars see notes consolidated financial statements financial services sarl subsidiary notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries financial services sarl “company” organized laws luxembourg subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 8 fwllc perryville wholly owned subsidiaries foster wheeler ltd principal operation company provide financing foster wheeler affiliates around world addition fw hungary licensing limited liability company “fw hungary” wholly owned subsidiary company provides management developing licensing beneficial rights foster wheeler ltd’s intellectual property fw hungary currently licenses rights various foster wheeler affiliates outside united states company’s transactions relationships parent affiliated companies discussed notes 2 3 5 8 currently company holds notes receivable various united states affiliates accordingly financial position results operations cash flows company could differ significantly would resulted company independent entity company’s functional currency us dollar 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltd received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating offer existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s company’s financial condition matters raise substantial doubt foster wheeler ltd’s company’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued wheeler ltd compliance covenants throughout 2004 amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s company’s ability continue going concern consolidated financial statements include adjustments might financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued result outcome uncertainty march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 purchase fw hungary licensing limited liability company december 2003 company acquired 100 fw hungary previously wholly owned subsidiary fw technologies holding llc “fw tech holding” approximately 50000 transaction financed issuing 42500 demand note payable bearing interest 9 fw tech holding issuing additional ownership interest company approximate value 7500 perryville exchange respective 85 15 ownership interests fw hungary company reflected transaction reorganization companies common control accordingly accompanying consolidated financial statements revised include activity fw hungary consolidated statements financial position results operations cash flows periods presented 4 summary significant accounting policies principles consolidation consolidated financial statements include accounts company wholly owned foreign subsidiary intercompany transactions balances eliminated company’s fiscal year ends december 31 use estimates preparation consolidated financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities date consolidated financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collection notes interest receivable royalty income affiliates taxes revenue recognition revenue recognized accrual basis company’s primary source revenue interest income royalty income affiliated companies cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less account interest receivable affiliates accounts receivable interest receivable consists amounts due related parties presented net realizable value see note 5 income taxes company files tax return luxembourg income tax expense company’s consolidated statement operations calculated separate company basis subsidiary files tax return foreign jurisdiction company agreement luxembourg tax jurisdiction whereby company required pay minimum tax provision made foreign income taxes payable company’s subsidiary hungary statutory rate 3 new hungarian legislation enacted december 2003 increases statutory rate 4 effective january 1 2004 addition royalty income foreign sources company’s financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued subsidiary subject foreign tax withholding deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described see note 6 5 related party transactions company acquired 405000 notes receivable various affiliated companies assignment fwllc may 25 2001 notes interest rates ranging 700 850 exchange notes company assumed obligation finance 405000 fwllc’s debt related carrying charges debt interest rates ranging 675 900 april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc interest rate remaining notes receivable also changed 685 per annum april 1 2003 balance note payable bears interest 675 per annum 200000 debt matures november 15 2005 interest income notes receivable recognized periods ended december 31 2003 2002 2001 amounted 18320 31875 19003 respectively interest receivable notes amounted 2491 22529 december 31 2003 2002 respectively reflected consolidated balance sheet due uncertainty collection based going concern issue addressed note 2 company reduced intercompany interest receivable us affiliates charged accumulated deficit creditcharge accumulated deficit recorded amounts 260 94 355 periods ended december 31 2003 2002 2001 respectively reflect excess interest receivable interest payable affiliates see discussion company’s credit risk interest expense notes payable recognized periods ended december 31 2003 2002 2001 amounted 18580 31969 18648 respectively interest payable fwllc december 31 2003 2002 3447 22529 respectively company required fund obligation fwllc extent collects amounts due notes receivable affiliates see note 2 contingencies associated affiliates’ ability repay debt extent amounts notes receivable become uncollectible fwllc agrees assume obligation company pursuant note transfer debt assumption agreement dated may 25 2001 addition company agrees extent obligation notes payable reduced whatever reason company’s rights notes receivable correspondingly transferred fwllc result company credit risk relating notes receivable company made investment foster wheeler licensing services gp 190000 december 22 2000 exchange 190000 note payable foster wheeler licensing services gp held 190000 licensed property “lp” includes intellectual property confidential information licensing rights marketing intangibles foster wheeler ltd may 18 2001 foster wheeler licensing services gp dissolved company acquired lp exchange ownership interest although tax purposes lp considered sold company effective december 22 2000 lp transaction recorded transfer entities common control accordingly lp transferred recorded affiliate’s recorded amount 0 effective december 22 2000 note payable bears interest annual rate 90 602 years ended december 31 2003 2002 2001 respectively years interest expense 17000 17100 11438 respectively unpaid interest december 31 2003 2002 2001 1509 4197 11860 respectively company enters licensing agreements licensor lp certain foreign affiliates foster wheeler ltd affiliates pay royalty company based agreed upon range 10 40 affiliates current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis years ended december 31 2003 2002 2001 royalty income 20473 25114 17790 respectively accounts receivable affiliates december 31 2003 2002 includes unpaid royalty fees 389 17129 respectively financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 5 related party transactions continued january 1 2001 company entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable company shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless company affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2003 2002 2001 532 1744 2250 respectively december 31 2003 2002 2001 532 3994 2250 respectively payable affiliates pursuant agreement foster wheeler inc indirectly wholly owned subsidiary foster wheeler ltd acts banking agent company managing cash financing requirements needed company charges interest advances made company related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 6 income taxes components net earnings income taxes years 2003 2002 2001 taxed follows foreign 2627 6033 4337 benefitprovision income taxes net incomeloss follows current tax expense foreign deferred tax benefitexpense foreign 1594 total benefitprovision income taxes 1090 deferred tax assets consist following intangible assets 7029 5435 5598 net deferred tax assets 7029 5435 5598 benefitprovision income taxes determined applying luxembourg statutory rate applicable company due enactment new legislation december 2003 hungarian tax rate increased 4 effective january 1 2004 accordingly 2003 deferred tax provision includes benefit 1757 reflect increase value deferred tax assets december 31 2003 provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following tax benefitprovision luxembourg statutory rate 304 375 foreign rate differential 333 279 316 difference estimated income tax foreign income losses net amounts previously provided 44 19 00 unutilized loss 91 05 00 effect tax rate change 669 00 withholding tax rate 148 91 98 415 140 157 financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 7 financial instruments risk management fair value company’s longterm debt estimated based quoted market prices similar issues current rates offered fwllc debt remaining maturities carrying amounts fair value company’s longterm debt follows december 26 2003200000 150500 respectively december 27 2002405000 85200 respectively practicable estimate fair value company’s intercompany debt 169403 december 31 2003 182585 december 31 2002 market value type debt instrument 8 security pledged collateral fwllc issued 200000 notes public market bear interest fixed rate 675 “675 notes” holders 675 notes due november 15 2005 security interest stock debt fwllc’s subsidiaries facilities owned fwllc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility security interest includes stock debt company term loan obligations letter credit facility collectively approximately 164900 december 26 2003 priority 675 notes assets security interest 675 notes ranks equally ratably 69000 revolving credit borrowings senior credit facility fw hungary licensing limited liability company financial statements three years ended december 31 2003 report independent auditors board directors shareholders foster wheeler ltd opinion accompanying statement financial position related statements operations accumulated earnings cash flows member’s interest present fairly material respects financial position fw hungary licensing limited liability company “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2003 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 26 2003 shareholders’ deficit 872400000 december 26 2003 parent substantial debt obligations 2003 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations assets sales collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business member’s interest debt company pledged collateral holders 200000000 senior notes issued parent matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty discussed notes financial statements company significant transactions parent’s subsidiaries pricewaterhousecoopers llp florham park new jersey march 10 fw hungary licensing limited liability company statement operations accumulated earnings years ended december 31 thousands dollars revenues royalty income affiliates 20473 25114 17790 interest income affiliates total revenues 20673 25114 17790 costs expenses interest expense affiliates 17000 17100 11438 deductions 1872 2370 total costs expenses 17482 18972 13808 earnings income taxes 3191 6142 3982 benefitprovision income taxes 1205 net earnings 4396 5413 3434 accumulated earningsloss beginning year 8408 2995 439 accumulated earnings end year 12804 8408 2995 fw hungary licensing limited liability company statement financial position thousands dollars december 31 2003 december 31 2002 assets current assets cash equivalents accounts receivable affiliates 17129 prepaid expenses total current assets 17829 deferred income taxes 7029 5435 total assets 7928 23264 liabilities member’s interest current liabilities accounts payable affiliates 2041 8191 accrued expenses income taxes payable notes payable affiliates 126547 190000 total current liabilities 129373 199106 commitments contingencies total liabilities 129373 199106 total member’s interest 121445 175842 total liabilities member’s interest 7928 23264 see notes financial statements fw hungary licensing limited liability company statement cash flows years ended december 31 thousands dollars cash flows operating activities net earnings 4396 5413 3434 deferred tax assets 1594 changes assets liabilities accounts receivables affiliates 16740 17790 prepaid expenses 49 accounts payable affiliates 6150 5919 13688 accrued expenses 134 income taxes net cash providedused operating activities 13213 49 cash flows financing activities capital contribution capitalization note receivable affiliate 50 decrease notes payable affiliates 13453 net cash used financing activities 13452 50 decreaseincrease cash equivalents 239 99 cash equivalents beginning year cash equivalents end year cash paid year interest 19688 24763 income taxes noncash investing financing activities effective december 22 2000 company acquried membership interest foster wheeler licensing servicesgp “gp” exchange note payable 190000 may 18 2001 company acquired licensed property 190000 exchange membership interest gp note 4 december 2003 company received noncash capital contribution 50000 financial services sarl “sarl” exchange reduction company’s note payable sarl 50000 note 4 see notes financial statements fw hungary licensing limited liability company statement member’s interest thousands dollars contributed capital accumulated earningsloss adjustments total balance december 31 2000 439 184300 184639 earnings year 3434 capitalization note receivable affiliates 50 balance december 31 2001 2995 184350 181255 earnings year 5413 balance december 31 2002 8408 184350 175842 additional capital contribution 50001 earnings year 4396 balance december 31 2003 50101 12804 184350 121445 see notes financial statements fw hungary licensing limited liability company notes financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries fw hungary licensing limited liability company “company” organized december 1 2000 laws hungary company december 2003 wholly owned subsidiary financial services sarl “sarl” subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 8 wholly owned subsidiaries foster wheeler ltd prior december 2003 company owned fw technologies holdings llc “fwth” subsidiary fwllc 999 perryville 1 see note 4 principal operation company management developing licensing beneficial rights foster wheeler ltd’s intellectual property company currently licenses rights various foster wheeler affiliates outside united states company’s transactions relationships sarl fwllc affiliated companies discussed notes 2 4 6 accordingly financial position results operations cash flows company could differ significantly would resulted company independent entity company’s functional currency us dollar 2 liquidity going concern accompanying financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s ability return profitability continue generate cash flows operations asset sales collections receivables fund obligations including resulting asbestos related liabilities well foster wheeler ltd maintaining credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant losses years threeyear period ended december 26 2003 shareholders’ deficit 872400 foster wheeler ltd substantial debt obligations 2002 unable comply certain debt covenants previous revolving credit agreement described detail foster wheeler ltds’ received waivers covenant violations ultimately negotiated new credit facilities august 2002 november 2002 credit facilities amended provide covenant relief 180000 gross pretax charges recorded third quarter 2002 also provide additional 63000 pretax charges related specific contingencies could excluded covenant calculation december 2003 incurred march 2003 senior credit facility amended provide covenant relief modifying certain definitions financial measures utilized calculation financial covenants minimum earnings interest expense taxes depreciation amortization “ebitda” senior debt ratio credit facilities also amended july 2003 provide waivers applicable sections senior credit facility permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations assurance foster wheeler ltd able comply terms senior credit facility amended debt agreements 2004 management’s current forecast indicates foster wheeler ltd compliance financial covenants contained senior credit facility throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd’s us operations include corporate center cash flow negative expected continue generate negative cash flow due number factors including litigation settlement asbestos related claims costs related foster wheeler ltd’s indebtedness obligations fund us pension plans expenses related corporate overhead management closely monitors liquidity updates us cash flow forecasts weekly forecasts include among analyses cash flow forecasts include cash hand cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs foster wheeler ltd’s current cash flow forecasts indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2004 december 26 2003 foster wheeler ltd aggregate indebtedness approximately 1000000 corporate debt must funded primarily distributions foreign subsidiaries december 26 2003 foster wheeler ltd cash equivalents hand shortterm investments restricted cash totaling 430200 compared 429400 december 27 2002 430200 total december 26 2003 approximately 366700 fw hungary licensing limited liability company notes financial statements continued thousands dollars held foreign subsidiaries foster wheeler ltd sometimes required cash collateralize bonding certain bank facilities amount foster wheeler ltd’s restricted cash december 26 2003 52700 48000 relates nonus operations foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs foster wheeler ltd’s current 2004 forecast assumes cash repatriations nonus subsidiaries royalties management fees intercompany loans debt service intercompany loans dividends approximately 61000 2003 foster wheeler ltd repatriated approximately 100000 nonus subsidiaries assurance forecasted foreign cash transfers occur significant legal contractual restrictions foster wheeler ltd’s ability repatriate funds nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory minimum capitalization requirements jurisdictions organization restrict amount funds subsidiaries may distribute distributions excess specified amounts would violate terms agreements applicable law could result civil criminal penalties repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries future earnings subsidiaries sufficient amounts fund us working capital requirements repay debt satisfy obligations us operations could limit foster wheeler ltd’s ability continue going concern part debt restructuring plan foster wheeler ltd certain subsidiaries filed amended registration statement securities exchange commission “sec” december 22 2003 amended january 13 2004 relating existing 175000 preferred trust securities 210000 convertible notes 113300 robbins bonds 200000 2005 senior notes “senior notes” due 2005 february 5 2004 foster wheeler ltd announced support restructuring activities number institutional investors committed provide 120000 new financing foster wheeler ltd replace current term loan revolving credit facility portions senior credit facility commitment contingent upon completion proposed exchange offer additionally foster wheeler ltd discontinued previously announced plans divest one european operating units total amount debt subject exchange offer approximately 700000 interest expense incurred debt 2003 totaled approximately 55000 foster wheeler ltd offering mix equity well debt longer maturities exchange securities foster wheeler ltd anticipates total debt related interest expense would significantly reduced upon completion debt exchange offer however assurance foster wheeler ltd complete exchange offer acceptable terms failure foster wheeler ltd achieve cash flow forecast complete components restructuring plan acceptable terms would material adverse effect foster wheeler ltd’s company’s financial condition matters raise substantial doubt foster wheeler ltd’s company’s ability continue going concern august 2002 foster wheeler ltd finalized senior credit facility lender group facility included 71000 term loan 69000 revolving credit facility 149900 letter credit facility expires april 30 2005 senior credit facility secured assets domestic subsidiaries stock domestic subsidiaries connection amendment 3 discussed 100 stock firsttier foreign subsidiaries senior credit facility required repayments prior maturity april 30 2005 agreement requires prepayments proceeds assets sales issuance debt equity excess cash flow foster wheeler ltd retained first 77000 amounts also retains 50 share balance sale foster wheeler environmental corporation net assets march 7 2003 interest corporate office building march 31 2003 77000 threshold exceeded accordingly principal prepayments 11800 made term loan 2003 financial covenants agreement commenced end first quarter 2003 include senior leverage ratio minimum ebitda defined agreement amended compliance covenants measured quarterly ebitda covenant compares actual average rolling four quarter ebitda adjusted senior credit facility minimum ebitda targets senior leverage covenant compares actual average rolling ebitda adjusted senior credit facility total senior debt resultant multiple debt ebitda must less maximum amounts specified senior credit facility management’s current forecast indicates foster wheeler ltd compliance covenants throughout 2004 fw hungary licensing limited liability company notes financial statements continued thousands dollars amendment 1 senior credit facility obtained november 8 2002 provides covenant relief 180000 gross pretax charges recorded foster wheeler ltd third quarter 2002 amendment provides additional 63000 pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred december 26 2003 31000 contingency risks favorably resolved additional project reserves established 32000 leaving contingency balance 0 amendment 2 senior credit facility entered march 24 2003 modifies certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment credit agreement foster wheeler ltd made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit exchange offers described elsewhere report internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations connection amendment senior credit facility foster wheeler ltd agreed pay march 31 2004 fee equal 5 lenders’ credit exposure march 31 2004 foster wheeler ltd made prepayment principal senior credit facility 100000 march 31 2004 foster wheeler ltd expects gross amount fee required approximately 14000 accrued included foster wheeler ltd’s liquidity forecast holders foster wheeler ltd’s senior notes due november 15 2005 security interest stock debt certain foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations revolving portion senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility foster wheeler ltd finalized saleleaseback arrangement third quarter 2002 office building corporate headquarters capital lease arrangement leases facility foster wheeler ltd initial noncancelable period 20 years third quarter 2002 foster wheeler ltd entered receivables financing facility matures august 15 2005 secured portion certain foster wheeler ltd’s domestic trade receivables agreement foster wheeler ltd ability borrow maximum 40000 using eligible trade accounts receivable collateral facility subject covenant compliance financial covenants commenced end first quarter 2003 include senior leverage ratio minimum ebitda level noncompliance financial covenants allows lender terminate arrangement accelerate amounts outstanding borrowings outstanding facility december 26 2003 december 27 2002 january 26 2004 subsidiaries uk entered two year revolving credit facility saberasu japan investments ii bv netherlands facility provides 45000 additional revolving loans available provide working capital may required subsidiaries seek grow business pursuing larger volume lump sum epc contracts facility secured substantially assets subsidiaries facility subject covenant compliance covenants include minimum ebitda level loan ebitda ratio march 10 2004 facility remains undrawn senior credit facility saleleaseback arrangement receivables financing arrangement quarterly debt covenant requirements management’s forecast indicates foster wheeler ltd compliance debt covenants throughout 2004 however assurance actual financial results match forecasts foster wheeler ltd violate covenants foster wheeler ltd violates covenant senior credit facility saleleaseback arrangement receivables financing arrangement repayment amounts borrowed agreements could accelerated acceleration facilities would result default following agreements senior notes convertible subordinated notes preferred trust securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities would allow debt accelerated well total amount foster wheeler ltd debt could accelerated including amount outstanding senior credit facility 919300 december 26 2003 foster wheeler ltd would able repay amounts borrowed payment dates accelerated debt covenants potential payment acceleration requirements raise substantial doubts foster wheeler ltd’s company’s ability continue going concern financial statements include adjustments might result outcome uncertainty fw hungary licensing limited liability company notes financial statements continued thousands dollars march 18 2003 foster wheeler ltd received formal notice new york stock exchange “nyse” indicating foster wheeler ltd continued listing criteria total market capitalization less 50000 30day trading period shareholders’ equity less 50000 following discussions foster wheeler ltd may 2003 nyse permitted foster wheeler ltd’s securities continue listed subject foster wheeler ltd’s return compliance continued listing standard within 18 months receipt notice subject quarterly review nyse time foster wheeler ltd’s ticker symbol designated suffix “bc” indicating compliance nyse listing standards following recent review nyse determined delist foster wheeler ltd november 14 2003 based inability meet nyse’s minimum shareholders’ equity requirement positive 50000 foster wheeler ltd’s common stock trades pink sheets common stock 900 fw preferred capital trust securities quoted traded overthecounter bulletin board “otcbb” bermuda law consent bermuda monetary authority “bma” required prior transfer nonresidents bermuda company’s shares since becoming bermuda company foster wheeler ltd relied exemption rule provided nyselisted companies due foster wheeler ltd delisted exemption longer available address issue foster wheeler ltd obtained consent bma transfers nonresidents long foster wheeler ltd’s shares continue quoted pink sheets otcbb foster wheeler ltd believes consent continue available 3 summary significant accounting policies fiscal year company’s fiscal year ends december 31 use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collectibility royalty income affiliates taxes revenue recognition revenue recognized accrual basis company’s primary source revenue royalty income related affiliates cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less accounts receivable affiliatesaccounts receivable consist amounts due related parties see note 4 income taxes company files tax return hungary provision made foreign income taxes payable hungary statutory rate 3 new hungarian legislation enacted december 2003 increases statutory rate 4 effective january 1 2004 addition company’s royalty income foreign sources subject foreign tax withholding income tax expense company’s statement operations calculated separate company basis deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described see note 5 4 related party transactions company made investment foster wheeler licensing services gp 190000 december 22 2000 exchange 190000 note payable foster wheeler licensing services gp held 190000 licensed property “lp” includes intellectual property confidential information licensing rights marketing intangibles foster wheeler ltd may 18 2001 foster wheeler licensing services gp dissolved company acquired lp exchange ownership interest although tax purposes lp considered sold company effective december 22 2000 lp transaction recorded transfer entities common control accordingly lp transferred recorded affiliate’s recorded amount 0 effective december 22 2000 note payable bears interest annual rate 90 602 years ended december 31 2003 2002 fw hungary licensing limited liability company notes financial statements continued thousands dollars 2001 respectively years interest expense 17000 17100 11438 respectively unpaid interest december 31 2003 2002 2001 1509 4197 11860 respectively december 1 2003 fwllc transferred 190000 note receivable company bears interest 900 sarl transfer part reorganization company whereby 50000 original 190000 note payable ultimately exchanged additional membership units contributed capital company part restructuring 100 company’s ownership acquired sarl december 2003 company enters licensing agreements licensor lp certain foreign affiliates foster wheeler ltd affiliates pay royalty company based agreed upon range 10 40 affiliates current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis years ended december 31 2003 2002 2001 royalty income 20473 25114 17790 respectively accounts receivable affiliates december 31 2003 2002 includes unpaid royalty fees 389 17129 respectively january 1 2001 company entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable company shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless company affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2003 2002 2001 532 1744 2250 respectively december 31 2003 2002 2001 532 3994 2250 respectively payable affiliates pursuant agreement related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 26 2003 december 27 2002 december 28 2001 management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 5 income taxes components net earnings income taxes years 2003 2002 2001 taxed follows foreign 3191 6142 3982 benefitprovision income taxes net earnings follows current tax expense foreign deferred tax benefitexpense foreign 1594 total benefitprovision income taxes 1205 fw hungary licensing limited liability company notes financial statements continued thousands dollars deferred tax assets consist following intangible assets 7029 5435 5598 net deferred tax assets 7029 5435 5598 benefit provision income taxes determined applying hungarian statutory rate applicable company due enactment new legislation december 2003 hungarian tax rate increased 4 effective january 1 2004 accordingly 2003 deferred tax provision includes benefit 1757 reflect increase value deferred tax assets december 31 2003 provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following tax benefitprovision hungarian statutory rate 30 unutilized loss 21 00 effect tax rate change 551 00 withholding tax rate 122 89 108 378 119 138 6 security pledged collateral foster wheeler llc issued 200000 notes “senior notes” public market bear interest fixed rate 675 due november 15 2005 holders senior notes security interest stock debt foster wheeler llc’s subsidiaries facilities owned foster wheeler llc subsidiaries exceed 1 consolidated net tangible assets case extent stock debt facilities secure obligations senior credit facility permitted indenture term loan obligations letter credit facility collectively approximating 164900 december 26 2003 priority senior notes assets security interest senior notes ranks equally ratably 69000 revolving credit borrowings senior credit facility item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ltd completed integrated audit foster wheeler ltd’s “company’s” 2004 consolidated financial statements internal control financial reporting december 31 2004 audits 2003 2002 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ltd subsidiaries december 31 2004 december 26 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying consolidated financial statements prepared assuming company continue going concern discussed note 1 consolidated financial statements company incurred significant losses years threeyear period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 company substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things company’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well company maintaining credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s ability continue going concern management’s plan regard matters also described note 1 consolidated financial statements include adjustments might result outcome uncertainty internal control financial reporting also audited management’s assessment included management’s report internal control financial reporting appearing item 9a company maintain effective internal control financial reporting december 31 2004 company maintain effective controls completeness accuracy estimated costs complete one european power projects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate material weakness defined control deficiency combination control deficiencies results remote likelihood material misstatement company’s annual interim financial statements prevented detected following material weakness identified included management’s assessment december 31 2004 company maintain effective controls completeness accuracy estimated costs complete one european power projects specifically company’s controls estimated costs complete operating effectively project management accounting personnel adequate control commitments thirdparty subcontractors vendors therefore adequately track actual financial results project timely basis control deficiency result adjustments 2004 annual interim consolidated financial statements however control deficiency could result misstatement estimated costs complete longterm contracts cost operating revenue accounts resulting material misstatement annual interim financial statements would prevented detected accordingly management determined control deficiency constitutes material weakness material weakness considered determining nature timing extent audit tests applied audit 2004 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements opinion management’s assessment company maintain effective internal control financial reporting december 31 2004 fairly stated material respects based criteria established internal control integrated framework issued coso also opinion effect material weakness described achievement objectives control criteria company maintained effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued coso pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler ltd subsidiaries consolidated statement operations comprehensive loss thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ deficit thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data noncash financing activities 2004 company exchanged 3062574 common shares 599944 preferred shares warrants purchase 6994059 common shares 147130 longterm debt 593102 existing debt trust securities see note 7 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements thousands dollars except share data per share amounts 1 going concern accompanying consolidated financial statements foster wheeler ltd hereinafter referred “foster wheeler” “company” prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well company’s ability maintain credit facilities bonding capacity adequate conduct business company incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 company consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced company’s existing debt excluding reduction deferred accrued interest 31128 437041 improved company’s shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange company outstanding debt obligations approximately 570073 december 31 2004 refer notes 7 8 details exchange information regarding company’s outstanding indebtedness august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange company prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement company finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement company leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt accompanying consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates company compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance company comply covenants company violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 1 going concern continued funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 company would able repay amounts borrowed payment dates accelerated holders company’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit company’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture connection exchange holders company’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 company exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange see note 7 consolidated financial statements details exchange offer previous senior credit facility required company defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 company intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied company right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 1 going concern continued waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected company’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability company’s cash flow forecasts continue indicate sufficient cash available fund company’s us foreign working capital needs throughout 2005 december 31 2004 company cash equivalents shortterm investments restricted cash totalling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries see note 2 additional details cash restricted cash balances company’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related company’s indebtedness obligations fund us pension plans corporate overhead expenses consequently company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt company’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 company repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained company connection sales assets foster wheeler environmental corporation “environmental” described note 21 consolidated financial statements commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” company funded plant’s construction costs operates facility majority company’s invested capital recovered early stages foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 1 going concern continued processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 company’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt company’s ability continue going concern 2 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiary companies intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2004 included 53 weeks 2003 2002 included 52 weeks capital alterations november 29 2004 company’s shareholders approved series capital alterations including consolidation authorized common share capital ratio onefortwenty reduction par value common shares preferred shares result capital alterations references share capital number shares per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect capital alterations retroactive basis reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result process 2004 54 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted 37600 estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 3946 claims recorded company’s european operations additionally consolidated financial statements assume recovery 11000 requests equitable adjustment “rea” december 31 2004 1200 recorded contracts process balance 9800 represents costs yet incurred rea relates primarily claim us government agency project currently executed company currently discussing details rea us government agency claim unsuccessful costs would charged cost operating revenues company commercial claims receivable requests equitable adjustment recorded december 26 2003 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract december 31 2004 precontract costs deferred certain specialpurpose subsidiaries global power group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 225861 maintained foreign subsidiaries december 31 2004 subsidiaries require substantial portion funds support liquidity working capital needs well required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments consist primarily certificates deposit classified held maturity financial accounting standards board statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 3 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision inventories principally materials supplies stated lower cost market determined primarily averagecost method land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held company investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years company tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year company evaluates goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 31 2004 december 26 2003 company unamortized goodwill 51812 51121 respectively increase goodwill 691 resulted foreign currency translation gains goodwill related global power group accordance sfas 142 company longer amortizing goodwill 2003 2004 fair value reporting units exceeded carrying amounts company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated camden new jersey wastetoenergy facility 77000 associated north american power unit included operations global power group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 related foster wheeler environmental corporation ec group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two determined full write goodwill required reporting units also subjected first step goodwill impairment test december 31 2004 december 26 2003 company unamortized identifiable intangible assets 69690 71568 respectively following table details amounts relating assets amortization expense related patents trademarks fiscal years 2004 2003 2002 3650 3675 3535 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service 2003 extent credits currently utilized company’s tax return deferred tax assets adjusted valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 223330 december 31 2004 practicable estimate additional tax would incurred amounts repatriated company process reviewing foreign earnings repatriation provision american jobs creation act 2004 “act” review yet complete due complexity provision relates structure company’s unrepatriated foreign earnings given effective foreign tax rates applicable company’s unrepatriated earnings well certain restrictions act concerning definitions extraordinary dividends us investment currently considered unlikely company change existing repatriation practices result act company’s evaluation expected completed second quarter 2005 restricted net assets global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected company’s liquidity forecasts foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates earnings per share accordance emerging issues task force issue 036 “participating securities twoclass method sfas 128” company uses twoclass method allocate earnings holders preferred shares computing basic diluted earnings per share common shareholders however losses allocated holders preferred shares purposes calculating earnings per share since preferred shareholders required fund losses 75484 preferred shares outstanding december 31 2004 convertible 4906441 common shares option preferred shareholder see note 13 information regarding preferred shares basic per share data computed based weightedaverage number common shares outstanding nonvested restricted common shares 1351846 excluded computation weightedaverage number common shares outstanding restricted common shares included weightedaverage number common shares outstanding shares vest see note 14 information regarding restricted shares impact outstanding stock options warrants purchase common shares convertible securities nonvested portion restricted common shares restricted common share awards computation diluted per share data since company reported net loss periods presented see following table potentially dilutive securities foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued stock option plans company three fixedoption plans reserve shares common stock issuance executives key employees directors company adopted disclosureonly provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” company continues account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs company’s stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net loss per share would follows foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 2 summary significant accounting policies continued december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company 3 accounts notes receivable following table shows components trade accounts notes receivable foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 3 accounts notes receivable continued following table shows components nontrade accounts notes receivable 4 contracts process inventories following table shows elements included contracts process related longterm contracts december 31 december 26 contracts process costs plus accrued profits less earned revenues contracts currently process 207621 238645 less progress payments 40624 72142 net 166997 166503 costs inventories shown december 31 december 26 inventories materials supplies 6651 5098 finished goods 1692 total 7080 6790 5 land buildings equipment land buildings equipment stated cost set forth december 31 december 26 land improvements 24052 24057 buildings 137346 142608 equipment 458356 450941 construction progress 1192 5123 land buildings equipment 620946 622729 less accumulated depreciation 340641 313114 net book value 280305 309615 depreciation expense years 2004 2003 2002 28447 31214 54492 respectively foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 6 equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy refineryelectric power generation project chile two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates company’s share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 20636 17142 14006 years ended december 31 2004 december 26 2003 december 27 2002 respectively company’s investment equity affiliates totaled 109106 98651 december 31 2004 december 26 2003 respectively dividends 9221 7997 received years ended december 31 2004 december 26 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees three projects approximately 1300 total contingent obligation fourth project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance fourth project insufficient cover debt service payments finally company provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments amounts drawn letter credit undistributed retained earnings company’s equity investees amounted approximately 42087 28765 december 31 2004 december 26 2003 respectively foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 7 equityfordebt exchange 2004 company consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new senior notes due 2011 exchange certain outstanding debt securities trust securities exchange reduced company’s existing debt excluding reduction deferred accrued interest 31128 437041 improved company’s shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 exchange offer resulted aggregate 623190 increase capital stock paidin capital partially offset 175054 charge income pretax charge substantially noncash related primarily exchange convertible subordinated notes tendered exchange offer accounting equityfordebt exchange following table summarizes impact exchange offer details exchange individual debt instrument follows senior notes 675 interest due november 15 2005 “2005 senior notes” company exchanged approximately 434788 common shares approximately 82430 preferred shares 141471 principal amount senior notes 10359 due september 15 2011 “2011 senior notes” 188628 2005 senior notes resulted pretax charge 15324 comprised noncash loss exchange 13283 including premium 2011 senior notes 5659 transactionrelated costs 1825 writeoff unamortized issuance costs 216 company recorded 5659 premium since fair value 2011 senior notes determined 104 principal company also capitalized 750 issuance costs 2011 senior notes subordinated robbins facility exit funding obligations “robbins bonds” company exchanged approximately 808327 common shares approximately 152520 preferred shares 93721 robbins bonds company recorded pretax charge 10080 including noncash loss exchange 7676 transactionrelated costs 2404 convertible subordinated notes 650 interest due 2007 “convertible notes” company exchanged approximately 1661648 common shares approximately 313913 preferred shares 206930 convertible notes result exchange company recorded pretax charge 205340 including noncash conversion expense 202616 required sfas 84 “induced foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 7 equityfordebt exchange continued conversions convertible debt” transactionrelated costs 2724 additionally company charged unamortized issuance costs 3409 paidin capital mandatorily redeemable preferred securities “trust securities” company exchanged approximately 157811 common shares approximately 51081 preferred shares warrants purchase approximately 6994059 common shares 103823 trust securities conjunction exchange company recorded pretax gain 66352 including noncash gain exchange 74075 less transactionrelated costs 4244 writeoff unamortized issuance costs 3479 senior credit facility term loan revolving credit portions concurrent exchange offer company also completed 120000 private offering 10359 senior notes due 2011 series b proceeds private offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 conjunction transaction company recorded noncash pretax charge 5862 including writeoff unamortized issuance costs 1599 unamortized bank fees 4263 company also recorded premium 4800 since 2011 senior notesseries b fair value determined 104 principal finally company capitalized 966 issuance costs 2011 senior notesseries b december 31 2004 reflecting results exchange offer company aggregate indebtedness 570073 see note 8 information relating company’s indebtedness following table summarizes capital share activity associated exchange offer company issued approximately 3062574 common shares approximately 599944 preferred shares connection exchange offer preferred share convertible 65 common shares see note 13 information regarding preferred shares company issued 4152914 class stock purchase warrants trust preferred security holders tendered exchange offer addition company also distributed 40771560 class b stock purchase warrants holders record company’s common shares close business september 23 2004 see note 16 information regarding stock purchase warrants foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt following table shows components longterm debt senior credit facility august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date term loan borrowings revolving credit facility bear interest company’s option libor plus 6 b base rate plus 500 “base rate” refers higher bank america prime rate ii federal funds rate plus 05 connection equityfordebt exchange company repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 company letters credit outstanding 90018 december 31 2004 march 2005 company replaced senior credit facility new 5year senior credit agreement company obtained amendments senior credit facility provide covenant relief allow equityfordebt exchange amendments described foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt continued senior credit facility required prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts retaining 50 share balance 77000 threshold exceeded second quarter 2003 principal repayments 14100 made term loan 2003 2004 amendment 1 senior credit facility obtained november 8 2002 provided exclusion certain gross pretax charges recorded company third quarter 2002 covenant calculation purposes amendment provided certain pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred amendment 2 senior credit facility entered march 24 2003 modified certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit equityfordebt exchange internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations terms amendment called company pay fee equal 5 lenders’ credit exposure since made required prepayment principal senior credit facility 100000 march 31 2004 company paid required fee 13600 march 31 2004 annual interest rate borrowings senior credit facility increased quarter term loan revolving credit facility repaid part equityfordebt exchange amendment 4 senior credit facility entered october 30 2003 modified certain definitions representations allow maintenance administration certain bank accounts company amendment 5 senior credit facility entered may 14 2004 amended waived certain affirmative negative covenants necessary permit equityfordebt exchange well allow reduction 25000 letter credit facility consideration amendments waivers obtained amendment company obligated pay fee equal 125 lenders’ outstanding letter credit exposure november 30 2004 fee equal 075 lenders’ outstanding letter credit exposure additional month thereafter expiration date senior credit facility april 30 2005 noted company voluntarily terminated facility march 2005 company paid fees totaling 4375 related letters credit outstanding period november 30 2004 february 2005 new senior credit agreement march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement new senior credit agreement requires company maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly leverage ratio compares total indebtedness defined new senior credit agreement ebitda defined leverage ratio must less levels specified new foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt continued senior credit agreement fixed charge coverage ratio compares ebitda total fixed charges defined must greater levels specified new senior credit agreement company must compliance minimum liquidity level covenant time management’s 2005 forecast indicates company compliance financial covenants contained new senior credit agreement senior credit agreement also requires company prepay facility certain circumstances proceeds assets sales issuance debt 2005 senior notes company subsidiary foster wheeler llc issued 200000 2005 senior notes public market bearing interest fixed rate 675 per annum payable semiannually maturing november 15 2005 senior notes issued indenture company bny midwest trust company 2005 senior notes redeemable prior maturity subject sinking fund requirements part equityfordebt exchange consummated 2004 company exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes giving effect exchange 11372 2005 senior notes remains outstanding december 31 2004 notes mature november 15 2005 also connection exchange holders 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held 2005 senior notes see note 7 details equityfordebt exchange 2011 senior notes noted company exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange conjunction issuance 2011 senior notes company recorded premium 5659 since fair value 2011 senior notes 104 principal see note 7 details equityfordebt exchange 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 september 15 commencing march 15 2005 result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants must met company choose undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture concurrent equityfordebt exchange company completed 120000 private offering senior notes 10359 due september 2011 series b “private notes” proceeds private notes offering used repay amounts outstanding term loan revolving credit portions senior credit facility totaling 115869 company recorded premium 4800 offering since fair value private notes 104 principal result premium effective interest rate private notes 95602 subsequently company exchanged private notes registered 2011 senior notes december 31 2004 271643 2011 senior notes outstanding including 10172 unamortized premium convertible notes may june 2001 company issued convertible notes aggregate principal amount 210000 convertible notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt continued convertible notes subordinated right payment existing future senior indebtedness company part equityfordebt exchange company exchanged common shares preferred shares 206930 convertible notes giving effect exchange offer 3070 convertible notes remain outstanding december 31 2004 convertible notes convertible common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances see note 7 details equityfordebt exchange robbins bonds connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois foster wheeler entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” part equityfordebt exchange company exchanged common shares preferred shares 93721 robbins bonds giving effect exchange 83 1999c bonds due 2009 20491 1999c bonds due 2024 233 1999d bonds remain outstanding december 31 2004 see note 7 details equityfordebt exchange 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 trust securities fw preferred capital trust “capital trust” 100 indirectly owned finance subsidiary company issued 175000 trust securities capital trust invested proceeds trust securities equal principal amount 90 junior subordinated deferrable interest debentures “debentures” foster wheeler llc prior december 27 2003 capital trust consolidated financial statements company trust securities reported mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements accumulated undistributed quarterly distributions presented consolidated balance sheet deferred accrued mandatorily redeemable preferred security distributions subsidiary trust mandatorily redeemable preferred security distributions subsidiary trust included within interest expense consolidated statement operations comprehensive loss 2004 company adopted fin 46 variable interest entities formed prior february 1 2003 accordance provisions fin 46 company determined capital trust variable interest entity ii company primary beneficiary accordingly company deconsolidated capital trust december 27 2003 company’s consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures presented consolidated statement operations comprehensive loss interest expense foster wheeler ltd foster wheeler llc fully unconditionally guarantee trust securities trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt continued 90 accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 maturity date january 15 2029 foster wheeler redeem trust securities january 15 2004 new senior credit agreement requires approval lenders make payments trust securities extent payments contractually required underlying trust securities agreements part equityfordebt exchange company issued common shares preferred shares warrants purchase common shares exchange trust securities conjunction exchange capital trust recorded 103823 reduction trust securities 31128 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding reduction debentures accrued interest receivable giving effect exchange 71177 trust securities remains outstanding december 31 2004 see note 7 details equityfordebt exchange specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned company notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects martinez cogen limited partnership debt 15260 represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semiannually july 30 2006 note matures july 30 2006 project located california foster wheeler coque verde debt 35126 represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets special purpose subsidiary indirect owner project chile camden county energy recovery associates debt 68895 represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant project located new jersey capital leases 2002 company entered saleleaseback transactions office buildings finland united states transactions qualified capital leases 2004 company entered capital lease office building south africa assets capital leases summarized follows december 31 december 26 buildings improvements 45306 38522 less accumulated amortization 5222 1276 net assets capital leases 40084 37246 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 8 longterm debt continued following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year 7529 7954 7519 7678 7943 thereafter 126147 less interest 97483 net minimum lease payments capital leases 67287 less current portion net minimum lease payments longterm net minimum lease payments 66297 january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 interest costs interest costs incurred 2004 2003 2002 94622 95791 84396 respectively 0 307 1368 respectively capitalized aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 10172 next five years december 31 2004 follows fiscal year 34224 22250 16059 13810 14841 thereafter 391430 total 492614 9 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs contributions made intended provide benefits attributed service date also expected earned future foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued company also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 company froze serp issued letters credit totaling 2250 certain employees support obligations serp december 31 2004 company 870 letters credit outstanding april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following domestic pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution net effect changes improves financial condition company reduced costs reduced cash outflow future years domestic subsidiaries company 401k plan salaried employees years 2004 2003 company contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 3317 4066 2004 2003 respectively year 2002 company contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507 year ended december 31 2004 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 300590 resulting cumulative pretax charge comprehensive loss represents reduction minimum liability 11156 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued following charts contain disclosures pension benefits years 2004 2003 2002 charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued settlement 2004 obligations former executives supplemental executive retirement plan 1390 ii impact 2003 freezing domestic pension plans mothballing domestic manufacturing facility 900 employee terminations part workforce reduction 100 iii retirement 2002 company’s vice president human resources approximately 900 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” company’s plans totaled approximately 902800 811800 yearend 2004 2003 respectively previously discussed company recorded net cumulative charge comprehensive loss years 2000 2004 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines asset mix target plans 725 equities 275 fixedincome securities investment policy currently undergoing review company ensure investment strategy aligned plan liabilities considering changes domestic benefits program made 2004 investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 82 75 past three years foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued contributions company expects contribute total approximately 20400 domestic pension plans approximately 30700 foreign pension plans 2005 contributions domestic pension plans expected approximate 22100 2006 16400 2007 7900 2008 1800 2009 zero year thereafter estimated future benefit payments following benefit payments reflect expected future service expected paid defined benefit plans postretirement benefits addition providing pension benefits company’s subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs following chart contains disclosures postretirement benefit plans years 2004 2003 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects plan measurement date measurement date company’s postretirement benefit plans december 31 year obligations contributions company expects contribute total approximately 7719 postretirement benefit plans 2005 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 9 pensions postretirement benefits continued estimated future benefit payments following postretirement benefit payments reflect expected future service expected paid benefits certain company’s foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 32650 24326 recorded december 31 2004 december 26 2003 respectively related benefits company also benefit plan survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan 23572 24146 december 31 2004 december 26 2003 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 6351 7240 december 31 2004 december 26 2003 respectively 10 guarantees warranties company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale company provides project execution warranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 11 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 2 19 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 559900 609000 december 31 2004 december 26 2003 respectively balances include standby letters credit issued senior credit facility discussed note 8 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2004 company 46275 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2004 december 26 2003 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 december 31 2004 december 26 2003 respect partnership interest commercial real estate project foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 12 capital share alterations connection equityfordebt exchange company certain holders company’s debt securities trust securities entered lockup agreement dated july 30 2004 pursuant lockup agreement holders agreed tender securities exchange company agreed submit certain capital share alteration matters shareholders approval accordingly november 29 2004 shareholders approved following capital share alterations • reduction par value authorized common preferred share capital shareholders approved reduction par value authorized common share preferred share capital 100 001 per share result par value reduction company’s financial statements adjusted move paid amount 099 respect issued common share issued preferred share capital paidin capital • increase number authorized common shares shareholders approved increase number authorized common shares 160000000 1475908957 increase number authorized common shares enabled company issue common shares issuable upon conversion preferred shares permits company issue common shares rather preferred shares upon exercise warrants issued equityfordebt exchange offer • consolidation authorized common share capital shareholders approved consolidation authorized common share capital ratio onefortwenty “reverse stock split” followed reduction par value common shares 020 001 per share result reverse stock split shareholder common shares holds one common share every 20 common shares held reverse stock split conversion ratio preferred shares terms company’s issued options warrants purchase common shares adjusted accordingly result par value reduction company’s financial statements adjusted move paid amount 019 respect issued common share capital paidin capital result aforementioned capital share alterations references share capital number shares per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect capital share alterations retroactive basis following table displays effects proposals company’s capital shares reflect subsequent conversions preferred shares common shares foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 13 preferred shares company issued approximately 599944 preferred shares connection equityfordebt exchange consummated 2004 preferred share optionally convertible 65 common shares december 31 2004 75484 preferred shares remained outstanding preferred shareholders voting rights except certain limited circumstances preferred shares right receive dividends distributions including liquidating distributions asconverted basis declared company paid common shares preferred shares 001 liquidation preference 14 restricted stock plan october 6 2004 management issued 1883745 restricted common share awards accordance company’s management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted awards vest fourth quarter 2005 balance vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share november 29 2004 company’s shareholders approved grant 18065 restricted share units nonemployee directors restricted share units awarded nonemployee directors vest december 31 2005 grant date fair value restricted common share awards issued nonemployee directors 1540 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 17609 related compensation expense recorded 2004 1712 15 stock option programs september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 issuance options management result unearned compensation charge since exercise price options greater market price underlying shares date grant november 29 2004 company’s shareholders approved grant options 2004 plan purchase 413 preferred shares company’s nonemployee directors exercise price 9378 per common share issuable options expire october 5 2007 nonemployee director options vest december 31 2005 upon shareholder approval option grant nonemployee directors unearned compensation 162 recorded since exercise price options 9378 per share less market price underlying shares 1540 per share unearned compensation charge equivalent difference market value underlying shares exercise price options recorded part shareholders’ deficit corresponding increase paidin capital foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 15 stock option programs continued unearned compensation amortized compensation expense appropriate vesting period grant related compensation expense recorded 2004 12 november 29 2004 option 2004 plan purchase preferred shares granted management nonemployee directors mandatorily converted option purchase 65 common shares exercise price 9378 per common share issuable 1995 stock option plan approved shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 shareholders approved stock option plan directors company april 29 1997 shareholders approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors company automatically receive option acquire 150 shares year plans provide shares granted come company’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect wholly owned subsidiary company also granted 65000 inducement options 2001 chief executive officer connection employment agreement 50000 options 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter company granted 12750 inducement options president chief executive officer foster wheeler north america corp formerly known “foster wheeler power group inc” connection employment agreement 2002 granted 5000 inducement options 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted information regarding option plans years 2004 2003 2002 follows presented actual number shares foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 15 stock option programs continued following table summarizes information fixedprice stock options outstanding december 31 2004 16 stock purchase warrants connection exchange offer consummated 2004 company issued 4152914 class common stock purchase warrants “class a” 40771560 class b common stock purchase warrants “class b” class warrant entitles owner purchase 16841 common shares exercise price foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 16 stock purchase warrants continued 9378 per common share issuable thereunder class warrants exercisable september 24 2005 september 24 2009 number common shares issuable upon exercise class warrants approximately 6994059 class b warrant entitles owner purchase 00723 common shares exercise price 9378 per common share issuable thereunder class b warrants exercisable september 24 2005 september 24 2007 number common shares issuable upon exercise class b warrants approximately 2947233 holders class b warrants entitled vote receive dividends exercise rights common shareholders purpose warrants duly exercised company plans file maintain times warrants exercisable “shelf” registration statement relating issuance common shares underlying warrants benefit warrant holders expiration date warrants extended period equal aggregate time registration statement available holders warrants become exercisable 17 preferred share purchase rights 1987 company adopted rights agreement granted holders preferred share purchase rights “rights” ability purchase one onehundredth share new series preferred stock company exercise price 175 certain limited circumstances rights due expire may 20 2011 september 23 2004 board directors passed resolution authorized foster wheeler ltd enter amendment 1 rights agreement amend section 7 rights agreement change expiration date may 20 2011 september 23 2004 amendment 1 rights agreement executed september 23 2004 rights agreement terminated september 23 2004 18 income taxes components loss income taxes years 2004 2003 2002 taxed following jurisdictions provision income taxes earnings follows foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 18 income taxes continued deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire years 2011 2012 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change reduction valuation allowance 300358 primarily due consummation equityfordebt exchange offer discussed valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws result recently consummated equityfordebt exchange offer discussed note 7 company subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period since valuation allowance already reflected offset losses credits limitation result material writeoff company part overall reorganization took place may 2001 company transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 18 income taxes continued transfer subject tax us required sfas 109 us tax charge gain reported consolidated financial statements deferred charge amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 19 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 31 2004 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded pretax losses 2004 2003 2900 5160 respectively recorded pretax gain 8470 2002 amounts recorded reductions cost operating revenues consolidated statement operations comprehensive loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 31700 owed company counterparties 14600 owed company counterparties 3834 net tax gain recorded comprehensive loss december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months 20 business segments data company operates two business groups also constitute separate reportable segments engineering construction group “ec group” global power group ec group designs engineers constructs upstream oil gas processing facilities oil refining chemical foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 20 business segments data continued petrochemical pharmaceutical natural gas liquefaction lng facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers subcontractors ec group owns industry leading technology delayed coking solvent deasphalting hydrogen production processes used oil refineries access numerous technologies owned others ec group also provides international environmental remediation services together related technical engineering design regulatory services ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners company provides broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs ie electricity steam etc operating maintenance agreements returns equity investments certain production facilities company restated business segment data reflect transfer one operating subsidiaries canada ec group global power group subsidiary’s operations consolidated another subsidiary whose operations historically reported part global power group company conducts business global basis ec group accounted largest portion company’s operating revenues last ten years 2004 ec group global power group accounted approximately 62 38 respectively operating revenues geographic dispersion operating revenues year ended december 31 2004 follows management uses several financial metrics measure performance company’s business segments ebitda primary earnings measure used company’s chief decision makers foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 20 business segments data continued export revenues account 4 operating revenues single customer represented 10 operating revenues 2004 2003 2002 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 20 business segments data continued 1 includes general corporate income expense company’s captive insurance operation eliminations 2 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 company’s equity interest wastetoenergy project italy reevaluation contract costs estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 3 includes 2003 impairment loss 15100 cf anticipated sale domestic corporate office building gain 16700 ec sale foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf 4 includes 2002 loss recognized anticipation sales assets 54500 global power reevaluation project claim estimates contract cost estimates 216700 121650 ec 86450 global power 8600 cf provision 26200 cf asbestos claims provision 18700 global power domestic plant impairment restructuring credit agreement costs 37100 cf charges severance cost 7700 500 ec 4300 global power 2900 cf 5 excludes cumulative effect 2002 change accounting principle related goodwill 48700 ec 101800 global power foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 20 business segments data continued revenues longlived assets based country contracting subsidiary located operating revenues industry segment follows decline operating revenues environmental industry segment resulted sale certain assets environmental march 7 2003 operating revenues segment environmental 2004 2003 2002 22800 68100 303700 respectively 21 sale certain business assets 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility sold october 2003 loss 19000 also recorded 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 21 sale certain business assets continued charleston wastetoenergy facility sold october 2002 losses recorded deductions consolidated statement operations comprehensive loss third quarter 2002 management global power group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 “accounting impairment disposal longlived assets” facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter 2002 impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive loss fourth quarter 2002 company decided mothball facility additional charges 5300 recorded december 2002 facility ceased operations march 7 2003 company sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 company recognized gain 15300 sale recorded income first quarter 2003 company also retained approximately 8000 cash hand time asset sale sales proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 company buyer agreed final net worth calculation resulted company returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february transactions related sale concluded march 31 2003 company sold interest corporate office building net proceeds approximately 7900 approximated value company’s investment completion transaction 1445 net proceeds used prepay principal outstanding senior credit facility accordance terms facility described note 8 2004 company sold domestic corporate office building net cash proceeds approximately 16400 approximated carrying value amount 50 prepaid senior credit facility’s lenders second quarter 2004 company previously recorded impairment loss 15100 building 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated balance sheet december 26 2003 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 22 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases total approximately 34048 2004 34117 2003 37465 2002 future minimum rental commitments noncancelable leases follows fiscal year 33132 27540 23439 21147 20622 thereafter 240698 366578 company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended december 31 2004 december 26 2003 december 27 2002 respectively december 31 2004 december 26 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 23 litigation uncertainties asbestos company’s us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company’s subsidiaries 1970s prior united states summary us claim activity three years ended december 31 2004 follows includes claims inactive court dockets 22300 24500 yearend 2004 yearend 2003 respectively overall average combined indemnity defense cost per closed claim since 1993 approximately 20 view many uncertainties associated asbestos bodily injury claims company believes average cost increase future foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 100200 2004 73600 2003 57200 2002 payments 2004 funded settlements insurance companies discussed december 31 2004 company recorded total liabilities 480000 comprised estimated liability relating open outstanding claims 257000 estimated liability relating future unasserted claims 223000 total 75000 recorded accrued expenses 405000 recorded asbestosrelated liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type ie mesothelioma vs nonmesothelioma breakdown known future claims disease type ie mesothelioma vs nonmesothelioma claims settled six years old considered abandoned longer valued estimated liability approximately 9100 cases december 31 2004 total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments estimated incurred year 2019 period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2019 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2019 historically defense costs represented approximately 21 total defense indemnity costs december 31 2004 total indemnity costs paid prior insurance recoveries approximately 443700 total defense costs paid approximately 119900 december 31 2004 company recorded assets 385500 relating actual probable insurance recoveries 95000 recorded accounts notes receivables 290500 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asset includes estimate recoveries insurers based upon assumptions relating cost allocation resolution pending legal proceedings certain insurers well recoveries settlements insurers december 31 2004 165200 contested subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries’ various insurers subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurer would immaterial company’s subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portion outofpocket costs previously incurred company intends negotiate additional settlements order minimize amount future costs company required fund working capital company projects required fund asbestos liabilities cash flow 2010 although may required fund portion liabilities cash thereafter forecast assumes company able successfully resolve certain outstanding insurance coverage issues adverse outcome insurance litigation coverage issues could materially limit company’s insurance recoveries regard january 10 2005 new york state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among foster wheeler entities various insurers since inception litigation company calculated estimated insurance recoveries applying new jersey law however application new york rather new foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued jersey law would result company’s subsidiaries realizing lower insurance recoveries thus result decision company recorded charge earnings fourth quarter 2004 approximately 76000 reduced yearend carrying value probable insurance recoveries similar amount unless decision reversed appeal company expects required fund portion asbestos liabilities cash beginning 2010 amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes company insurers yet settled february 16 2005 company’s subsidiaries filed separate motions seeking reargument decision ii appeal decision higher court assurances timing outcome motions addition even coverage issues resolved manner favorable company may able collect amounts due insurance policies company’s recoveries limited insolvencies among insurers company aware least two significant insurers currently insolvent insurers may become insolvent future company’s insurers may also fail reimburse amounts owed company timely basis company receive timely payment insurers may unable make required payments settlement agreements asbestos plaintiffs fund amounts required posted court order appeal trial judgments company unable file appeals company’s subsidiaries may ordered pay large damage awards arising adverse jury verdicts awards may exceed available cash failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries reduce cash flow adversely affect liquidity could material adverse effect company’s financial condition pending litigation negotiations insurers continuing noted estimate assets liabilities related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows united kingdom subsidiaries company uk also received claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 total 1900 recorded accrued expenses 42400 recorded asbestosrelated liability consolidated balance sheet estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 asset equal amount recorded expected uk asbestosrelated insurance recoveries 1900 recorded accounts notes receivables 42400 recorded asbestosrelated insurance recovery receivable consolidated balance sheet foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued project claims ordinary course business company subsidiaries parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract charges could material adverse impact company’s liquidity financial condition company believes consultation counsel litigation material adverse effect upon company’s financial position liquidity giving effect provisions already recorded addition matters described arbitration commenced company arising compact circulating fluidizedbed boiler company engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations company relief granted company could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified company vigorously defending case counterclaimed unpaid receivables approximating 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon company’s investigation proceedings date appear valid defenses claim however premature predict outcome proceeding company notified claim client respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted plan repair foundations seeking reimbursement costs approximating 11000 consortium additional damages could alleged matter proceeds adversary proceeding company investigating claim well rights may seek reimbursement damages third parties valid legal defenses claim appear exist however premature predict outcome matter camden county wastetoenergy project one company’s project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pollution control finance authority camden county “pcfa” finance construction project acquire landfill camden county’s use 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due bonds outstanding camden project issued pcfa company ccera bonds guaranteed company ccera pursuant loan agreement pcfa ccera proceeds bonds used finance construction facility accordingly proceeds recorded debt ccera’s balance sheet therefore included company’s consolidated balance sheet ccera’s obligation service debt obtained pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time management cannot determine ultimate outcome foregoing potential effects ccera project state fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds company believe collateral includes ccera’s plant longterm government contract company retained longterm contract government agency connection foster wheeler environmental corporation sale contract scheduled completed four phases first phase initial design permitting licensing spent fuel facility first phase project profitable second phase contract currently executed billed costplusfee basis expected conclude 2004 phase company must license facility nrc respond questions regarding initial design included phase one complete final design technical specification detailed guidance government agency regarding government agencydirected changes project scope remain outstanding resolution outstanding issues required second phase contract completed phase three construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility received november 30 2004 delay also result substantial additional facility costs third phase would begin purchase longlead items followed construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency engaged discussions possibly restructuring terminating subsequent phases contract project proceed company intends seek thirdparty financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot successfully restructure contract cannot obtain thirdparty financing required surety bond company’s ability perform obligations contract unlikely could material adverse effect company’s financial condition results operations cash flow claims raised government foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued agency company ultimate potential liability company would arise event government agency terminates contract example due company’s inability continue contract rebids contract exact terms resulting cost government agency greater would existing terms company believe claim probable unable estimate possible loss could occur result claims additionally company believes variety potential legal defenses government agency decide pursue action environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person “offsite facility” liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors company currently owns operates industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances company aware conditions currently owned facilities united states expects cause company incur material costs excess reserves established company also may receive claims pursuant indemnity obligations owners recently sold facilities may require company incur costs investigation andor remediation based available information company believe costs materially excess reserves established assurance provided company discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring company incur material expenditures investigate andor remediate conditions company notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites company’s liability substantially less total site remediation costs percentage waste attributable company compared attributable prps low company believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate february 1988 one company’s subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order “order” united states environmental protection agency “usepa” pennsylvania department environmental protection “padep” regarding former manufacturing facility mountaintop pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order fwec 1993 installed “pump treat” system foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 23 litigation uncertainties continued remove tce groundwater possible present time predict long fwec required operate maintain system annual cost operating maintaining system material september 2004 fwec sampled domestic water supply approximately 16 residences mountaintop received validated testing data regarding sampling october 2004 residences located approximately one mile southwest historic source tce fwec’s former facility believed residences use private wells domestic water results sampling indicated tce present water several residences levels excess safe drinking water act standards since initial round testing september 2004 fwec tested wells february 2005 number wells area containing tce excess standards approximately 30 fwec believes boundaries affected area delineated source tce wells yet determined fwec working closely appropriate regulatory authorities responding situation fwec first provided affected residences temporary replacement water arranged filters installed residences’ water system remove tce fwec also arranged filters periodically tested maintained cost foregoing expected material source tce determined thirdparty fwec evaluate options regarding recovery costs incurred options could include seeking recover costs determined source agencies incurred 500 costs responding situation may seek recover determined sources tce company agencies reviewing technical economic feasibility extending public water line exists one end effected area end effected area given preliminary stage investigations fwec unable estimate potential financial impact foregoing fwec ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges financial position results operations cash flows excess amounts previously provided accounts foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 24 quarterly financial data unaudited effect stock options convertible notes included calculation diluted earnings per share due antidilutive effect foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information 2005 senior notes result reorganization may 25 2001 foster wheeler llc successor foster wheeler corporation became obligor senior notes 675 interest due november 15 2005 “2005 senior notes” foster wheeler ltd following companies issued guarantees favor holders 2005 senior notes equipment consultants inc foster wheeler holdings ltd formerly known “foreign holdings ltd” foster wheeler asia limited foster wheeler constructors inc foster wheeler development corporation foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler environmental corporation foster wheeler facilities management inc foster wheeler inc foster wheeler international corporation foster wheeler international holdings inc foster wheeler north america corp formerly known “foster wheeler power group inc” foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corporation foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler zack inc hfm international inc process consultants inc pyropower operating services company inc perryville iii trust guarantees full unconditional joint several foster wheeler llc subsidiary guarantors 100 owned directly indirectly foster wheeler ltd summarized consolidating financial information presented lieu separate financial statements related disclosures subsidiary guarantors issuer management believe separate financial statements related disclosures would material investors none subsidiary guarantors restricted making distributions company 2004 company completed equityfordebt exchange issued common shares preferred shares new 2011 senior notes exchange portion 2005 senior notes see note 7 details regarding exchange including amount 2005 senior notes exchanged following represents summarized condensed consolidating financial information december 31 2004 december 26 2003 respect financial position three years period ended december 31 2004 results operations cash flows foster wheeler ltd column presents parent company’s financial information foster wheeler ltd also guarantor foster wheeler llc column presents issuer’s financial information guarantor subsidiaries column presents financial information guarantors excluding foster wheeler ltd separately presented guarantor subsidiaries include results foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly guarantor subsidiaries nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive lossincome year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2005 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes may june 2001 foster wheeler ltd issued 65 convertible subordinated notes “convertible notes” due 2007 convertible notes fully unconditionally guaranteed foster wheeler llc 100 owned subsidiary foster wheeler ltd foster wheeler llc assumed obligation fund debt service following summarized consolidating financial information presented lieu separate financial statements related disclosures foster wheeler llc management believe separate financial statements related disclosures would material investors 2004 company completed equityfordebt exchange issued common shares preferred shares exchange portion convertible notes see note 7 details regarding exchange including amount convertible notes exchanged following represents summarized condensed consolidating financial information december 31 2004 december 26 2003 respect financial position three years period ended december 31 2004 results operations cash flows foster wheeler ltd column presents financial information parent company also issuer guarantor subsidiary column presents financial information sole guarantor foster wheeler llc nonguarantor subsidiaries include results direct indirect nonguarantor subsidiaries foster wheeler ltd including foster wheeler holdings ltd previously known “foreign holdings ltd” parent foster wheeler llc foster wheeler llc owns directly indirectly non guarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued b convertible subordinated notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities january 13 1999 fw preferred capital trust “capital trust” delaware business trust 100 indirectly owned finance subsidiary company consummated 175000 public offering 7000000 trust preferred securities “trust securities” trust securities fully unconditionally guaranteed joint several basis foster wheeler ltd foster wheeler llc accrue cumulative distributions annual rate 9 distributions payable quarterly arrears april 15 july 15 october 15 january 15 year maturity date trust securities january 15 2029 however capital trust redeem trust securities january 15 2004 capital trust invested proceeds sale trust securities equal principal amount 90 junior subordinated deferrable interest debentures foster wheeler llc due january 15 2029 “debentures” company used net proceeds pay indebtedness revolving credit agreement capital trust distributes quarterly cash payments may receive foster wheeler llc interest debentures trust securities security holders foster wheeler llc may defer interest debentures 20 consecutive quarterly periods occurs capital trust also defers distribution payments trust securities accordance provision capital trust deferred quarterly distributions beginning distribution due january 15 2002 prior december 27 2003 capital trust consolidated financial statements company trust securities presented mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements accumulated undistributed quarterly distributions presented consolidated balance sheet deferred accrued mandatorily redeemable preferred security distributions subsidiary trust distributions expense trust securities presented interest expense consolidated statement operations comprehensive loss effective december 27 2003 company adopted fin 46 variable interest entities formed prior february 1 2003 accordance provisions fin 46 company determined capital trust variable interest entity ii company primary beneficiary accordingly company deconsolidated capital trust december 27 2003 company’s consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures presented consolidated statement operations comprehensive loss interest expense 2004 company completed equityfordebt exchange issued common shares preferred shares warrants purchase common shares exchange portion trust securities see note 7 details regarding exchange including amount trust securities exchanged summarized condensed financial information capital trust foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued sfas 114 “accounting creditors impairment loan” states “a loan impaired based current information events probable creditor unable collect amounts due according contractual terms loan agreement” sfas 114 requires measurement impairment based one several methods including loan’s observable market price capital trust established valuation allowance subordinated deferrable interest debentures related interest income receivable foster wheeler llc based foster wheeler ltd’s foster wheeler llc’s financial condition decision exercise right defer payments debentures since january 15 2002 subordinated deferrable interest debentures related interest income receivable mandatorily redeemable trust preferred securities assets liabilities capital trust result capital trust measures loan impairment based market price mandatorily redeemable trust preferred securities deemed proxy loan’s observable market price decrease valuation allowance years ended december 31 2004 december 26 2003 resulted increase market price mandatorily redeemable trust preferred securities market price per security trust securities 2705 december 31 2004 300 december 26 2003 135 december 27 2002 additionally capital trust recorded gain exchange mandatorily redeemable preferred trust securities 39430 2004 difference gain recognized capital trust 39430 gain recorded foster wheeler llc 66352 due 1 34646 loss recognized capital trust settlement 593 subordinated deferrable interest debentures corresponding accrued interest 2 transaction fees 4244 write unamortized issuance costs 3480 borne foster wheeler llc foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued following represents summarized condensed consolidating financial information december 31 2004 respect financial position year ended december 31 2004 results operations cash flows following summarized condensed consolidating financial information presented lieu separate financial statements related disclosures guarantors management believe separate financial statements related disclosures would material investors foster wheeler ltd column presents parent company’s financial information foster wheeler ltd foster wheeler llc guarantors foster wheeler llc 100 owned indirect subsidiary foster wheeler ltd guarantees full unconditional joint several nonguarantor subsidiaries include foster wheeler holdings ltd previously known “foreign holdings ltd” parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued previously noted capital trust consolidated financial statements company prior december 27 2003 accordingly trust securities presented mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements accumulated undistributed quarterly distributions presented consolidated balance sheet deferred accrued mandatorily redeemable preferred security distributions subsidiary trust distributions expense trust securities presented mandatorily redeemable preferred security distributions subsidiary trust consolidated statement operations comprehensive loss following represents summarized condensed consolidating financial information december 26 2003 respect financial position two years period ended december 26 2003 results operations cash flows following summarized condensed consolidating financial information presented lieu financial statements 100 indirectly owned subsidiary guarantor issuer management believe separate financial statements related disclosures would material investors foster wheeler ltd column presents parent company’s financial information foster wheeler ltd also guarantor fw preferred capital trust column presents financial information issuer guarantor subsidiary column presents financial information foster wheeler llc excludes foster wheeler ltd separately presented guarantees foster wheeler ltd foster wheeler llc full unconditional joint several nonguarantor subsidiaries include foster wheeler holdings ltd parent foster wheeler llc foster wheeler llc owns directly indirectly nonguarantor subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 1 purposes condensed consolidated financial information fw preferred capital trust reflected valuation allowance intercompany note receivable foster wheeler llc allowance reflected condensed consolidating financial statements foster wheeler ltd foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 26 2003 1 purposes condensed consolidated financial information fw preferred capital trust reflected valuation allowance intercompany note receivable foster wheeler llc allowance reflected condensed consolidating financial statements foster wheeler ltd foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 1 purposes condensed consolidated financial information fw preferred capital trust reflected valuation allowance intercompany note receivable foster wheeler llc allowance reflected condensed consolidating financial statements foster wheeler ltd foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued c trust preferred securities continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes conjunction equityfordebt exchange foster wheeler llc issued new 2011 senior notes exchange portion 2005 senior notes see note 7 details regarding exchange 2011 senior notes fully unconditionally guaranteed foster wheeler ltd following companies continental finance company ltd energy holdings inc equipment consultants inc financial services sarl foster wheeler holdings ltd foster wheeler asia limited foster wheeler caribe corporation ca foster wheeler constructors inc foster wheeler continental bv foster wheeler development corporation fw energie bv foster wheeler energy corporation foster wheeler energy manufacturing inc foster wheeler energy services inc foster wheeler environmental corporation foster wheeler europe bv foster wheeler europe limited foster wheeler facilities management inc foster wheeler inc foster wheeler intercontinental corporation foster wheeler international corporation foster wheeler international holdings inc foster wheeler middle east corporation foster wheeler north america corp formerly known “foster wheeler power group inc” foster wheeler petroleum services sae foster wheeler power companyla societe d’ energie foster wheeler ltee foster wheeler power corporation foster wheeler power systems inc foster wheeler pyropower inc foster wheeler real estate development corporation foster wheeler realty services inc foster wheeler usa corporation foster wheeler virgin islands inc foster wheeler zack inc fw gestao e servicos sa fw hungary licensing limited liability company fw management operations ltd fw overseas operations limited hfm international inc manops limited pe consultants inc perryville service company ltd pgi holdings inc process consultants inc pyropower operating services company inc perryville iii trust singleton process systems gmbh guarantees full unconditional joint several foster wheeler llc subsidiary guarantors 100 owned directly indirectly foster wheeler ltd summarized consolidating financial information presented lieu separate financial statements related disclosures subsidiary guarantors issuer management believe separate financial statements related disclosures would material investors following represents summarized condensed consolidating financial information december 31 2004 december 26 2003 respect financial position three years period ended december 31 2004 results operations cash flows foster wheeler ltd column presents parent company’s financial information foster wheeler ltd also guarantor foster wheeler llc column presents issuer’s financial information guarantor subsidiaries column presents financial information guarantors excluding foster wheeler ltd separately presented guarantor subsidiaries include results foster wheeler holdings ltd formerly known “foreign holdings ltd” parent foster wheeler llc foster wheeler llc owns directly indirectly guarantor subsidiaries nonguarantor subsidiaries terms 2011 senior notes indenture company option add certain specified wholly owned subsidiaries guarantors december 31 2004 avoid 1 increase interest rate company added one additional guarantors december 31 2004 final guarantor added january 2005 accordingly interest rate 2011 senior notes 1 higher period time january 2005 company provided additional guarantor subsidiary foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating balance sheet december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive incomeloss year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive lossincome year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement operations comprehensive loss year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 31 2004 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 26 2003 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 25 consolidating financial information continued 2011 senior notes continued foster wheeler ltd condensed consolidating statement cash flows year ended december 27 2002 foster wheeler ltd subsidiaries notes consolidated financial statements continued thousands dollars except share data per share amounts 26 related party transactions mr kenneth hiltz served chief financial officer foster wheeler ltd april 7 2003 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners provide financial management consulting services mr hiltz also principal alixpartners llc mr ryan j esko employee alixpartners served treasurer company november 26 2002 january 30 2004 pursuant agreement foster wheeler ap services llc subsidiary alixpartners also provide financial management services company paid alixpartners llc approximately 743 mr hiltz’s services 1017 mr esko’s services 2003 approximately 172 mr hiltz’s services 118 mr esko’s services december 2004 based upon agreement terms additional 8613 2003 2952 2004 paid alixpartners financial management consulting services mr victor hebert attorney law firm heller ehrman white mcauliffe llp served director foster wheeler ltd 2003 resignation november 2003 law firm heller ehrman white mcauliffe appointed serve company’s general counsel connection retirement company’s general counsel thomas r o’brien mr hebert behalf heller ehrman selected lead company’s legal team assistant secretary february 10 2005 ceased general counsel assistant secretary company made payments heller ehrman amount 1317 2004 foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance included following pages financial statements certain foster wheeler ltd indirectly wholly owned subsidiary companies company required provide financial statements regulation sx rule 316 “financial statements affiliates whose securities collateralize issue registered” stock andor debt subsidiaries collateralize company’s senior notes due 2011 described note 8 foster wheeler ltd’s consolidated financial statements appearing item 8 foster wheeler holdings ltd subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive loss cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler holdings ltd “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 26 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 3 consolidated financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill tangible assets” accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler holdings ltd subsidiaries consolidated statement operations comprehensive loss thousands dollars see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated statement changes shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler holdings ltd subsidiaries consolidated statement cash flows thousands dollars noncash financing activities 2004 company exchanged 623190 notes accounts payable foster wheeler ltd 147130 longterm debt 593102 existing debt trust securities see note 8 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler holdings ltd subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler holdings ltd “company” “foster wheeler” incorporated december 18 2000 laws bermuda company wholly owned subsidiary foster wheeler ltd “parent” foster wheeler holdings ltd holding company owns stock foster wheeler llc pursuant reorganization occurred may 25 2001 foster wheeler corporation merged foster wheeler llc assets primarily investments subsidiaries design engineer construct petroleum chemical petrochemical alternative fuel facilities related infrastructures design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide liabilities foster wheeler corporation recorded foster wheeler llc historical cost business company falls within two business groups engineering construction group “ec group” designs engineers constructs petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities ec group provides direct technical management services purchases equipment materials services third party vendors subcontractors group industry leading technology delayed coking solvent deasphalting hydrogen production ec group also provides broad range environmental remediation services together related technical design regulatory services global power group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries global power group generates revenues construction operating activities pursuant longterm sale project outputs ie electricity contracts operating maintenance agreements returns equity positions corporate center restructuring expenses certain legacy liabilities eg corporate debt included corporate finance group “cf” 2 going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well company’s ability maintain credit facilities bonding capacity adequate conduct business company incurred significant operating losses years threeyear period ended december 31 2004 shareholder’s deficit 1140764 december 31 2004 company conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities completing exchange company outstanding debt obligations approximately 567003 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued december 31 2004 refer notes 8 9 details exchange information regarding company’s outstanding indebtedness august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange company prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement company finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement company leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt accompanying consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates company compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance company comply covenants company violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 company would able repay amounts borrowed payment dates accelerated holders company’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit company’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture connection exchange holders company’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued since january 15 2002 company exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange see note 8 consolidated financial statements details exchange offer previous senior credit facility required company defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 company intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied company right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreement global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected company’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability company’s cash flow forecasts continue indicate sufficient cash available fund company’s us foreign working capital needs throughout 2005 december 31 2004 company cash equivalents shortterm investments restricted cash totalling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries see note 3 additional details cash restricted cash balances company’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related company’s indebtedness obligations fund us pension plans corporate overhead expenses consequently company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt company’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 company repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained company connection sales assets foster wheeler environmental corporation “environmental” described note 18 consolidated financial statements commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” company funded plant’s construction costs operates facility majority company’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 company’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt company’s ability continue going concern 3 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler holdings ltd significant domestic foreign subsidiary companies intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2004 included 53 weeks 2003 2002 included 52 weeks foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result process 2004 54 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted 37600 estimates costs complete long term contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 3946 claims recorded company’s european operations additionally consolidated financial statements assume recovery 11000 requests equitable adjustment “rea” december 31 2004 1200 recorded contracts process balance 9800 represents costs yet incurred rea relates primarily claim us government agency project currently executed company currently discussing details rea us government agency claim unsuccessful costs would charged cost operating revenues company commercial claims receivable requests equitable adjustment recorded december 26 2003 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract december 31 2004 precontract costs deferred certain specialpurpose subsidiaries global power group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 225861 maintained foreign subsidiaries december 31 2004 subsidiaries require substantial portion funds support liquidity working capital needs well required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments consist primarily certificates deposit classified held maturity financial accounting standards board statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 4 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision inventories principally materials supplies stated lower cost market determined primarily averagecost method foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held company investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years company tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year company evaluates goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 31 2004 december 26 2003 company unamortized goodwill 51812 51121 respectively increase goodwill 691 resulted foreign currency translation gains goodwill related global power group accordance sfas 142 company longer amortizing goodwill 2003 2004 fair value reporting units exceeded carrying amounts company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated camden new jersey wastetoenergy facility 77000 associated north american power foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued unit included operations global power group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 related foster wheeler environmental corporation ec group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two determined full write goodwill required reporting units also subjected first step goodwill impairment test december 31 2004 december 26 2003 company unamortized identifiable intangible assets 69690 71568 respectively following table details amounts relating assets amortization expense related patents trademarks fiscal years 2004 2003 2002 3650 3675 3535 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service 2003 extent credits currently utilized company’s tax return deferred tax assets adjusted valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 223330 december 31 2004 practicable estimate additional tax would incurred amounts repatriated company process reviewing foreign earnings repatriation provision american jobs creation act 2004 “act” review yet complete due complexity provision relates structure company’s unrepatriated foreign earnings given effective foreign tax rates applicable company’s unrepatriated earnings well certain restrictions act concerning definitions extraordinary dividends us investment currently considered unlikely company change existing repatriation practices result act company’s evaluation expected completed second quarter 2005 restricted net assets global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio long performance bonds outstanding equity company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenants reflected company’s liquidity forecasts foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates stock option plans foster wheeler ltd three fixedoption plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continues account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs company’s stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net loss per share would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 4 accounts notes receivable following table shows components trade accounts notes receivable following table shows components nontrade accounts notes receivable foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 5 contracts process inventories following table shows elements included contracts process related longterm contracts costs inventories shown 6 land buildings equipment land buildings equipment stated cost set forth depreciation expense years 2004 2003 2002 28447 31214 54492 respectively foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 7 equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy refineryelectric power generation project chile two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates company’s share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 20636 17142 14006 years ended december 31 2004 december 26 2003 december 27 2002 respectively company’s investment equity affiliates totaled 109106 98651 december 31 2004 december 26 2003 respectively dividends 9221 7997 received years ended december 31 2004 december 26 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees three projects approximately 1300 total contingent obligation fourth project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance fourth project insufficient cover debt service payments finally company provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments amounts drawn letter credit undistributed retained earnings company’s equity investees amounted approximately 42087 28765 december 31 2004 december 26 2003 respectively foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 8 equityfordebt exchange 2004 company conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new senior notes due 2011 exchange certain outstanding debt securities trust securities company recorded 623190 accounts notes payable foster wheeler ltd represents value common shares preferred shares warrants issued foster wheeler ltd exchange offer resulted 175054 charge income pretax charge substantially noncash related primarily exchange convertible subordinated notes tendered exchange offer accounting equityfordebt exchange following table summarizes impact exchange offer details exchange individual debt instrument follows senior notes 675 interest due november 15 2005 “2005 senior notes” foster wheeler ltd exchanged approximately 434788 common shares approximately 82430 preferred shares 141471 principal amount senior notes 10359 due september 15 2011 “2011 senior notes” 188628 2005 senior notes resulted pretax charge 15324 comprised noncash loss exchange 13283 including premium 2011 senior notes 5659 transactionrelated costs 1825 writeoff unamortized issuance costs 216 company recorded 5659 premium since fair value 2011 senior notes determined 104 principal company also capitalized 750 issuance costs 2011 senior notes established account payable foster wheeler ltd 54783 represents value common preferred shares exchanged foster wheeler ltd subordinated robbins facility exit funding obligations “robbins bonds” foster wheeler ltd exchanged approximately 808327 common shares approximately 152520 preferred shares 93721 robbins bonds company recorded pretax charge 10080 including noncash loss exchange 7676 transactionrelated costs 2404 company recorded accounts payable foster wheeler ltd amount 101397 represents value foster wheeler ltd common preferred shares exchanged convertible subordinated notes 650 interest due 2007 “convertible notes” foster wheeler ltd exchanged approximately 1661648 common shares approximately 313913 preferred shares foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 8 equityfordebt exchange continued 206930 convertible notes company pursuant intercompany note debt assumption transfer agreement responsible costs associated exchange convertible notes result exchange company recorded pretax charge 205340 including noncash conversion expense 202616 required sfas 84 “induced conversions convertible debt” transactionrelated costs 2724 additionally company charged unamortized issuance costs 3409 paidin capital mandatorily redeemable preferred securities “trust securities” foster wheeler ltd exchanged approximately 157811 common shares approximately 51081 preferred shares warrants purchase approximately 6994059 common shares 103823 trust securities conjunction exchange company recorded pretax gain 66352 including noncash gain exchange 74075 less transactionrelated costs 4244 writeoff unamortized issuance costs 3479 senior credit facility term loan revolving credit portions concurrent exchange offer company also completed 120000 private offering 10359 senior notes due 2011 series b proceeds private offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 conjunction transaction company recorded noncash pretax charge 5862 including writeoff unamortized issuance costs 1599 unamortized bank fees 4263 company also recorded premium 4800 since 2011 senior notesseries b fair value determined 104 principal finally company capitalized 966 issuance costs 2011 senior notesseries b december 31 2004 reflecting results exchange offer company aggregate indebtedness 567003 see note 9 information relating company’s indebtedness following table summarizes capital share activity associated exchange offer foster wheeler ltd issued approximately 3062574 common shares approximately 599944 preferred shares connection exchange offer preferred share convertible 65 common shares foster wheeler ltd issued 4152914 class stock purchase warrants trust preferred security holders tendered exchange offer addition foster wheeler ltd also distributed 40771560 class b stock purchase warrants holders record common shares close business september 23 2004 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt following table shows components longterm debt senior credit facility august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date term loan borrowings revolving credit facility bear interest company’s option libor plus 6 b base rate plus 500 “base rate” refers higher bank america prime rate ii federal funds rate plus 05 connection equityfordebt exchange company repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 company letters credit outstanding 90018 december 31 2004 march 2005 company replaced senior credit facility new 5year senior credit agreement company obtained amendments senior credit facility provide covenant relief allow equityfordebt exchange amendments described senior credit facility required prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts retaining 50 share balance 77000 threshold exceeded second quarter 2003 principal repayments 14100 made term loan 2003 2004 amendment 1 senior credit facility obtained november 8 2002 provided exclusion certain gross pretax charges recorded company third quarter 2002 covenant foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued calculation purposes amendment provided certain pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred amendment 2 senior credit facility entered march 24 2003 modified certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit equityfordebt exchange internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations terms amendment called company pay fee equal 5 lenders’ credit exposure since made required prepayment principal senior credit facility 100000 march 31 2004 company paid required fee 13600 march 31 2004 annual interest rate borrowings senior credit facility increased quarter term loan revolving credit facility repaid part equityfordebt exchange amendment 4 senior credit facility entered october 30 2003 modified certain definitions representations allow maintenance administration certain bank accounts company amendment 5 senior credit facility entered may 14 2004 amended waived certain affirmative negative covenants necessary permit equityfordebt exchange well allow reduction 25000 letter credit facility consideration amendments waivers obtained amendment company obligated pay fee equal 125 lenders’ outstanding letter credit exposure november 30 2004 fee equal 075 lenders’ outstanding letter credit exposure additional month thereafter expiration date senior credit facility april 30 2005 noted company voluntarily terminated facility march 2005 company paid fees totaling 4375 related letters credit outstanding period november 30 2004 february 2005 new senior credit agreement march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement new senior credit agreement requires company maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly company must compliance minimum liquidity level covenant time management’s 2005 forecast indicates company compliance financial covenants contained new senior credit agreement senior credit agreement also requires company prepay facility certain circumstances proceeds assets sales issuance debt 2005 senior notes company subsidiary foster wheeler llc issued 200000 2005 senior notes public market bearing interest fixed rate 675 per annum payable semi foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued annually maturing november 15 2005 senior notes issued indenture company bny midwest trust company 2005 senior notes redeemable prior maturity subject sinking fund requirements part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes giving effect exchange 11372 2005 senior notes remains outstanding december 31 2004 notes mature november 15 2005 also connection exchange holders 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held 2005 senior notes see note 8 details equityfordebt exchange 2011 senior notes noted foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange conjunction issuance 2011 senior notes company recorded premium 5659 since fair value 2011 senior notes 104 principal see note 8 details equityfordebt exchange 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 september 15 commencing march 15 2005 result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants must met company choose undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture concurrent equityfordebt exchange company completed 120000 private offering senior notes 10359 due september 2011 series b “private notes” proceeds private notes offering used repay amounts outstanding term loan revolving credit portions senior credit facility totaling 115869 company recorded premium 4800 offering since fair value private notes 104 principal result premium effective interest rate private notes 95602 subsequently company exchanged private notes registered 2011 senior notes december 31 2004 271643 2011 senior notes outstanding including 10172 unamortized premium notes payable affiliate may june 2001 foster wheeler ltd issued convertible notes aggregate principal amount 210000 convertible notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 proceeds securities loaned company included caption “notes payable affiliate” accompanying consolidated financial statements notes payable affiliate subordinated right payment existing future senior indebtedness company part equityfordebt exchange foster wheeler ltd exchanged common shares preferred shares 206930 convertible notes giving effect exchange offer 3070 convertible notes remain outstanding december 31 2004 convertible notes convertible common shares initial conversion rate 310655 common shares per 1000 principal amount approximately 32190 per common share subject adjustment certain circumstances see note 8 details equityfordebt exchange foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued robbins bonds connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois foster wheeler entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” part equityfordebt exchange foster wheeler ltd exchanged common shares preferred shares 93721 robbins bonds giving effect exchange 83 1999c bonds due 2009 20491 1999c bonds due 2024 233 1999d bonds remain outstanding december 31 2004 see note 8 details equityfordebt exchange 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 trust securities fw preferred capital trust “the capital trust” 100 indirectly owned finance subsidiary company issued 175000 trust securities capital trust invested proceeds trust securities equal principal amount 90 junior subordinated deferrable interest debentures “debentures” foster wheeler llc prior december 27 2003 capital trust consolidated financial statements company trust securities reported mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements accumulated undistributed quarterly distributions presented consolidated balance sheet deferred accrued mandatorily redeemable preferred security distributions subsidiary trust mandatorily redeemable preferred security distributions subsidiary trust included within interest expense consolidated statement operations comprehensive loss 2004 company adopted fin 46 variable interest entities formed prior february 1 2003 accordance provisions fin 46 company determined capital trust variable interest entity ii company primary beneficiary accordingly company deconsolidated capital trust december 27 2003 company’s consolidated financial statements reflect foster wheeler llc’s obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures presented consolidated statement operations comprehensive loss interest expense foster wheeler ltd foster wheeler llc fully unconditionally guarantee trust securities trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 maturity date january 15 2029 foster wheeler redeem trust securities january 15 2004 new senior credit agreement requires approval lenders make payments trust securities extent payments contractually required underlying trust securities agreements part equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares exchange trust securities conjunction exchange capital trust recorded 103823 reduction trust securities 31128 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued corresponding reduction debentures accrued interest receivable giving effect exchange 71177 trust securities remains outstanding december 31 2004 see note 8 details equityfordebt exchange specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned company notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects martinez cogen limited partnership debt 15260 represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semiannually july 30 2006 note matures july 30 2006 project located california foster wheeler coque verde debt 35126 represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets special purpose subsidiary indirect owner project chile camden county energy recovery associates debt 68895 represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant project located new jersey capital leases 2002 company entered saleleaseback transactions office buildings finland united states transactions qualified capital leases 2004 company entered capital lease office building south africa assets capital leases summarized follows foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year 7529 7954 7519 7678 7943 thereafter 126147 less interest 97483 net minimum lease payments capital leases 67287 less current portion net minimum lease payments longterm net minimum lease payments 66297 january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 interest costs interest costs incurred 2004 2003 2002 94556 95415 82929 respectively 0 307 1368 respectively capitalized aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 10172 next five years december 31 2004 follows fiscal year 34224 22250 16059 13810 14841 thereafter 391430 total 492614 10 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs contributions made intended provide benefits attributed service date also expected earned future foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued company also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 company froze serp issued letters credit totaling 2250 certain employees support obligations serp december 31 2004 company 870 letters credit outstanding april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following domestic pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution net effect changes improves financial condition company reduced costs reduced cash outflow future years domestic subsidiaries company 401k plan salaried employees years 2004 2003 company contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 3317 4066 2004 2003 respectively year 2002 company contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507 year ended december 31 2004 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 300590 resulting cumulative pretax charge comprehensive loss represents reduction minimum liability 11156 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued following charts contain disclosures pension benefits years 2004 2003 2002 charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement 2004 obligations former executives supplemental executive retirement plan 1390 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued ii impact 2003 freezing domestic pension plans mothballing domestic manufacturing facility 900 employee terminations part workforce reduction 100 iii retirement 2002 company’s vice president human resources approximately 900 plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” company’s plans totaled approximately 902800 811800 yearend 2004 2003 respectively previously discussed company recorded net cumulative charge comprehensive loss years 2000 2004 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines asset mix target plans 725 equities 275 fixedincome securities investment policy currently undergoing review company ensure investment strategy aligned plan liabilities considering changes domestic benefits program made 2004 investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 82 75 past three years foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued contributions company expects contribute total approximately 20400 domestic pension plans approximately 30700 foreign pension plans 2005 contributions domestic pension plans expected approximate 22100 2006 16400 2007 7900 2008 1800 2009 zero year thereafter estimated future benefit payments following benefit payments reflect expected future service expected paid defined benefit plans postretirement benefits addition providing pension benefits company’s subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs following chart contains disclosures postretirement benefit plans years 2004 2003 2002 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued healthcare cost trend premedicare eligible medicare eligible 950 1100 900 1050 decline 2016 550 500 assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects onepercentage point increase onepercentage point decrease effect total service interest cost components 244 effect accumulated postretirement benefit obligations 5412 4694 plan measurement date measurement date company’s postretirement benefit plans december 31 year obligations contributions company expects contribute total approximately 7719 postretirement benefit plans 2005 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued estimated future benefit payments following postretirement benefit payments reflect expected future service expected paid benefits certain company’s foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 32650 24326 recorded december 31 2004 december 26 2003 respectively related benefits company also benefit plan survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan 23572 24146 december 31 2004 december 26 2003 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 6351 7240 december 31 2004 december 26 2003 respectively 11 guarantees warranties company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale company provides project execution warranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 12 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 12 financial instruments risk management continued cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 3 16 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 559900 609000 december 31 2004 december 26 2003 respectively balances include standby letters credit issued senior credit facility discussed note 9 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero practicable estimate fair value company’s intercompany debt 206930 december 31 2004 0 december 26 2003 market value type instrument december 31 2004 company 46275 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2004 december 26 2003 company significant concentrations credit risk foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 12 financial instruments risk management continued company issued thirdparty financial guarantee totaling 2750 december 31 2004 december 26 2003 respect partnership interest commercial real estate project 13 restricted stock plan october 6 2004 management issued 1883745 restricted common share awards accordance foster wheeler ltd’s management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted awards vest fourth quarter 2005 balance vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part foster wheeler ltd shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 17609 related compensation expense recorded 2004 1712 14 stock option programs september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 issuance options management result unearned compensation charge since exercise price options greater market price underlying shares date grant november 29 2004 option 2004 plan purchase preferred shares granted management nonemployee directors mandatorily converted option purchase 65 common shares exercise price 9378 per common share issuable 1995 stock option plan approved shareholders foster wheeler ltd april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 shareholders foster wheeler ltd approved stock option plan directors company april 29 1997 shareholders foster wheeler ltd approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler ltd automatically receive option acquire 150 shares year plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect wholly owned subsidiary company foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 14 stock option programs continued foster wheeler ltd also granted 65000 inducement options 2001 chief executive officer connection employment agreement 50000 options 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter foster wheeler ltd granted 12750 inducement options president chief executive officer foster wheeler north america corp formerly known “foster wheeler power group inc” connection employment agreement 2002 granted 5000 inducement options 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted information regarding option plans years 2004 2003 2002 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2004 foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 15 income taxes components loss income taxes years 2004 2003 2002 taxed following jurisdictions provision income taxes earnings follows deferred tax assets liabilities consist following foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 15 income taxes continued foreign tax credit carryforwards recognized based potential utilization used expire years 2011 2012 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change reduction valuation allowance 300358 primarily due consummation equityfordebt exchange offer discussed valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws result recently consummated equityfordebt exchange offer discussed note 8 company subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period since valuation allowance already reflected offset losses credits limitation result material writeoff company part overall reorganization took place may 2001 company transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however transfer subject tax us required sfas 109 us tax charge gain reported consolidated financial statements deferred charge amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 16 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 16 derivative financial instruments continued flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 31 2004 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded pretax losses 2004 2003 2900 5160 respectively recorded pretax gain 8470 2002 amounts recorded reductions cost operating revenues consolidated statement operations comprehensive loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 31700 owed company counterparties 14600 owed company counterparties 3834 net tax gain recorded comprehensive loss december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months 17 business segments data company operates two business groups also constitute separate reportable segments engineering construction group “ec group” global power group ec group designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction lng facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers subcontractors ec group owns industry leading technology delayed coking solvent deasphalting hydrogen production processes used oil refineries access numerous technologies owned others ec group also provides international environmental remediation services together related technical engineering design regulatory services ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners company provides broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs ie electricity steam etc operating maintenance agreements returns equity investments certain production facilities foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued company restated business segment data reflect transfer one operating subsidiaries canada ec group global power group subsidiary’s operations consolidated another subsidiary whose operations historically reported part global power group company conducts business global basis ec group accounted largest portion company’s operating revenues last ten years 2004 ec group global power group accounted approximately 62 38 respectively operating revenues geographic dispersion operating revenues year ended december 31 2004 follows management uses several financial metrics measure performance company’s business segments ebitda primary earnings measure used company’s chief decision makers export revenues account 4 operating revenues single customer represented 10 operating revenues 2004 2003 2002 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued 1 includes general corporate income expense company’s captive insurance operation eliminations foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued 2 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 company’s equity interest wastetoenergy project italy reevaluation contract costs estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 3 includes 2003 impairment loss 15100 cf anticipated sale domestic corporate office building gain 16700 ec sale foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf 4 includes 2002 loss recognized anticipation sales assets 54500 global power reevaluation project claim estimates contract cost estimates 216700 121650 ec 86450 global power 8600 cf provision 26200 cf asbestos claims provision 18700 global power domestic plant impairment restructuring credit agreement costs 37100 cf charges severance cost 7700 500 ec 4300 global power 2900 cf 5 excludes cumulative effect 2002 change accounting principle related goodwill 48700 ec 101800 global power foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued revenues longlived assets based country contracting subsidiary located foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued operating revenues industry segment follows decline operating revenues environmental industry segment resulted sale certain assets environmental march 7 2003 operating revenues segment environmental 2004 2003 2002 22800 68100 303700 respectively 18 sale certain business assets 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility sold october 2003 loss 19000 also recorded 2002 charleston wastetoenergy facility sold october 2002 losses recorded deductions consolidated statement operations comprehensive loss third quarter 2002 management global power group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 “accounting impairment disposal longlived assets” facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter 2002 impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive loss fourth quarter 2002 company decided mothball facility additional charges 5300 recorded december 2002 facility ceased operations march 7 2003 company sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 company recognized gain 15300 sale recorded income first quarter 2003 company also retained approximately 8000 cash hand time asset sale sales proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 company buyer agreed final net worth calculation resulted company returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february transactions related sale concluded march 31 2003 company sold interest corporate office building net proceeds approximately 7900 approximated value company’s investment completion foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 18 sale certain business assets continued transaction 1445 net proceeds used prepay principal outstanding senior credit facility accordance terms facility described note 9 2004 company sold domestic corporate office building net cash proceeds approximately 16400 approximated carrying value amount 50 prepaid senior credit facility’s lenders second quarter 2004 company previously recorded impairment loss 15100 building 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated balance sheet december 26 2003 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss 19 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases total approximately 34048 2004 34117 2003 37465 2002 future minimum rental commitments noncancelable leases follows fiscal year 33132 27540 23439 21147 20622 thereafter 240698 366578 company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended december 31 2004 december 26 2003 december 27 2002 respectively december 31 2004 december 26 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 20 litigation uncertainties asbestos company’s us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company’s subsidiaries 1970s prior foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued united states summary us claim activity three years ended december 31 2004 follows includes claims inactive court dockets 22300 24500 yearend 2004 yearend 2003 respectively overall average combined indemnity defense cost per closed claim since 1993 approximately 20 view many uncertainties associated asbestos bodily injury claims company believes average cost increase future amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 100200 2004 73600 2003 57200 2002 payments 2004 funded settlements insurance companies discussed december 31 2004 company recorded total liabilities 480000 comprised estimated liability relating open outstanding claims 257000 estimated liability relating future unasserted claims 223000 total 75000 recorded accrued expenses 405000 recorded asbestosrelated liability consolidated balance sheet estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type ie mesothelioma vs nonmesothelioma breakdown known future claims disease type ie mesothelioma vs nonmesothelioma claims settled six years old considered abandoned longer valued estimated liability approximately 9100 cases december 31 2004 total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments estimated incurred year 2019 period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2019 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2019 historically defense costs represented approximately 21 total defense indemnity costs december 31 2004 total indemnity costs paid prior insurance recoveries approximately 443700 total defense costs paid approximately 119900 december 31 2004 company recorded assets 385500 relating actual probable insurance recoveries 95000 recorded accounts notes receivables 290500 recorded asbestosrelated insurance recovery receivable consolidated balance sheet asset includes estimate recoveries insurers based upon assumptions relating cost allocation resolution pending legal proceedings certain insurers well recoveries settlements insurers december 31 2004 165200 contested subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries’ various insurers foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurer would immaterial company’s subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portion outofpocket costs previously incurred company intends negotiate additional settlements order minimize amount future costs company required fund working capital company projects required fund asbestos liabilities cash flow 2010 although may required fund portion liabilities cash thereafter forecast assumes company able successfully resolve certain outstanding insurance coverage issues adverse outcome insurance litigation coverage issues could materially limit company’s insurance recoveries regard january 10 2005 new york state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among foster wheeler entities various insurers since inception litigation company calculated estimated insurance recoveries applying new jersey law however application new york rather new jersey law would result company’s subsidiaries realizing lower insurance recoveries thus result decision company recorded charge earnings fourth quarter 2004 approximately 76000 reduced yearend carrying value probable insurance recoveries similar amount unless decision reversed appeal company expects required fund portion asbestos liabilities cash beginning 2010 amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes company insurers yet settled february 16 2005 company’s subsidiaries filed separate motions seeking reargument decision ii appeal decision higher court assurances timing outcome motions addition even coverage issues resolved manner favorable company may able collect amounts due insurance policies company’s recoveries limited insolvencies among insurers company aware least two significant insurers currently insolvent insurers may become insolvent future company’s insurers may also fail reimburse amounts owed company timely basis company receive timely payment insurers may unable make required payments settlement agreements asbestos plaintiffs fund amounts required posted court order appeal trial judgments company unable file appeals company’s subsidiaries may ordered pay large damage awards arising adverse jury verdicts awards may exceed available cash failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries reduce cash flow adversely affect liquidity could material adverse effect company’s financial condition pending litigation negotiations insurers continuing noted estimate assets liabilities related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows united kingdom subsidiaries company uk also received claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 total 1900 recorded accrued expenses 42400 recorded asbestosrelated liability consolidated balance sheet estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 asset equal amount recorded expected uk asbestosrelated insurance recoveries 1900 recorded accounts notes receivables 42400 recorded asbestosrelated insurance recovery receivable consolidated balance sheet project claims ordinary course business company subsidiaries parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract charges could material adverse impact company’s liquidity financial condition company believes consultation counsel litigation material adverse effect upon company’s financial position liquidity giving effect provisions already recorded addition matters described arbitration commenced company arising compact circulating fluidizedbed boiler company engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations company relief granted company could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified company vigorously defending case counterclaimed unpaid receivables approximating 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon company’s investigation proceedings date appear valid defenses claim however premature predict outcome proceeding company notified claim client respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted plan repair foundations seeking reimbursement costs approximating 11000 consortium additional damages could alleged matter proceeds adversary proceeding company investigating claim well rights may seek reimbursement foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued damages third parties valid legal defenses claim appear exist however premature predict outcome matter camden county wastetoenergy project one company’s project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pollution control finance authority camden county “pcfa” finance construction project acquire landfill camden county’s use 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due bonds outstanding camden project issued pcfa company ccera bonds guaranteed company ccera pursuant loan agreement pcfa ccera proceeds bonds used finance construction facility accordingly proceeds recorded debt ccera’s balance sheet therefore included company’s consolidated balance sheet ccera’s obligation service debt obtained pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time management cannot determine ultimate outcome foregoing potential effects ccera project state fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds company believe collateral includes ccera’s plant longterm government contract company retained longterm contract government agency connection foster wheeler environmental corporation sale contract scheduled completed four phases first phase initial design permitting licensing spent fuel facility first phase project profitable second phase contract currently executed billed costplusfee basis expected conclude 2004 phase company must license facility nrc respond questions regarding initial design included phase one complete final design technical specification detailed guidance government agency regarding government agencydirected changes project scope remain outstanding resolution outstanding issues required second phase contract completed phase three construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued significant delay issuance nrc license facility received november 30 2004 delay also result substantial additional facility costs third phase would begin purchase longlead items followed construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency engaged discussions possibly restructuring terminating subsequent phases contract project proceed company intends seek thirdparty financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot successfully restructure contract cannot obtain thirdparty financing required surety bond company’s ability perform obligations contract unlikely could material adverse effect company’s financial condition results operations cash flow claims raised government agency company ultimate potential liability company would arise event government agency terminates contract example due company’s inability continue contract rebids contract exact terms resulting cost government agency greater would existing terms company believe claim probable unable estimate possible loss could occur result claims additionally company believes variety potential legal defenses government agency decide pursue action environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person “offsite facility” liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors company currently owns operates industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances company aware conditions currently owned facilities united states expects cause company incur material costs excess reserves established company also may receive claims pursuant indemnity obligations owners recently sold facilities may require company incur costs investigation andor remediation based available information company believe costs materially excess reserves established assurance provided company discover foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring company incur material expenditures investigate andor remediate conditions company notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites company’s liability substantially less total site remediation costs percentage waste attributable company compared attributable prps low company believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate february 1988 one company’s subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order “order” united states environmental protection agency “usepa” pennsylvania department environmental protection “padep” regarding former manufacturing facility mountaintop pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order fwec 1993 installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system annual cost operating maintaining system material september 2004 fwec sampled domestic water supply approximately 16 residences mountaintop received validated testing data regarding sampling october 2004 residences located approximately one mile southwest historic source tce fwec’s former facility believed residences use private wells domestic water results sampling indicated tce present water several residences levels excess safe drinking water act standards since initial round testing september 2004 fwec tested wells february 2005 number wells area containing tce excess standards approximately 30 fwec believes boundaries affected area delineated source tce wells yet determined fwec working closely appropriate regulatory authorities responding situation fwec first provided affected residences temporary replacement water arranged filters installed residences’ water system remove tce fwec also arranged filters periodically tested maintained cost foregoing expected material source tce determined thirdparty fwec evaluate options regarding recovery costs incurred options could include seeking recover costs determined source agencies incurred 500 costs responding situation may seek recover determined sources tce company agencies reviewing technical economic feasibility extending public water line exists one end effected area end effected area given preliminary stage investigations fwec unable estimate potential financial impact foregoing fwec ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued claims could material adverse effect business financial condition results operations cash flows ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges financial position results operations cash flows excess amounts previously provided accounts foster wheeler holdings ltd subsidiaries notes consolidated financial statements continued thousands dollars 21 valuation qualifying accounts 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance foster wheeler llc subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated statement financial position related consolidated statements operations comprehensive loss cash flows changes member’s deficit present fairly material respects financial position foster wheeler llc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 26 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 3 consolidated financial statements effective december 29 2001 company adopted statement financial accounting standard 142 “goodwill intangible assets” accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler llc subsidiaries consolidated statement operations comprehensive loss thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement financial position thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement changes member’s deficit thousands dollars see notes consolidated financial statements foster wheeler llc subsidiaries consolidated statement cash flows thousands dollars noncash financing activities 2004 company exchanged 623190 notes accounts payable foster wheeler ltd 147130 longterm debt 593102 existing debt trust securities see note 8 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler llc subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler llc formed february 9 2001 delaware limited liability company pursuant reorganization occurred may 25 2001 foster wheeler corporation merged foster wheeler llc assets primarily investments subsidiaries design engineer construct petroleum chemical petrochemical alternative fuel facilities related infrastructures design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide liabilities foster wheeler corporation recorded foster wheeler llc historical cost company wholly owned subsidiary foster wheeler holdings ltd turn wholly owned subsidiary foster wheeler ltd foster wheeler llc holding company owns stock substantially subsidiary companies foster wheeler group terms “foster wheeler” “company” used herein include foster wheeler llc direct indirect subsidiaries business company falls within two business groups engineering construction group “ec group” designs engineers constructs petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment water treatment facilities ec group provides direct technical management services purchases equipment materials services third party vendors subcontractors group industry leading technology delayed coking solvent deasphalting hydrogen production ec group also provides broad range environmental remediation services together related technical design regulatory services global power group designs manufactures erects steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production resource recovery facilities well facilities process petrochemical industries global power group generates revenues construction operating activities pursuant longterm sale project outputs ie electricity contracts operating maintenance agreements returns equity positions corporate center restructuring expenses certain legacy liabilities eg corporate debt included corporate finance group “cf” 2 going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well company’s ability maintain credit facilities bonding capacity adequate conduct business company incurred significant operating losses years threeyear period ended december 31 2004 member’s deficit 1140643 december 31 2004 company conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities completing exchange company outstanding debt obligations approximately 567003 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued december 31 2004 refer notes 8 9 details exchange information regarding company’s outstanding indebtedness august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange company prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement company finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement company leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt accompanying consolidated statement financial position new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates company compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance company comply covenants company violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 company would able repay amounts borrowed payment dates accelerated holders company’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit company’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture connection exchange holders company’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued since january 15 2002 company exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange see note 8 consolidated financial statements details exchange offer previous senior credit facility required company defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 company intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied company right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreement global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected company’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 2 going concern continued nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability company’s cash flow forecasts continue indicate sufficient cash available fund company’s us foreign working capital needs throughout 2005 december 31 2004 company cash equivalents shortterm investments restricted cash totalling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries see note 3 additional details cash restricted cash balances company’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related company’s indebtedness obligations fund us pension plans corporate overhead expenses consequently company requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt company’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 company repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain company’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors company may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained company connection sales assets foster wheeler environmental corporation “environmental” described note 18 consolidated financial statements commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” company funded plant’s construction costs operates facility majority company’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 company’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt company’s ability continue going concern 3 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler llc significant domestic foreign subsidiary companies intercompany transactions balances eliminated company’s fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations 2004 included 53 weeks 2003 2002 included 52 weeks foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued reclassifications certain prior period financial statement amounts reclassified conform current year presentation use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts customer vendor claims depreciation employee benefit plans taxes asbestos litigation expected recoveries contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result process 2004 54 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted 37600 estimates costs complete long term contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 3946 claims recorded company’s european operations additionally consolidated financial statements assume recovery 11000 requests equitable adjustment “rea” december 31 2004 1200 recorded contracts process balance 9800 represents costs yet incurred rea relates primarily claim us government agency project currently executed company currently discussing details rea us government agency claim unsuccessful costs would charged cost operating revenues company commercial claims receivable requests equitable adjustment recorded december 26 2003 certain circumstances company may defer precontract costs probable costs recovered future contract deferred costs would included contract costs receipt anticipated contract probable precontract costs recovered future contract costs expensed incurred costs related anticipated contracts charged expense recovery considered probable subsequently reclassified contract costs subsequent receipt contract december 31 2004 precontract costs deferred certain specialpurpose subsidiaries global power group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives noncancelable service contracts cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less cash equivalents 225861 maintained foreign subsidiaries december 31 2004 subsidiaries require substantial portion funds support liquidity working capital needs well required minimum capitalization contractual restrictions accordingly funds may readily available repatriation us entities shortterm investments shortterm investments consist primarily certificates deposit classified held maturity financial accounting standards board statement financial accounting standard “sfas” 115 “accounting certain investments debt equity securities” trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period indicated note 4 conformity industry practice however full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also evaluated considering necessity provision inventories principally materials supplies stated lower cost market determined primarily averagecost method foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held company investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 company controlling financial interest investment ownership less 20 affiliates carried cost currently company’s significant investments affiliates consolidated recorded using equity method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years company tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year company evaluates goodwill separate reporting unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 31 2004 december 26 2003 company unamortized goodwill 51812 51121 respectively increase goodwill 691 resulted foreign currency translation gains goodwill related global power group accordance sfas 142 company longer amortizing goodwill 2003 2004 fair value reporting units exceeded carrying amounts company recognized 150500 impairment losses 2002 related goodwill cumulative effect change accounting principle total 24800 associated foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued camden new jersey wastetoenergy facility 77000 associated north american power unit included operations global power group fair value facility operating unit estimated using expected present value future cash flows remaining 48700 related foster wheeler environmental corporation ec group impairment goodwill subsidiary initially determined based upon indications market value potential buyers based upon market value determined step one potential impairment existed company completed step two determined full write goodwill required reporting units also subjected first step goodwill impairment test december 31 2004 december 26 2003 company unamortized identifiable intangible assets 69690 71568 respectively following table details amounts relating assets amortization expense related patents trademarks fiscal years 2004 2003 2002 3650 3675 3535 respectively amortization expense expected approximate 3600 year next five years income taxes deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment investment tax credits accounted flowthrough method whereby reduce income taxes currently payable provision income taxes period assets giving rise credits placed service 2003 extent credits currently utilized company’s tax return deferred tax assets adjusted valuation allowance recognized carryforward amounts provision made federal income taxes may payable foreign subsidiary earnings extent company anticipates remitted unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 223330 december 31 2004 practicable estimate additional tax would incurred amounts repatriated company process reviewing foreign earnings repatriation provision american jobs creation act 2004 “act” review yet complete due complexity provision relates structure company’s unrepatriated foreign earnings given effective foreign tax rates applicable company’s unrepatriated earnings well certain restrictions act concerning definitions extraordinary dividends us investment currently considered unlikely company change existing repatriation practices result act company’s evaluation expected completed second quarter 2005 restricted net assets global power’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity company’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 company’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio long performance bonds outstanding equity company’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client company reimbursed banks bond therefore longer outstanding intention company issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility company provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore company believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenants reflected company’s liquidity forecasts foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage exchange rates stock option plans foster wheeler ltd three fixedoption plans reserve shares common stock issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provisions sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continues account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs company’s stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net loss per share would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions recent accounting developments december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 3 summary significant accounting policies continued 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs december 2004 fasb issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 4 accounts notes receivable following table shows components trade accounts notes receivable following table shows components nontrade accounts notes receivable foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 5 contracts process inventories following table shows elements included contracts process related longterm contracts costs inventories shown 6 land buildings equipment land buildings equipment stated cost set forth depreciation expense years 2004 2003 2002 28447 31214 54492 respectively 7 equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy refineryelectric power generation project chile two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project chile 85 owned company however company controlling financial interest chilean project following summarized financial information company’s equity affiliates combined well company’s interest affiliates foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 7 equity interests continued company’s share net earnings equity affiliates recorded within income consolidated statement operations comprehensive loss totaled 20636 17142 14006 years ended december 31 2004 december 26 2003 december 27 2002 respectively company’s investment equity affiliates totaled 109106 98651 december 31 2004 december 26 2003 respectively dividends 9221 7997 received years ended december 31 2004 december 26 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees three projects approximately 1300 total contingent obligation fourth project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance fourth project insufficient cover debt service payments finally company provided 10000 debt service reserve letter credit providing liquidity performance chilean project insufficient cover debt service payments amounts drawn letter credit undistributed retained earnings company’s equity investees amounted approximately 42087 28765 december 31 2004 december 26 2003 respectively 8 equityfordebt exchange 2004 company conjunction foster wheeler ltd consummated equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares new senior notes due 2011 exchange certain outstanding debt securities trust securities company recorded 623190 accounts notes payable foster wheeler ltd represents value common shares preferred shares warrants issued foster wheeler ltd exchange offer resulted 175054 charge income pretax charge substantially noncash related primarily exchange convertible subordinated notes tendered exchange offer foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 equityfordebt exchange continued accounting equityfordebt exchange following table summarizes impact exchange offer details exchange individual debt instrument follows senior notes 675 interest due november 15 2005 “2005 senior notes” foster wheeler ltd exchanged approximately 434788 common shares approximately 82430 preferred shares 141471 principal amount senior notes 10359 due september 15 2011 “2011 senior notes” 188628 2005 senior notes resulted pretax charge 15324 comprised noncash loss exchange 13283 including premium 2011 senior notes 5659 transactionrelated costs 1825 writeoff unamortized issuance costs 216 company recorded 5659 premium since fair value 2011 senior notes determined 104 principal company also capitalized 750 issuance costs 2011 senior notes established account payable foster wheeler ltd 54783 represents value common preferred shares exchanged foster wheeler ltd subordinated robbins facility exit funding obligations “robbins bonds” foster wheeler ltd exchanged approximately 808327 common shares approximately 152520 preferred shares 93721 robbins bonds company recorded pretax charge 10080 including noncash loss exchange 7676 transactionrelated costs 2404 company recorded accounts payable foster wheeler ltd amount 101397 represents value foster wheeler ltd common preferred shares exchanged convertible subordinated notes 650 interest due 2007 “convertible notes” foster wheeler ltd exchanged approximately 1661648 common shares approximately 313913 preferred shares 206930 convertible notes company pursuant intercompany note debt assumption transfer agreement responsible costs associated exchange convertible notes result exchange company recorded pretax charge 205340 including noncash conversion expense 202616 required sfas 84 “induced conversions convertible debt” transactionrelated costs 2724 additionally company charged unamortized issuance costs 3409 paidin capital mandatorily redeemable preferred securities “trust securities” foster wheeler ltd exchanged approximately 157811 common shares approximately 51081 preferred shares warrants purchase foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 8 equityfordebt exchange continued approximately 6994059 common shares 103823 trust securities conjunction exchange company recorded pretax gain 66352 including noncash gain exchange 74075 less transactionrelated costs 4244 writeoff unamortized issuance costs 3479 senior credit facility term loan revolving credit portions concurrent exchange offer company also completed 120000 private offering 10359 senior notes due 2011 series b proceeds private offering used repay amounts outstanding term loan revolving credit portions previous senior credit facility totaling 115869 conjunction transaction company recorded noncash pretax charge 5862 including writeoff unamortized issuance costs 1599 unamortized bank fees 4263 company also recorded premium 4800 since 2011 senior notesseries b fair value determined 104 principal finally company capitalized 966 issuance costs 2011 senior notesseries b december 31 2004 reflecting results exchange offer company aggregate indebtedness 567003 see note 9 information relating company’s indebtedness following table summarizes capital share activity associated exchange offer foster wheeler ltd issued approximately 3062574 common shares approximately 599944 preferred shares connection exchange offer preferred share convertible 65 common shares foster wheeler ltd issued 4152914 class stock purchase warrants trust preferred security holders tendered exchange offer addition foster wheeler ltd also distributed 40771560 class b stock purchase warrants holders record common shares close business september 23 2004 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt following table shows components longterm debt senior credit facility august 2002 company negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date term loan borrowings revolving credit facility bear interest company’s option libor plus 6 b base rate plus 500 “base rate” refers higher bank america prime rate ii federal funds rate plus 05 connection equityfordebt exchange company repaid full term loan amounts outstanding revolving credit facility accordingly borrowings outstanding term loan revolving credit facility december 31 2004 company letters credit outstanding 90018 december 31 2004 march 2005 company replaced senior credit facility new 5year senior credit agreement company obtained amendments senior credit facility provide covenant relief allow equityfordebt exchange amendments described senior credit facility required prepayments proceeds assets sales issuance debt equity excess cash flow company retained first 77000 amounts retaining 50 share balance 77000 threshold exceeded second quarter 2003 principal repayments 14100 made term loan 2003 2004 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued amendment 1 senior credit facility obtained november 8 2002 provided exclusion certain gross pretax charges recorded company third quarter 2002 covenant calculation purposes amendment provided certain pretax charges related specific contingencies may excluded covenant calculation december 31 2003 incurred amendment 2 senior credit facility entered march 24 2003 modified certain definitions financial measures utilized calculation financial covenants ii minimum ebitda senior debt ratio specified section 601 credit agreement connection amendment company made prepayment principal aggregate amount 10000 march 2003 amendment 3 senior credit facility entered july 14 2003 modified certain affirmative negative covenants permit equityfordebt exchange internal restructuring transactions well transfers cancellations setoffs certain intercompany obligations terms amendment called company pay fee equal 5 lenders’ credit exposure since made required prepayment principal senior credit facility 100000 march 31 2004 company paid required fee 13600 march 31 2004 annual interest rate borrowings senior credit facility increased quarter term loan revolving credit facility repaid part equityfordebt exchange amendment 4 senior credit facility entered october 30 2003 modified certain definitions representations allow maintenance administration certain bank accounts company amendment 5 senior credit facility entered may 14 2004 amended waived certain affirmative negative covenants necessary permit equityfordebt exchange well allow reduction 25000 letter credit facility consideration amendments waivers obtained amendment company obligated pay fee equal 125 lenders’ outstanding letter credit exposure november 30 2004 fee equal 075 lenders’ outstanding letter credit exposure additional month thereafter expiration date senior credit facility april 30 2005 noted company voluntarily terminated facility march 2005 company paid fees totaling 4375 related letters credit outstanding period november 30 2004 february 2005 new senior credit agreement march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain company’s domestic subsidiaries certain foreign subsidiaries company paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement new senior credit agreement requires company maintain certain ratios including leverage ratio fixed charge coverage ratio minimum liquidity level compliance first two covenants measured quarterly company must compliance minimum liquidity level covenant time management’s 2005 forecast indicates company compliance financial covenants contained new senior credit agreement senior credit agreement also requires company prepay facility certain circumstances proceeds assets sales issuance debt foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued 2005 senior notes company issued 200000 2005 senior notes public market bearing interest fixed rate 675 per annum payable semiannually maturing november 15 2005 senior notes issued indenture company bny midwest trust company 2005 senior notes redeemable prior maturity subject sinking fund requirements part equityfordebt exchange consummated 2004 foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes giving effect exchange 11372 2005 senior notes remains outstanding december 31 2004 notes mature november 15 2005 also connection exchange holders 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held 2005 senior notes see note 8 details equityfordebt exchange 2011 senior notes noted foster wheeler ltd exchanged common shares preferred shares 141471 principal amount 2011 senior notes 188628 2005 senior notes part equityfordebt exchange conjunction issuance 2011 senior notes company recorded premium 5659 since fair value 2011 senior notes 104 principal see note 8 details equityfordebt exchange 2011 senior notes bear interest 10359 per annum payable semiannually arrears march 15 september 15 commencing march 15 2005 result premium effective interest rate 2011 senior notes 95602 holders 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants must met company choose undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure company remains compliance indenture concurrent equityfordebt exchange company completed 120000 private offering senior notes 10359 due september 2011 series b “private notes” proceeds private notes offering used repay amounts outstanding term loan revolving credit portions senior credit facility totaling 115869 company recorded premium 4800 offering since fair value private notes 104 principal result premium effective interest rate private notes 95602 subsequently company exchanged private notes registered 2011 senior notes december 31 2004 271643 2011 senior notes outstanding including 10172 unamortized premium notes payable affiliate may june 2001 foster wheeler ltd issued convertible notes aggregate principal amount 210000 convertible notes due 2007 bear interest 650 per annum payable semiannually june 1 december 1 year commencing december 2001 proceeds securities loaned company included caption “notes payable affiliate” accompanying consolidated financial statements notes payable affiliate subordinated right payment existing future senior indebtedness company part equityfordebt exchange foster wheeler ltd exchanged common shares preferred shares 206930 convertible notes giving effect exchange offer 3070 convertible notes remain outstanding december 31 2004 convertible notes convertible common shares initial conversion rate 310655 common shares per 1000 principal amount approximately foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued 32190 per common share subject adjustment certain circumstances see note 8 details equityfordebt exchange robbins bonds connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois foster wheeler entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” part equityfordebt exchange foster wheeler ltd exchanged common shares preferred shares 93721 robbins bonds giving effect exchange 83 1999c bonds due 2009 20491 1999c bonds due 2024 233 1999d bonds remain outstanding december 31 2004 see note 8 details equityfordebt exchange 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 trust securities fw preferred capital trust “the capital trust” 100 indirectly owned finance subsidiary company issued 175000 trust securities capital trust invested proceeds trust securities equal principal amount 90 junior subordinated deferrable interest debentures “debentures” company prior december 27 2003 capital trust consolidated financial statements company trust securities reported mandatorily redeemable preferred securities subsidiary trust holding solely junior subordinated deferrable interest debentures consolidated financial statements accumulated undistributed quarterly distributions presented consolidated statement financial position deferred accrued mandatorily redeemable preferred security distributions subsidiary trust mandatorily redeemable preferred security distributions subsidiary trust included within interest expense consolidated statement operations comprehensive loss 2004 company adopted fin 46 variable interest entities formed prior february 1 2003 accordance provisions fin 46 company determined capital trust variable interest entity ii company primary beneficiary accordingly company deconsolidated capital trust december 27 2003 company’s consolidated financial statements reflect obligations capital trust subordinated deferrable interest debentures deferred accrued interest subordinated deferrable interest debentures interest expense debentures presented consolidated statement operations comprehensive loss interest expense foster wheeler ltd company fully unconditionally guarantee trust securities trust securities entitled receive cumulative cash distributions annual rate 90 distributions paid quarterly arrears april 15 july 15 october 15 january 15 year distributions may deferred periods five years time additional interest accrues 90 accordance provision company deferred quarterly distributions beginning distribution due january 15 2002 maturity date january 15 2029 foster wheeler redeem trust securities january 15 2004 new senior credit agreement requires approval lenders make payments trust securities extent payments contractually required underlying trust securities agreements part equityfordebt exchange foster wheeler ltd issued common shares preferred shares warrants purchase common shares exchange trust securities conjunction exchange foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued capital trust recorded 103823 reduction trust securities 31128 reduction deferred accrued mandatorily redeemable preferred security distributions payable capital trust also recorded corresponding reduction debentures accrued interest receivable giving effect exchange 71177 trust securities remains outstanding december 31 2004 see note 8 details equityfordebt exchange specialpurpose project debt specialpurpose project debt represents debt incurred finance construction cogeneration facilities wastetoenergy projects majorityowned company notes andor bonds collateralized certain assets project company’s obligations respect debt limited guaranteeing operating performance projects martinez cogen limited partnership debt 15260 represents note bank credit facility limited partnership whose general partner specialpurpose subsidiary interest note varies based one several money market rates due semiannually july 30 2006 note matures july 30 2006 project located california foster wheeler coque verde debt 35126 represents senior secured notes bear interest 11443 due annually april 15 2004 2015 mature april 15 2015 notes collateralized certain revenues assets special purpose subsidiary indirect owner project chile camden county energy recovery associates debt 68895 represents solid waste disposal resource recovery system revenue bonds bear interest rates varying 7125 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant project located new jersey capital leases 2002 company entered saleleaseback transactions office buildings finland united states transactions qualified capital leases 2004 company entered capital lease office building south africa assets capital leases summarized follows foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 9 longterm debt continued following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year 7529 7954 7519 7678 7943 thereafter 126147 less interest 97483 net minimum lease payments capital leases 67287 less current portion net minimum lease payments longterm net minimum lease payments 66297 january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 interest costs interest costs incurred 2004 2003 2002 94622 95413 82928 respectively 0 307 1368 respectively capitalized aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations premium amortization 2011 senior notes 10172 next five years december 31 2004 follows fiscal year 34224 22250 16059 13810 14841 thereafter 391430 total 492614 10 pensions postretirement benefits pension benefits domestic certain foreign subsidiaries company several pension plans covering substantially fulltime employees plans retirement benefits primarily function years service level compensation domestic plans noncontributory effective january 1 1999 cash balance program established domestic plan pension benefit previous formulas remain current employees elected however new employees offered cash balance program cash balance plan resembles savings account amounts credited based age percentage earnings termination retirement employee receives balance account lumpsum cash balance program future increases employee earnings apply prior service costs contributions made intended provide benefits attributed service date also expected earned future foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued company also nonqualified unfunded supplemental executive retirement plan “serp” covers certain employees april 2003 company froze serp issued letters credit totaling 2250 certain employees support obligations serp december 31 2004 company 870 letters credit outstanding april 10 2003 board directors approved changes company’s domestic employee benefits program including pension postretirement medical 401k plans changes made following independent review company’s domestic employee benefits assessed company’s benefit program marketplace competitors principal changes consist following domestic pension plan frozen may 31 2003 means participants able increase amount earned terms plan postretirement medical plan frozen available subsidized premium basis currently active employees reached age 40 may 31 2003 401k plan enhanced increase level employer matching contribution net effect changes improves financial condition company reduced costs reduced cash outflow future years domestic subsidiaries company 401k plan salaried employees years 2004 2003 company contributed 100 match first 3 50 match next 3 base pay employee contributions subject annual irs limit amounted cost 3317 4066 2004 2003 respectively year 2002 company contributed 50 match first 6 base pay employee contributions subject annual irs limit amounted cost 5507 year ended december 31 2004 company recognized cumulative minimum liability financial statements domestic foreign underfunded plans amount 300590 resulting cumulative pretax charge comprehensive loss represents reduction minimum liability 11156 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued following charts contain disclosures pension benefits years 2004 2003 2002 charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement 2004 obligations former executives supplemental executive retirement plan 1390 ii impact 2003 freezing domestic pension plans mothballing domestic manufacturing facility 900 employee terminations part workforce reduction 100 iii retirement 2002 company’s vice president human resources approximately 900 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued plan measurement date measurement date company’s defined benefit plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation “abo” company’s plans totaled approximately 902800 811800 yearend 2004 2003 respectively previously discussed company recorded net cumulative charge comprehensive loss years 2000 2004 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy us plans allocates assets accordance policy guidelines asset mix target plans 725 equities 275 fixedincome securities investment policy currently undergoing review company ensure investment strategy aligned plan liabilities considering changes domestic benefits program made 2004 investment policy uk plans designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 82 75 past three years foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued contributions company expects contribute total approximately 20400 domestic pension plans approximately 30700 foreign pension plans 2005 contributions domestic pension plans expected approximate 22100 2006 16400 2007 7900 2008 1800 2009 zero year thereafter estimated future benefit payments following benefit payments reflect expected future service expected paid defined benefit plans postretirement benefits addition providing pension benefits company’s subsidiaries provide certain health care life insurance benefits retired employees “other postretirement benefits” employees may become eligible postretirement benefits foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies additionally company’s subsidiaries also plan provides coverage employee’s beneficiary upon death employee december 2003 medicare prescription drug improvement modernization act 2003 “medicare act” became law united states medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare benefit may 2004 fasb issued fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 provides guidance accounting effects medicare act employers sponsor postretirement healthcare plans provide prescription drug benefits provisions fsp 1062 effective company’s interim period ending september 24 2004 based upon proposed regulations medicare act company concluded benefits provided plan actuarially equivalent medicare part medicare act accordingly company reflected impact medicare act prospectively start third quarter 2004 impact medicare act resulted decreases accumulated postretirement benefit obligation approximately 9100 annual net periodic postretirement benefit costs 2004 approximately 900 january 21 2005 final regulations related medicare act issued company yet determined effect final regulations company’s accumulated postretirement benefit obligation net periodic postretirement benefit costs following chart contains disclosures postretirement benefit plans years 2004 2003 2002 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued healthcare cost trend premedicare eligible medicare eligible 950 1100 900 1050 decline 2016 550 500 assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects plan measurement date measurement date company’s postretirement benefit plans december 31 year obligations contributions company expects contribute total approximately 7719 postretirement benefit plans 2005 estimated future benefit payments following postretirement benefit payments reflect expected future service expected paid foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 10 pensions postretirement benefits continued benefits certain company’s foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 32650 24326 recorded december 31 2004 december 26 2003 respectively related benefits company also benefit plan survivor income plan accounted sfas 112 “employer’s accounting postemployment benefits” designed provide coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities plan 23572 24146 december 31 2004 december 26 2003 respectively benefit assets reflecting primarily cash surrender value insurance policies purchased cover obligations survivor income plan totaled 6351 7240 december 31 2004 december 26 2003 respectively 11 guarantees warranties company provided indemnifications third parties relating businesses andor assets company previously owned indemnifications relate primarily potential environmental tax exposures activities conducted company prior sale company provides project execution warranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract 12 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 12 financial instruments risk management continued longterm debt fair value company’s longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 3 16 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance standby letters credit bank guarantees surety bonds totaling 559900 609000 december 31 2004 december 26 2003 respectively balances include standby letters credit issued senior credit facility discussed note 9 company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero practicable estimate fair value company’s intercompany debt 206930 december 31 2004 0 december 26 2003 market value type instrument december 31 2004 company 46275 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2004 december 26 2003 company significant concentrations credit risk company issued thirdparty financial guarantee totaling 2750 december 31 2004 december 26 2003 respect partnership interest commercial real estate project foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 13 restricted stock plan october 6 2004 management issued 1883745 restricted common share awards accordance foster wheeler ltd’s management restricted stock plan 1351846 form restricted shares 531899 form restricted share units restricted shares immediate voting rights restricted share units give holders voting rights upon vesting restricted awards provide issued shares may sold otherwise transferred restrictions lapse one third restricted awards vest fourth quarter 2005 balance vest fourth quarter 2006 grant date fair value restricted common share awards issued management 920 per share upon issuance restricted common share awards unearned compensation equivalent market value common shares date grant recorded part foster wheeler ltd shareholders’ deficit corresponding offset common shares paidin capital unearned compensation amortized compensation expense appropriate vesting period grant total unearned compensation recorded upon issuance restricted awards 17609 related compensation expense recorded 2004 1712 14 stock option programs september 10 2004 board directors foster wheeler ltd adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 issuance options management result unearned compensation charge since exercise price options greater market price underlying shares date grant november 29 2004 option 2004 plan purchase preferred shares granted management nonemployee directors mandatorily converted option purchase 65 common shares exercise price 9378 per common share issuable 1995 stock option plan approved shareholders foster wheeler ltd april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 april 1990 shareholders foster wheeler ltd approved stock option plan directors company april 29 1997 shareholders foster wheeler ltd approved amendment directors’ stock option plan authorizes granting options 20000 shares common stock nonemployee directors foster wheeler ltd automatically receive option acquire 150 shares year plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted connection reorganization foster wheeler corporation may 25 2001 obligations stock option plans assumed foster wheeler inc indirect wholly owned subsidiary company foster wheeler ltd also granted 65000 inducement options 2001 chief executive officer connection employment agreement 50000 options 2002 based upon amendment employment agreement 2001 options vest 20 year term agreement 2002 options vest onefortyeighth 148 date grant 148 first day successive month thereafter foster wheeler ltd granted 12750 inducement options president chief executive officer foster wheeler north america corp formerly known “foster wheeler power group inc” foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 14 stock option programs continued connection employment agreement 2002 granted 5000 inducement options 2003 2002 options vest ratably five years 2003 options vest ratably four years price options granted pursuant agreements fair market value date grant options granted agreements expire ten years date granted information regarding option plans years 2004 2003 2002 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2004 foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 14 stock option programs continued 15 income taxes components loss income taxes years 2004 2003 2002 taxed following jurisdictions provision income taxes earnings follows foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 15 income taxes continued deferred tax assets liabilities consist following foreign tax credit carryforwards recognized based potential utilization used expire years 2011 2012 reflected company recorded various deferred tax assets realization dependent generating sufficient taxable income prior expiration various credits management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change reduction valuation allowance 300358 primarily due consummation equityfordebt exchange offer discussed valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2024 beyond based current tax laws result recently consummated equityfordebt exchange offer discussed note 8 company subject substantial limitations use preexchange period losses credits offset us federal taxable income postexchange period since valuation allowance already reflected offset losses credits limitation result material writeoff company part overall reorganization took place may 2001 company transferred december 2000 certain intangible rights one subsidiaries gain transfer reported intercompany deferred gain therefore eliminated consolidation gaap purposes however foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 15 income taxes continued transfer subject tax us required sfas 109 us tax charge gain reported consolidated financial statements deferred charge amortized tax expense 35 years provision income taxes differs amount income tax determined applying applicable us statutory rate earnings income taxes result following 16 derivative financial instruments company operates worldwide basis company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 “accounting derivative instruments hedging activities” december 31 2004 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded pretax losses 2004 2003 2900 5160 respectively recorded pretax gain 8470 2002 amounts recorded reductions cost operating revenues consolidated statement operations comprehensive loss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 31700 owed company counterparties 14600 owed company counterparties 3834 net tax gain recorded comprehensive loss december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data company operates two business groups also constitute separate reportable segments engineering construction group “ec group” global power group ec group designs engineers constructs upstream oil gas processing facilities oil refining chemical petrochemical pharmaceutical natural gas liquefaction lng facilities receiving terminals related infrastructure including power generation distribution facilities ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers subcontractors ec group owns industry leading technology delayed coking solvent deasphalting hydrogen production processes used oil refineries access numerous technologies owned others ec group also provides international environmental remediation services together related technical engineering design regulatory services ec group generates revenues engineering construction activities pursuant longterm contracts spanning four years duration global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial markets worldwide steam generating equipment includes full range fluidized bed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment selective noncatalytic recovery units selective catalytic recovery units lownox burners company provides broad range site services relating products including full plant construction maintenance engineering plant upgrading life extension plant repowering global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics addition global power group builds owns operates cogeneration independent power production wastetoenergy facilities well facilities process petrochemical industries global power group generates revenues longterm engineering activities supply equipment construction contracts operating activities pursuant longterm sale project outputs ie electricity steam etc operating maintenance agreements returns equity investments certain production facilities company restated business segment data reflect transfer one operating subsidiaries canada ec group global power group subsidiary’s operations consolidated another subsidiary whose operations historically reported part global power group foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued company conducts business global basis ec group accounted largest portion company’s operating revenues last ten years 2004 ec group global power group accounted approximately 62 38 respectively operating revenues geographic dispersion operating revenues year ended december 31 2004 follows management uses several financial metrics measure performance company’s business segments ebitda primary earnings measure used company’s chief decision makers export revenues account 4 operating revenues single customer represented 10 operating revenues 2004 2003 2002 identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued 1 includes general corporate income expense company’s captive insurance operation eliminations foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued 2 includes 2004 gain 19200 ec sales minority equity interests specialpurpose companies established develop power plant projects europe loss 3300 ec sale 10 company’s equity interest wastetoenergy project italy reevaluation contract costs estimates 58000 98700 ec 40700 global power charge 75800 cf revaluation asbestos insurance assets result adverse court decision asbestos coverage allocation litigation net gain 15200 cf settlement coverage litigation certain asbestos insurance carriers restructuring credit agreement costs 17200 cf net charge 175100 cf recorded conjunction equityfordebt exchange charges severance cost 5700 2900 ec 1900 global power 900 cf 3 includes 2003 impairment loss 15100 cf anticipated sale domestic corporate office building gain 16700 ec sale foster wheeler environmental corporation gain 4300 global power sale wastetoenergy plant reevaluation project claim estimates contract cost estimates 30800 33900 ec 3100 global power provision asbestos claims 68100 cf restructuring credit agreement costs 42600 cf 1000 ec charges severance cost 15900 6600 ec 6700 global power 2600 cf 4 includes 2002 loss recognized anticipation sales assets 54500 global power reevaluation project claim estimates contract cost estimates 216700 121650 ec 86450 global power 8600 cf provision 26200 cf asbestos claims provision 18700 global power domestic plant impairment restructuring credit agreement costs 37100 cf charges severance cost 7700 500 ec 4300 global power 2900 cf 5 excludes cumulative effect 2002 change accounting principle related goodwill 48700 ec 101800 global power foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued revenues longlived assets based country contracting subsidiary located foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 17 business segments data continued operating revenues industry segment follows decline operating revenues environmental industry segment resulted sale certain assets environmental march 7 2003 operating revenues segment environmental 2004 2003 2002 22800 68100 303700 respectively 18 sale certain business assets 2002 company recorded losses 35500 anticipation sale hudson falls wastetoenergy facility sold october 2003 loss 19000 also recorded 2002 charleston wastetoenergy facility sold october 2002 losses recorded deductions consolidated statement operations comprehensive loss third quarter 2002 management global power group approved plan convert use domestic manufacturing facility focus aftermarket service business wind facility’s fabrication new power generation equipment due cost competitive considerations plan subject discussions local labor unions accordance sfas 144 “accounting impairment disposal longlived assets” facility tested impairment using estimated future cash flows based revised use facility review indicated impairment facility’s carrying value 13400 company recorded impairment loss third quarter 2002 impairment reflected cost operating revenues depreciation accompanying consolidated statement operations comprehensive loss fourth quarter 2002 company decided mothball facility additional charges 5300 recorded december 2002 facility ceased operations march 7 2003 company sold certain assets wholly owned subsidiary foster wheeler environmental corporation sales proceeds approximating 72000 company recognized gain 15300 sale recorded income first quarter 2003 company also retained approximately 8000 cash hand time asset sale sales proceeds subject adjustment based net worth calculation finalized subsequent sale third quarter 2003 company buyer agreed final net worth calculation resulted company returning 4500 sales proceeds buyer sixmonth time period total 3000 returned yearend 2003 1500 paid february 2004 net worth agreement impact pretax gain previously disclosed payment february transactions related sale concluded march 31 2003 company sold interest corporate office building net proceeds approximately 7900 approximated value company’s investment completion foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 18 sale certain business assets continued transaction 1445 net proceeds used prepay principal outstanding senior credit facility accordance terms facility described note 9 2004 company sold domestic corporate office building net cash proceeds approximately 16400 approximated carrying value amount 50 prepaid senior credit facility’s lenders second quarter 2004 company previously recorded impairment loss 15100 building 2003 anticipation sale accordance sfas 144 loss recorded deductions consolidated statement operations comprehensive loss carrying value building included land buildings equipment consolidated statement financial position december 26 2003 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive loss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive loss 19 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases total approximately 34048 2004 34117 2003 37465 2002 future minimum rental commitments noncancelable leases follows fiscal year 33132 27540 23439 21147 20622 thereafter 240698 366578 company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended december 31 2004 december 26 2003 december 27 2002 respectively december 31 2004 december 26 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated statement financial position yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 20 litigation uncertainties asbestos company’s us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed company’s subsidiaries 1970s prior foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued united states summary us claim activity three years ended december 31 2004 follows includes claims inactive court dockets 22300 24500 yearend 2004 yearend 2003 respectively overall average combined indemnity defense cost per closed claim since 1993 approximately 20 view many uncertainties associated asbestos bodily injury claims company believes average cost increase future amount spent asbestos litigation defense case resolution substantially reimbursed insurance coverage 100200 2004 73600 2003 57200 2002 payments 2004 funded settlements insurance companies discussed december 31 2004 company recorded total liabilities 480000 comprised estimated liability relating open outstanding claims 257000 estimated liability relating future unasserted claims 223000 total 75000 recorded accrued expenses 405000 recorded asbestosrelated liability consolidated statement financial position estimates based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type ie mesothelioma vs nonmesothelioma breakdown known future claims disease type ie mesothelioma vs nonmesothelioma claims settled six years old considered abandoned longer valued estimated liability approximately 9100 cases december 31 2004 total estimated liability includes estimate forecasted indemnity amounts forecasted defense expenses total estimated defense costs indemnity payments estimated incurred year 2019 period new claims expected decline year recently received claims also suggest percentage claims closed without payment indemnity costs increase claims resolved next years company believes likely new claims filed 2019 light uncertainties inherent longterm forecasts company believe reasonably estimate defense andor indemnity costs might incurred 2019 historically defense costs represented approximately 21 total defense indemnity costs december 31 2004 total indemnity costs paid prior insurance recoveries approximately 443700 total defense costs paid approximately 119900 december 31 2004 company recorded assets 385500 relating actual probable insurance recoveries 95000 recorded accounts notes receivables 290500 recorded asbestosrelated insurance recovery receivable consolidated statement financial position asset includes estimate recoveries insurers based upon assumptions relating cost allocation resolution pending legal proceedings certain insurers well recoveries settlements insurers december 31 2004 165200 contested subsidiaries’ insurers ongoing litigation relates proper allocation coverage liability among subsidiaries’ various insurers foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued subsidiaries selfinsurers company believes amounts subsidiaries might allocated selfinsurer would immaterial company’s subsidiaries entered several settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portion outofpocket costs previously incurred company intends negotiate additional settlements order minimize amount future costs company required fund working capital company projects required fund asbestos liabilities cash flow 2010 although may required fund portion liabilities cash thereafter forecast assumes company able successfully resolve certain outstanding insurance coverage issues adverse outcome insurance litigation coverage issues could materially limit company’s insurance recoveries regard january 10 2005 new york state trial court entered order finding new york rather new jersey law applies litigation described regarding allocation liability asbestosrelated personal injury claims among foster wheeler entities various insurers since inception litigation company calculated estimated insurance recoveries applying new jersey law however application new york rather new jersey law would result company’s subsidiaries realizing lower insurance recoveries thus result decision company recorded charge earnings fourth quarter 2004 approximately 76000 reduced yearend carrying value probable insurance recoveries similar amount unless decision reversed appeal company expects required fund portion asbestos liabilities cash beginning 2010 amount timing funding requirements dependent upon among things litigated negotiated resolution various disputes company insurers yet settled february 16 2005 company’s subsidiaries filed separate motions seeking reargument decision ii appeal decision higher court assurances timing outcome motions addition even coverage issues resolved manner favorable company may able collect amounts due insurance policies company’s recoveries limited insolvencies among insurers company aware least two significant insurers currently insolvent insurers may become insolvent future company’s insurers may also fail reimburse amounts owed company timely basis company receive timely payment insurers may unable make required payments settlement agreements asbestos plaintiffs fund amounts required posted court order appeal trial judgments company unable file appeals company’s subsidiaries may ordered pay large damage awards arising adverse jury verdicts awards may exceed available cash failure realize expected insurance recoveries delays receiving insurers amounts owed subsidiaries reduce cash flow adversely affect liquidity could material adverse effect company’s financial condition pending litigation negotiations insurers continuing noted estimate assets liabilities related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims cause company increase foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued estimates costs associated asbestos claims could material adverse effect business financial condition results operations cash flows united kingdom subsidiaries company uk also received claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 total 1900 recorded accrued expenses 42400 recorded asbestosrelated liability consolidated statement financial position estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 asset equal amount recorded expected uk asbestos related insurance recoveries 1900 recorded accounts notes receivables 42400 recorded asbestosrelated insurance recovery receivable consolidated statement financial position project claims ordinary course business company subsidiaries parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims company additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments company found liable claimscounterclaims company would incur writedown charge earnings extent reserve established matter accounts amounts ultimately realized claimscounterclaims company could differ materially balances included company’s financial statements resulting charge earnings extent profit already accrued project contract charges could material adverse impact company’s liquidity financial condition company believes consultation counsel litigation material adverse effect upon company’s financial position liquidity giving effect provisions already recorded addition matters described arbitration commenced company arising compact circulating fluidizedbed boiler company engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations company relief granted company could compelled reimburse client purchase price paid approximately 25700 addition damages yet quantified company vigorously defending case counterclaimed unpaid receivables approximating 5200 plus interest various breaches nonperformance client due age reserve full amount receivable taken prior arbitration case initial stages discovery final award expected 2007 based upon company’s investigation proceedings date appear valid defenses claim however premature predict outcome proceeding company notified claim client respect thermal electric power plant south america company designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted plan repair foundations seeking reimbursement costs approximating 11000 consortium additional damages could alleged matter proceeds adversary proceeding foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued company investigating claim well rights may seek reimbursement damages third parties valid legal defenses claim appear exist however premature predict outcome matter camden county wastetoenergy project one company’s project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pollution control finance authority camden county “pcfa” finance construction project acquire landfill camden county’s use 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment project’s debt service payments became due bonds outstanding camden project issued pcfa company ccera bonds guaranteed company ccera pursuant loan agreement pcfa ccera proceeds bonds used finance construction facility accordingly proceeds recorded debt ccera’s balance sheet therefore included company’s consolidated balance sheet ccera’s obligation service debt obtained pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time management cannot determine ultimate outcome foregoing potential effects ccera project state fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds company believe collateral includes ccera’s plant longterm government contract company retained longterm contract government agency connection foster wheeler environmental corporation sale contract scheduled completed four phases first phase initial design permitting licensing spent fuel facility first phase project profitable second phase contract currently executed billed costplusfee basis expected conclude 2004 phase company must license facility nrc respond questions regarding initial design included phase one complete final design technical specification detailed guidance government agency regarding government agencydirected changes project scope remain outstanding resolution outstanding issues required second phase contract completed foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued phase three construction startup testing facility fixed contractual price 114000 subject escalation actual commencement phase delayed result significant delay issuance nrc license facility received november 30 2004 delay also result substantial additional facility costs third phase would begin purchase longlead items followed construction activities construction expected last two years requires subsidiary company fund construction cost foster wheeler usa corporation parent company foster wheeler environmental corporation provided performance guarantee project addition surety bond full contract price required cost facility expected recovered first nine months operations phase four subsidiary company operate facility fixed rates subject escalation approximately four years company government agency engaged discussions possibly restructuring terminating subsequent phases contract project proceed company intends seek thirdparty financing fund majority construction costs assurance company secure financing acceptable terms also assurance company able obtain required surety bond company cannot successfully restructure contract cannot obtain thirdparty financing required surety bond company’s ability perform obligations contract unlikely could material adverse effect company’s financial condition results operations cash flow claims raised government agency company ultimate potential liability company would arise event government agency terminates contract example due company’s inability continue contract rebids contract exact terms resulting cost government agency greater would existing terms company believe claim probable unable estimate possible loss could occur result claims additionally company believes variety potential legal defenses government agency decide pursue action environmental matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person “offsite facility” liability offsite facilities typically allocated among viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors company currently owns operates industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations facilities impacted hazardous substances company aware conditions currently owned facilities united states expects cause company incur material costs excess reserves established company also may receive claims pursuant indemnity obligations owners recently sold facilities may require company incur costs investigation andor remediation based foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued available information company believe costs materially excess reserves established assurance provided company discover environmental conditions currently owned operated properties additional claims made respect formerly owned properties requiring company incur material expenditures investigate andor remediate conditions company notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites company’s liability substantially less total site remediation costs percentage waste attributable company compared attributable prps low company believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate february 1988 one company’s subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order “order” united states environmental protection agency “usepa” pennsylvania department environmental protection “padep” regarding former manufacturing facility mountaintop pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order fwec 1993 installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system annual cost operating maintaining system material september 2004 fwec sampled domestic water supply approximately 16 residences mountaintop received validated testing data regarding sampling october 2004 residences located approximately one mile southwest historic source tce fwec’s former facility believed residences use private wells domestic water results sampling indicated tce present water several residences levels excess safe drinking water act standards since initial round testing september 2004 fwec tested wells february 2005 number wells area containing tce excess standards approximately 30 fwec believes boundaries affected area delineated source tce wells yet determined fwec working closely appropriate regulatory authorities responding situation fwec first provided affected residences temporary replacement water arranged filters installed residences’ water system remove tce fwec also arranged filters periodically tested maintained cost foregoing expected material source tce determined thirdparty fwec evaluate options regarding recovery costs incurred options could include seeking recover costs determined source agencies incurred 500 costs responding situation may seek recover determined sources tce company agencies reviewing technical economic feasibility extending public water line exists one end effected area end effected area given preliminary stage investigations fwec unable estimate potential financial impact foregoing fwec ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 20 litigation uncertainties continued resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges financial position results operations cash flows excess amounts previously provided accounts 21 valuation qualifying accounts foster wheeler llc subsidiaries notes consolidated financial statements continued thousands dollars 21 valuation qualifying accounts continued 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance foster wheeler international holdings inc subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler international holdings inc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler international holdings inc subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated statement shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler international holdings inc subsidiaries consolidated statement cash flows thousands dollars noncash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations see notes consolidated financial statements foster wheeler international holdings inc subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international holdings inc subsidiaries “company” wholly owned subsidiary foster wheeler llc “fwllc” indirectly wholly owned subsidiary foster wheeler ltd principal operations company design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company operates primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 9 18 19 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements foster wheeler ltd’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity foster wheeler ltd’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 foster wheeler ltd’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding foster wheeler ltd’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client foster wheeler ltd reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected foster wheeler ltd’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totaling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s company’s ability continue going concern 3 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 4 summary significant accounting policies principles consolidation condensed consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler international holdings inc significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies year 2004 included 53 weeks years 2003 2002 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result reevaluation process 2004 27 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted net increase 76500 estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 544 cash equivalents cash equivalents include liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 34800 december 31 2004 required collateralize letters credit bank guarantees approximately 10600 client escrow funds trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period however conformity industry practice full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 16249 december 31 2004 18658 december 26 2003 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 31 2004 company recorded aftertax net foreign currency transaction loss 2560 year ended december 31 2003 company recorded aftertax net foreign currency transaction gain 4701 year ended december 31 2002 recorded aftertax net foreign currency transaction loss 1918 contracts process estimated costs complete longterm contracts accordance terms longterm contracts amounts recorded contracts process estimated costs complete longterm contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process estimated costs complete longterm contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2004 2003 2002 relating options granted company personnel options available grant follows presented actual number shares foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 31 2004 recent accounting developments december 16 2004 financial accounting standards board “fasb” issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable trade following table shows components trade accounts notes receivable unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts years ended december 31 2002 2004 presented foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 6 contracts process inventories following table shows elements included contracts process related longterm contracts costs inventories shown 7 land buildings equipment land buildings equipment stated cost set forth depreciation amortization expenses years 2004 2003 2002 8360 7440 9257 respectively 8 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project following summarized financial information company’s equity affiliates combined well company’s interest affiliated foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 8 investments advances equity interests continued company’s share net earnings equity affiliates included income totaled 11292 9738 7334 years ended december 31 2004 2003 2002 respectively company’s investment equity affiliates totaled 48458 36681 december 31 2004 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 1000 total contingent obligation third project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance third project insufficient cover debt service payments undistributed retained earnings company’s equity investees amounted approximately 42000 28500 december 31 2004 december 26 2003 respectively additionally december 31 2004 company held investments unconsolidated affiliates 56819 carried cost since company hold controlling financial interest company made advances approximately 34800 thirdparty equity investees 9 income taxes company’s earningslosses income taxes years 2004 2003 2002 taxed following jurisdictions provision income taxes earningslosses follows foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 9 income taxes continued deferred tax assets liabilities consist following reflected company recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change valuation allowance increased 501 2004 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2011 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable us statutory rate earningsloss income taxes result following 10 pension postretirement benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 31 2004 company recognized cumulative minimum liability consolidated financial statements underfunded amount 183164 pretax resulting cumulative pretax charge comprehensive incomeloss represents decrease minimum liability 16945 prior year including impact foreign currency translation foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes postretirement benefits addition providing pension benefits company’s subsidiary canada provides certain health care life insurance benefits retired employees “other benefits” employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies following chart contains disclosures pension benefits plans years 2004 2003 2002 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued healthcare cost trend 1500 decline 2014 400 assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plan onepercentagepoint change assumed health care cost trend rates would following effects onepercentage point increase onepercentage point decrease effect total service interest cost components 2 effect accumulated postretirement benefit obligations 2 plan measurement date measurement date company’s pension benefits plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo company’s pension plans totaled approximately 580000 500000 year end 2004 2003 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2004 due abo exceeding fair value plan assets foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued investment policy company’s plans governed written investment policy investment policy uk pension plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian pension plan uses balances approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return pension plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 80 73 past three years plan asset allocations contributions company expects contribute approximately 30700 pension plans 79 benefits plan 2005 estimated future benefit payments following benefit payments reflect expected future service expected paid foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2004 2003 2002 company recorded expense approximately 4050 3700 3300 respectively liability 27623 2004 25176 2003 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 11 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended 2004 2003 2002 respectively december 31 2004 december 26 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 12 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 23711 2004 19588 2003 16084 2002 future minimum rental commitments noncancelable leases follows fiscal year 24654 20764 17532 15281 14857 thereafter 232135 325223 13 capital leases assets capital leases summarized follows foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 13 capital leases continued following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year thereafter less interest 843 net minimum lease payments capital leases 3058 less current portion net minimum lease payments longterm net minimum lease payments 2415 14 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2004 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 31 2004 pretax loss derivative instruments 189 recorded year ended december 26 2003 pretax gain derivative instruments 617 year ended december 27 2002 pretax loss 402 recorded cost operating revenues consolidated statement operations comprehensive incomeloss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 7300 owed company counterparties approximately 21200 owed company counterparties 517 aftertax loss recorded comprehensive income december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 15 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 27 2002 25500 accruals 26000 settlements 1900 adjustments provisions 600 balance december 26 2003 49000 accruals 13100 settlements 3800 adjustments provisions 22900 balance december 31 2004 35400 16 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts subsidiaries company uk received number claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 identical asset recorded expected uk asbestosrelated insurance recoveries estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 current portion 1900 recorded accounts receivable accrued expenses ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 17 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 4 14 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 186830 159298 december 31 2004 december 26 2003 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2004 company 28519 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 17 financial instruments risk management continued company’s customer base dispersion across different business geographic areas december 31 2004 december 26 2003 company significant concentrations credit risk 18 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2004 2003 2002 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 24980 18886 23146 2004 2003 2002 respectively included consolidated balance sheet 2004 2003 related longterm contract activity intercompany borrowings foster wheeler affiliates following intercompany notes payable includes 103400 bears interest libor plus 375 25883 bears interest 20 also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 99408 65151 december 31 2004 december 26 2003 respectively additionally december 31 2004 december 26 2003 company held investments unconsolidated affiliates 57687 51544 cost respectively related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 foster wheeler international holdings inc subsidiaries notes consolidated financial statements continued thousands dollars 19 sale certain business assets 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wasteto energy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss foster wheeler international corporation subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler international corporation inc subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler international corporation subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler international corporation subsidiaries consolidated statement cash flows thousands dollars noncash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations see notes consolidated financial statements foster wheeler international corporation subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler international corporation “company” wholly owned subsidiary foster wheeler international holdings indirectly wholly owned subsidiary foster wheeler ltd principal operations company provide design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company principally operates one segment primarily outside united states operations united kingdom italy france turkey spain singapore thailand malaysia south africa canada company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 9 18 19 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements foster wheeler ltd’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity foster wheeler ltd’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 foster wheeler ltd’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding foster wheeler ltd’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client foster wheeler ltd reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected foster wheeler ltd’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totaling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s company’s ability continue going concern 3 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 4 summary significant accounting policies principles consolidation condensed consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler international corporation significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year 52 53 week annual accounting period ending last friday december domestic companies december 31 foreign companies domestic companies year 2004 included 53 weeks years 2003 2002 included 52 weeks use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress towards completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result reevaluation process 2004 27 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted net increase 76500 estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 544 cash equivalents cash equivalents include liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 34800 december 31 2004 required collateralize letters credit bank guarantees approximately 10600 client escrow funds trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within oneyear period however conformity industry practice full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 16249 december 31 2004 18658 december 26 2003 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 31 2004 company recorded aftertax net foreign currency transaction loss 2560 year ended december 31 2003 company recorded aftertax net foreign currency transaction gain 4701 year ended december 31 2002 recorded aftertax net foreign currency transaction loss 1918 contracts process estimated costs complete longterm contracts accordance terms longterm contracts amounts recorded contracts process estimated costs complete longterm contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process estimated costs complete longterm contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2004 2003 2002 relating options granted company personnel options available grant follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2004 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued recent accounting developments december 16 2004 financial accounting standards board “fasb” issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable trade following table shows components trade accounts notes receivable unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts years ended december 31 2002 2004 presented foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 6 contracts process inventories following table shows elements included contracts process related longterm contracts costs inventories shown 7 land buildings equipment land buildings equipment stated cost set forth depreciation amortization expenses years 2004 2003 2002 8360 7440 9257 respectively 8 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project following summarized financial information company’s equity affiliates combined well company’s interest affiliated foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 8 investments advances equity interests continued company’s share net earnings equity affiliates included income totaled 11292 9738 7334 years ended december 31 2004 2003 2002 respectively company’s investment equity affiliates totaled 48458 36681 december 31 2004 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 1000 total contingent obligation third project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance third project insufficient cover debt service payments undistributed retained earnings company’s equity investees amounted approximately 42000 28500 december 31 2004 december 26 2003 respectively additionally december 31 2004 company held investments unconsolidated affiliates 56819 carried cost since company hold controlling financial interest company made advances approximately 34800 thirdparty equity investees 9 income taxes company’s earningslosses income taxes years 2004 2003 2002 taxed following jurisdictions provision income taxes earningslosses follows foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 9 income taxes continued deferred tax assets liabilities consist following reflected company recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change valuation allowance increased 501 2004 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2011 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable us statutory rate earningsloss income taxes result following 10 pension postretirement benefits pension benefits company’s subsidiaries united kingdom canada pension plans cover fulltime employees plans retirement benefits primarily function years service level compensation december 31 2004 company recognized cumulative minimum liability consolidated financial statements underfunded amount 183164 pretax resulting cumulative pretax charge comprehensive incomeloss represents decrease minimum liability 16945 prior year including impact foreign currency translation foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes postretirement benefits addition providing pension benefits company’s subsidiary canada provides certain health care life insurance benefits retired employees “other benefits” employees may become eligible benefits qualify commence normal early retirement pension benefits defined pension plan working company benefits provided insurance companies following chart contains disclosures pension benefits plans years 2004 2003 2002 foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued healthcare cost trend 1500 decline 2014 400 assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plan onepercentagepoint change assumed health care cost trend rates would following effects onepercentage point increase onepercentage point decrease effect total service interest cost components 2 effect accumulated postretirement benefit obligations 2 plan measurement date measurement date company’s pension benefits plans december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo company’s pension plans totaled approximately 580000 500000 year end 2004 2003 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2004 due abo exceeding fair value plan assets investment policy company’s plans governed written investment policy investment policy uk pension plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian pension plan uses balances approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return pension plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required weightedaverage expected longterm rate return plan assets declined 80 73 past three years plan asset allocations uk plans uk equities nonuk equities uk fixed income securities nonuk fixed income securities total canada plan canadian equities noncanadian equities canadian fixed income securities noncanadian fixed income securities total contributions company expects contribute approximately 30700 pension plans 79 benefits plan 2005 estimated future benefit payments following benefit payments reflect expected future service expected paid foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 10 pension postretirement benefits continued employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2004 2003 2002 company recorded expense approximately 4050 3700 3300 respectively liability 27623 2004 25176 2003 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 11 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended 2004 2003 2002 respectively december 31 2004 december 26 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates 12 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 23711 2004 19588 2003 16084 2002 future minimum rental commitments noncancelable leases follows fiscal year 24654 20764 17532 15281 14857 thereafter 232135 325223 13 capital leases assets capital leases summarized follows foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 13 capital leases continued following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year thereafter less interest 843 net minimum lease payments capital leases 3058 less current portion net minimum lease payments longterm net minimum lease payments 2415 14 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2004 december 26 2003 december 27 2002 company meet requirements deferral sfas 133 recorded year ended december 31 2004 pretax loss derivative instruments 189 recorded year ended december 26 2003 pretax gain derivative instruments 617 year ended december 27 2002 pretax loss 402 recorded cost operating revenues consolidated statement operations comprehensive incomeloss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 7300 owed company counterparties approximately 21200 owed company counterparties 517 aftertax loss recorded comprehensive income december 28 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months 15 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 15 warranty reserves continued balance december 27 2002 25500 accruals 26000 settlements 1900 adjustments provisions 600 balance december 26 2003 49000 accruals 13100 settlements 3800 adjustments provisions 22900 balance december 31 2004 35400 16 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts subsidiaries company uk received number claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 identical asset recorded expected uk asbestosrelated insurance recoveries estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 current portion 1900 recorded accounts receivable accrued expenses ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 17 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 17 financial instruments risk management continued longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 4 14 carrying amounts fair values estimated fair values company’s financial instruments follows ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 186830 159298 december 31 2004 december 26 2003 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2004 company 28519 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2004 december 26 2003 company significant concentrations credit risk foster wheeler international corporation subsidiaries notes consolidated financial statements continued thousands dollars 18 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2004 2003 2002 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 24980 18886 23146 2004 2003 2002 respectively included consolidated balance sheet 2004 2003 related longterm contract activity intercompany borrowings foster wheeler affiliates following intercompany notes payable includes 103400 bears interest libor plus 375 25883 bears interest 20 also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 99408 65151 december 31 2004 december 26 2003 respectively additionally december 31 2004 december 26 2003 company held investments unconsolidated affiliates 57687 51544 cost respectively related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 19 sale certain business assets 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wasteto energy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss foster wheeler europe limited subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive incomeloss cash flows changes shareholder’s deficit present fairly material respects financial position foster wheeler europe limited subsidiaries “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 foster wheeler europe limited subsidiaries consolidated statement operations comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement changes shareholder’s deficit thousands dollars see notes consolidated financial statements foster wheeler europe limited subsidiaries consolidated statement cash flows thousands dollars noncash investing financing activities 2004 land building equipment increased 27 million corresponding increase capital lease obligations see notes consolidated financial statements foster wheeler europe limited subsidiaries notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries foster wheeler europe limited “company” wholly owned subsidiary foster wheeler international corporation indirectly wholly owned subsidiary foster wheeler ltd principal operations company provide design engineer construct petroleum processing facilities upstream downstream chemical petrochemical pharmaceutical natural gas liquefaction lng facilities related infrastructure including power generation distribution facilities production terminals pollution control equipment company principally operates one segment primarily outside united states operations united kingdom italy france turkey spain singapore south africa company transactions relationships foster wheeler ltd affiliates financial position results operations cash flows company impacted transactions relationships discussed notes 2 3 8 17 18 functional currency company pound sterling reporting currency us dollar 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfordebt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity foster wheeler ltd’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 foster wheeler ltd’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding foster wheeler ltd’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client foster wheeler ltd reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio reflected foster wheeler ltd’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totalling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s company’s ability continue going concern 3 sale investment foster wheeler energia sa october 2003 pursuant stock purchase agreement dated october 10 2003 “spa” company sold investment foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary sold wholly owned affiliate foster wheeler ltd sales price approximated carrying value company reflected transaction reorganization companies common control accordingly 2002 financial statements revised eliminate activity foster wheeler energia sa consolidated statements operations cash flows may 2004 pursuant spa additional payment 3589 made company payment could estimated time purchase therefore accrued payment received company recorded decrease accumulated deficit 2004 4 summary significant accounting policies principles consolidation consolidated financial statements prepared accordance accounting principles generally accepted united states america include accounts foster wheeler europe limited significant subsidiary companies significant intercompany transactions balances eliminated company’s fiscal year ends december 31 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred company includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts company responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” company numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” company reviews contracts monthly result process 2004 27 individual projects final estimated profit revisions exceeding 1000 revisions resulted events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing third party materials equipment costs differing previously estimated testing completed facilities turn eliminates incurs completion warrantyrelated costs net aggregate dollar value accrued contract profit resulting estimate changes 2004 amounted net increase 76500 estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs company records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings december 31 2004 company recorded commercial claims receivable 544 cash equivalents cash equivalents include liquid shortterm investments purchased original maturities three months less company requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted cash restricted cash consists approximately 33900 december 31 2004 required collateralize letters credit bank guarantees approximately 10600 client escrow funds trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within one year period however conformity industry practice full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 13801 december 31 2004 17681 december 31 2003 foreign refundable valueadded tax accrued interest receivable land buildings equipment depreciation computed straightline basis using composite estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances company uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate due lack controlling financial interest investment ownership less 20 affiliates carried cost income taxes income tax expense company’s statement operations calculated separate company basis subsidiaries file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued foreign currency assets liabilities foreign subsidiaries translated us dollars monthend exchange rates income expenses cash flows monthly weightedaverage rates year ended december 31 2004 company recorded aftertax net foreign currency transaction loss 2845 year ended december 31 2003 company recorded aftertax net foreign currency transaction gain 129 year ended december 31 2002 recorded aftertax net foreign currency transaction loss 1289 contracts process estimated costs complete longterm contracts accordance terms longterm contracts amounts recorded contracts process estimated costs complete longterm contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process estimated costs complete longterm contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees company participate plans foster wheeler ltd company adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd company continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation plans accounted using fair value method accounting described sfas 123 company’s net earningsloss would follows fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 foster wheeler ltd’s 1995 stock option plan approved company’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plans provide shares granted issued foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plans less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date grant foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts information years ended december 31 2004 2003 2002 relating options granted company personnel options available grant follows presented actual number shares foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued following table summarizes information fixedprice stock options outstanding december 31 2004 recent accounting developments december 16 2004 financial accounting standards board “fasb” issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r company adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning company’s quarter ending september 30 2005 company still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements company foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable trade following table shows components trade accounts notes receivable unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts years ended december 31 2002 2004 presented foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 6 contracts process inventories following table shows elements included contracts process related longterm contracts costs inventories shown 7 land buildings equipment land buildings equipment stated cost set forth depreciation amortization expense years 2004 2003 2002 7637 8203 8126 respectively foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 8 investments advances equity interests company owns noncontrolling equity interest two electric power generation projects one wastetoenergy project italy two projects italy 42 owned third 49 owned company 2004 company entered binding agreement sell 10 minority equity interest third italian project following summarized financial information company’s equity affiliates combined well company’s interest affiliates company’s share net earnings equity affiliates included income totaled 11292 9738 7334 years ended december 31 2004 2003 2002 respectively company’s investment equity affiliates totaled 48458 36681 december 31 2004 2003 respectively company guaranteed certain performance obligations projects company’s contingent obligations guarantees two projects approximately 1000 total contingent obligation third project capped approximately 10300 twelveyear life project’s financing date amounts paid guarantee company also provided guarantee 5200 representing 49 debt service reserve letter credit providing liquidity performance third project insufficient cover debt service payments undistributed retained earnings company’s equity investees amounted approximately 42000 28500 december 31 2004 2003 respectively additionally december 31 2004 company held investments unconsolidated affiliates 56819 carried cost since company hold controlling financial interest company made advances approximately 34800 thirdparty equity investees 9 income taxes company’s earningslosses income taxes years 2004 2003 2002 taxed foreign jurisdictions foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 9 income taxes continued provision income taxes earningsloss follows deferred tax assets liabilities consist following reflected company recorded various deferred tax assetsliabilities realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed certain components deferred tax assets 2003 shown changed amounts originally reported 2003 cases adjustment offset corresponding adjustment valuation allowance 2003 reported net deferred tax assets liabilities 2003 change valuation allowance increased 474 2004 valuation reserve required sfas 109 “accounting income taxes” evidence losses operations three recent years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2014 beyond based current tax laws provision income taxes differs amount income tax determined applying applicable uk statutory rate earningsloss income taxes result following 10 pension benefits pension benefits company’s subsidiary united kingdom pension plan covers fulltime employees plan retirement benefits primarily function years service foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 10 pension benefits continued level compensation december 31 2004 company recognized cumulative minimum liability consolidated financial statements underfunded amount 175486 pretax resulting cumulative pretax charge comprehensive incomeloss represents decrease minimum liability 18149 prior year including impact foreign currency translation minimum pension liability change year result revisions actuarial assumptions experience gains losses settlement rate changes following chart contains disclosures pension benefits years 2004 2003 2002 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 10 pension benefits continued plan measurement date measurement date company’s defined benefit plan december 31 year plan assets obligations accumulated benefit obligation accumulated benefit obligation abo company’s plan totaled approximately 557500 481000 year end 2004 2003 respectively previously discussed company recorded charges comprehensive incomeloss years 2000 2004 due abo exceeding fair value plan assets investment policy company’s plan governed written investment policy investment policy uk plan designed improve ongoing funding level plan gradually time changing mix investment allocation equities bonds fully match liabilities plan bond equity allocations range 40 bonds 60 equities 50 bonds 50 equities depending funding level longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plan’s portfolio expected returns asset class developed considering past performance future considerations longterm rate return reviewed annually company funded plans adjusted required foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 10 pension benefits continued contributions company expects contribute approximately 29800 pension plan 2005 estimated future benefit payments following benefit payments reflect expected future service expected paid defined benefit plan 24465 26381 26817 31315 36038 20102014 223671 employee benefits company’s subsidiaries italy participate governmentmandated indemnity program employees accordingly company accrues one month’s salary per employee year employee’s service payable employee leaves company 2004 2003 2002 company recorded expense approximately 4050 3700 3300 respectively liability 27623 2004 24324 2003 related company’s obligation connection program included pension postretirement employee benefits obligation consolidated balance sheet 11 saleleaseback transactions company entered saleleaseback transactions office building spain 2000 office building uk 1999 connection transactions company recorded deferred gains amortized income term respective leases amortization 4135 3622 3197 years ended december 31 2004 2003 2002 respectively december 31 2004 december 31 2003 balance deferred gains 76383 74151 respectively included longterm liabilities accompanying consolidated balance sheet yearoveryear increase deferred gain balance primarily due change foreign currency translation rates foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 12 operating leases company certain subsidiaries obligated operating lease agreements primarily office space rental expense leases totaled 23070 2004 19235 2003 15416 2002 future minimum rental commitments noncancelable leases follows fiscal year 24038 20211 17084 14833 14848 thereafter 232136 323150 13 capital leases assets capital leases summarized follows following minimum lease payments made years indicated capital leases effect december 31 2004 fiscal year thereafter less interest 843 net minimum lease payments capital leases 3058 less current portion net minimum lease payments longterm net minimum lease payments 2415 14 derivative financial instruments company’s activities expose risks related effect changes foreigncurrency exchange rates company maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates company utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2004 2003 2002 company meet requirements deferral sfas 133 recorded year ended december 31 2004 pretax loss derivative instruments 227 recorded year ended december 31 2003 pretax gain derivative instruments 616 year ended december 31 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 14 derivative financial instruments continued 2002 pretax loss 457 recorded cost operating revenues consolidated statement operations comprehensive incomeloss amounts receivable gains payable losses foreign exchange contracts recognized deferred gains losses included either contracts process estimated costs complete longterm contracts company exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 7300 owed company counterparties approximately 21200 owed company counterparties 553 aftertax loss recorded comprehensive income december 31 2001 amount reclassified earnings 2002 company longer qualified deferral sfas 133 maximum term company hedging exposure variability cash flows 12 months 15 warranty reserves company provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract balance december 31 2002 19900 accruals 21600 settlements 1300 adjustments provisions balance december 31 2003 40800 accruals 12600 settlements 1200 adjustments provisions 20400 balance december 31 2004 31800 16 litigation uncertainties ordinary course business company subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought company customers alleging deficiencies either equipment plant construction seeking resulting alleged damages additionally company evaluates noncontract exposures records accruals necessary based knowledge facts circumstances relating company’s liabilities insurance coverage management company believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts subsidiaries company uk received number claims alleging personal injury arising exposure asbestos date 446 claims brought uk subsidiaries 255 remain open december 31 2004 none settled claims resulted material costs company december 31 2004 company recorded estimated us dollar equivalent total uk asbestos liabilities 44300 identical asset recorded expected uk asbestosrelated foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 16 litigation uncertainties continued insurance recoveries estimated us dollar equivalent liability open outstanding uk asbestos claims 5800 estimated liability future unasserted uk asbestos claims 38500 current portion 1900 recorded accounts receivable accrued expenses ultimate legal financial liability company respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used company becomes known company reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause company increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 17 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value company’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered company debt remaining maturities practicable estimate fair value company’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers company exposed market risks fluctuations foreign exchange rates financial instruments utilized company reduce risk company hold issue financial instruments trading purposes company exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recongnized credit rating agencies see notes 4 14 carrying amounts fair values estimated fair values company’s financial instruments follows foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 17 financial instruments risk management continued ordinary course business company contingently liable performance letters credit bank guarantees surety bonds totaling 163281 137592 december 31 2004 december 31 2003 respectively company’s past experience material claims made financial instruments management company expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2004 company 28519 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject company concentrations credit risk consist principally cash equivalents trade receivables company places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising company’s customer base dispersion across different business geographic areas december 31 2004 2003 company significant concentrations credit risk 18 related party transactions company enters longterm contracts subcontractor andor performs subcontracting work certain foster wheeler affiliates included consolidated statement operations comprehensive incomeloss 2004 2003 2002 related contracts intercompany borrowings following costs incurred foster wheeler ltd certain affiliates behalf company charged company management fee fees represent management’s estimation reasonable allocation company’s share costs plus royalty fees included costs expenses totaled 21316 17254 20018 2004 2003 2002 respectively included consolidated balance sheet 2004 2003 related longterm contract activity intercompany borrowings foster wheeler affiliates following intercompany notes payable includes 270000 due full 2016 interest rates 75 2004 2003 80 2002 foster wheeler europe limited subsidiaries notes consolidated financial statements continued thousands dollars 18 related party transactions continued also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 company reduced intercompany notes receivable charged shareholder’s deficit notes receivable us affiliates yearoveryear change reflected consolidated statement changes shareholder’s deficit consolidated statement cash flows impact shareholder’s deficit reduction 82277 66251 december 31 2004 2003 respectively additionally december 31 2004 2003 company held investments unconsolidated affiliates 56819 50680 cost respectively 2001 company purchased investments subsidiaries parent foster wheeler international corporation transfer ownership occurred entities common control difference purchase price net equity subsidiaries 250291 charged paidin capital amount 86886 accumulated deficit amount 163405 company’s paidin capital could absorb full amount excess purchase price related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 19 sale certain business assets 2004 company sold minority equity interests specialpurpose companies established develop power plant projects europe company recorded aggregate gain sales 19200 2004 recorded income consolidated statement operations comprehensive incomeloss 2004 company also entered binding agreement sell 10 equity interest wastetoenergy project italy company recorded loss sale 3300 2004 recorded income consolidated statement operations comprehensive incomeloss fw netherlands cv subsidiaries consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive lossincome cash flows changes partners’ capital present fairly material respects financial position fw netherlands cv subsidiaries “partnership” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming partnership parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt partnership’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 fw netherlands cv subsidiaries consolidated statement operations comprehensive loss income thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries consolidated balance sheet thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries consolidated statement changes partners’ deficitcapital thousands dollars see notes consolidated financial statements fw netherlands cv subsidiaries consolidated statement cash flows thousands dollars noncash investing financing activities december 2002 subsidiary fw netherlands cv entered lease transaction office building finland transaction qualified capital lease see note 13 see notes consolidated financial statements fw netherlands cv subsidiaries notes consolidated financial statements thousands dollars 1 description business fw netherlands cv limited liability partnership registered netherlands subsidiaries collectively referred herein “partnership” owned foster wheeler llc 99 foster wheeler inc 1 indirectly wholly owned foster wheeler ltd principal operations partnership design manufacture erect steam generating auxiliary equipment power stations industrial markets worldwide steam generating equipment includes full range fluidizedbed conventional boilers firing coal oil gas biomass municipal solid waste wood lowbtu gases auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment lownox burners site services related products encompass plant erection maintenance engineering plant upgrading life extension plant repowering partnership also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solids mechanics partnership principally operates one segment primarily finland poland spain partnership transactions relationships foster wheeler ltd affiliates financial position results operations cash flows partnership impacted transactions relationships discussed notes 2 3 8 17 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business partnership’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd partnership may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s partnership’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfor debt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreement fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued partnership’s subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity partnership’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 partnership’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding partnership’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client partnership reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio reflected foster wheeler ltd’s partnership’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totalling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s partnership’s ability continue going concern 3 purchase foster wheeler energia sa october 2003 partnership acquired foster wheeler energia sa wholly owned subsidiary foster wheeler europe limited proceeds approximately 30675 subsidiary purchased wholly owned affiliate foster wheeler ltd sales price approximated carrying value partnership reflected transaction reorganization companies common control accordingly 2002 financial statements revised include historical activity foster wheeler energia sa consolidated statements operations cash flows periods presented may 2004 pursuant foster wheeler energia sa sale agreement additional payment 3589 made foster wheeler europe limited payment could estimated time purchase therefore accrued payment made partnership recorded decrease contributed capital 2004 4 summary significant accounting policies principles consolidation consolidated financial statements prepared based accounting principles generally accepted united states america include accounts significant domestic foreign subsidiary companies significant intercompany transactions balances eliminated partnership’s fiscal year ends december 31 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting long term contracts including customer vendor claims depreciation employee benefit plans taxes contingencies among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress toward completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value 5000 measured using costtocost method revenues profits costreimbursable contracts recorded costs incurred partnership includes flowthrough costs consisting materials equipment subcontractor costs revenue costreimbursable contracts partnership responsible engineering specifications procurement costs contracts progress stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts negative balances presented “estimated costs complete longterm contracts” partnership numerous contracts various stages completion contracts require estimates determine appropriate cost revenue recognition however current estimates may revised additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position 811 “accounting performance constructiontype certain productiontype contracts” “sop 811” accounting principles board “apb” opinion 20 “accounting changes” partnership reviews contracts monthly result process 2004 ten individual projects final estimated profit revisions exceeding 1000 revisions primarily resulted problems ongoing lumpsum turnkey power projects europe net aggregate dollar value accrued contract profit reversal resulting estimate changes 2004 amounted net charge 71100 estimates costs complete longterm contracts indicate loss provision made currently total loss anticipated elapsed time award contract completion performance may four years claims amounts excess agreed contract price amounts included original contract price contractor seeks collect customers others delays errors specifications designs contract terminations change orders dispute unapproved scope price causes unanticipated additional costs partnership records claims accordance paragraph 65 sop 811 statement position states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies contractor’s performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred claims currently various stages negotiation arbitration legal proceedings fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued december 31 2004 partnership recorded commercial claims receivable approximately 3402 cash equivalents cash equivalents include liquid shortterm investments purchased original maturities three months less partnership requires substantial portion funds support liquidity working capital needs accordingly funds may readily available repatriation parent restricted net assets one partnership’s foreign subsidiaries party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity partnership’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 partnership’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum amounts performance bonds outstanding equity partnership’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client partnership reimbursed banks bond therefore longer outstanding intention partnership issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility fw llc provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued thereunder expired therefore partnership believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenants reflected liquidity forecasts restricted cash december 31 2004 2003 restricted cash 5718 9228 respectively required primarily collateralize letters credit bank guarantees shortterm investments shortterm investments consist primarily certificates deposit classified held maturity statement financial accounting standards “sfas” 115 “accounting certain investments debt equity securities” fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued trade accounts receivable accordance terms longterm contracts certain percentages billings withheld customers completion acceptance contracts final payments amounts withheld might received within one year period however conformity industry practice full amount accounts receivable including amounts withheld included current assets trade accounts receivable continually evaluated accordance corporate policy provisions established project specific basis issue associated client’s ability make payments circumstances client making payment due contractual issues customer payment history trends within various markets served general economic trends also considered evaluating necessity provision accounts notes receivable nontrade accounts notes receivable consist primarily receivables affiliated companies 1513 december 31 2004 1270 december 31 2003 foreign refundable valueadded tax accrued interest receivable land buildings equipment land buildings equipment stated cost depreciation computed straightline basis using composite estimated lives ranging 10 25 years buildings 3 20 years equipment expenditures maintenance repairs charged operations incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings investments advances partnership uses equity method accounting investment ownership 20 50 affiliates unless significant economic considerations indicate cost method appropriate equity method also used investments ownership greater 50 partnership controlling financial interest investment ownership less 20 affiliates carried cost currently partnership’s significant investments affiliates recorded using equity method income taxes partnership subject income taxes taxable income loss applicable operation partnership includable income tax return partners income tax partnership’s statement operations balance sheet calculated separate company basis subsidiaries subject tax file tax returns foreign jurisdictions deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment foreign currency partnership’s functional reporting currency us dollar assets liabilities foreign subsidiaries using functional currencies translated us dollars yearend exchange rates income expenses cash flows monthly weightedaverage rates years ended december 31 2004 2003 partnership recorded aftertax net foreign currency transaction losses 40 850 respectively year ended december 31 2002 recorded aftertax net foreign currency transaction gain 127 contracts process estimated costs complete longterm contracts accordance terms longterm contracts amounts recorded contracts process estimated costs complete longterm contracts may realized paid respectively within oneyear period conformity fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued industry practice however full amount contracts process estimated costs complete longterm contracts included current assets current liabilities respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method intangible assets intangible assets consist principally excess cost fair value net assets acquired goodwill trademarks patents goodwill allocated reporting units based original purchase price allocation patents trademarks amortized straightline basis periods 12 40 years partnership tests impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value based future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year partnership evaluates goodwill separate operating unit basis assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed annually impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 31 2004 2003 partnership unamortized goodwill 49378 48690 respectively change due change foreign currency translation rates december 31 2004 2003 partnership unamortized identifiable intangible assets 16026 15219 respectively following table details amounts relating assets december 31 2004 2003 amortization expense related patents trademarks years 2004 2003 2002 960 990 850 respectively amortization expense expected approximate 1000 year next five years stock option plans foster wheeler ltd fixed option plans reserve common shares issuance executives key employees directors employees partnership participate plans foster wheeler ltd partnership adopted disclosureonly provision sfas 123 “accounting stockbased compensation” amended sfas 148 “accounting stock based compensation transition disclosure” foster wheeler ltd partnership continue account stock options granted employees directors using intrinsic value method apb opinion 25 “accounting stock issued employees” compensation costs stockbased compensation fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued plans accounted using fair value method accounting described sfas 123 partnership’s net lossearnings would follows stock options issued 2003 fair value option grant estimated date grant using blackscholes optionpricing model following weightedaverage assumptions september 10 2004 board directors adopted 2004 stock option plan “2004 plan” reserves 56421 preferred shares issuance options granted 2004 plan expire maximum ten years date granted october 6 2004 management issued options 2004 plan purchase 43103 preferred shares exercise price 9378 per common share issuable options expire october 5 2007 one third options issued management vest fourth quarter 2005 balance vest fourth quarter 2006 1995 stock option plan approved foster wheeler ltd’s shareholders april 1995 amended april 1999 may 2002 total number shares common stock may granted 265000 plans provide shares granted come foster wheeler ltd’s authorized unissued reacquired common stock price options granted pursuant plan less 100 fair market value shares date grant option may exercised within one year date grant option exercisable ten years date granted foster wheeler ltd shareholders approved several capital share alterations november 29 2004 meeting among onefortwenty reverse stock split please note stock option amounts reflect post reverse stock split amounts fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued information regarding option plans years 2004 2003 2002 follows presented actual number shares following table summarizes information fixedprice stock options outstanding december 31 2004 pensions postretirement benefits partnership offers government sponsored retirement program employees subsidiary finland plans exist partnership’s subsidiaries recent accounting developments december 16 2004 financial accounting standards board “fasb” issued sfas 123 revised 2004 “sharebased payment” sfas 123r replaces sfas 123 “accounting stockbased compensation” supersedes apb opinion 25 “accounting stock issued employees” sfas 123r requires sharebased payments employees including grants employee stock options restricted stock recognized consolidated statement operations comprehensive loss based fair values prior sfas 123r fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued partnership adopted disclosureonly provisions sfas 123 therefore certain pro forma disclosures fair value sharebased payments required notes consolidated financial statements sfas 123r provides adoption new standard one two ways modified prospective transition method modified retrospective transition method using modified prospective transition method sharebased employee compensation cost would recognized beginning fiscal period recognition provisions first applied fairvaluebased accounting method used account employee awards granted modified settled effective date awards fully vested effective date using modified retrospective method employee compensation cost would recognized periods presented prior adoption proposed standard accordance original provisions sfas 123 employee compensation cost would recognized amounts reported pro forma disclosures provided accordance sfas 123 adoption provisions sfas 123r effective beginning partnership’s quarter ending september 30 2005 partnership still evaluating method adoption impact adoption sfas 123r consolidated financial position results operations december 2004 fasb issued sfas 153 “exchanges nonmonetary assets amendment apb opinion 29” sfas 153 eliminates exception nonmonetary exchanges similar productive assets previously required recorded carryover basis rather fair value basis instead sfas 153 provides exchanges nonmonetary assets commercial substance reported carryover basis rather fair value basis nonmonetary exchange considered commercial substance future cash flows entity expected change significantly result exchange provisions sfas 153 effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 adoption sfas 153 expected material impact consolidated financial statements partnership 5 accounts notes receivable following table shows components trade accounts notes receivable fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 5 accounts notes receivable continued unbilled amounts billed accordance contract provisions include monthly milestone billing criteria changes allowance doubtful accounts periods ended december 31 2002 2004 presented 6 contracts process inventories following table shows elements included contract process relates longterm contracts costs inventories shown 7 land buildings equipment land buildings equipment stated cost set forth depreciation amortization expense years 2004 2003 2002 5817 4189 3872 respectively fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 8 notes payable longterm debt notes payable longterm debt consisted following notes payable affiliates primarily composed two 20000 notes one note interest rate 10 note interest rate 75 notes due full december 2006 200 notes payable third parties december 31 2003 composed two notes one note payable state finland 130 interest rate 225 second note payable ministry finance finland 70 interest rate tied wibor warsaw interbank offered rate 9 derivative financial instruments partnership’s activities expose risks related effect changes foreigncurrency exchange rates partnership maintains foreigncurrency riskmanagement strategy uses derivative instruments protect unanticipated fluctuations cash flows may arise volatility currency exchange rates partnership utilizes foreign exchange contracts solely hedging purposes whether qualify hedge accounting sfas 133 december 31 2004 2003 2002 partnership meet requirements deferral sfas 133 recorded years ended december 31 2004 2003 2020 6232 pretax net losses respectively year ended december 31 2002 9332 pretax net gain derivative instruments reflected cost operating revenues consolidated statement earnings comprehensive loss income partnership exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 31 2004 approximately 7300 owed partnership counterparties 10500 owed partnership counterparties 235 net tax gain recorded comprehensive loss income december 31 2001 amount reclassified earnings 2002 partnership longer qualified deferral sfas 133 maximum term partnership hedging exposure variability cash flows 12 months 10 warranty reserves partnership provides make goodwarranty reserves certain longterm contracts generally reserves accrued life contract sufficient balance maintained cover exposures conclusion contract fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 10 warranty reserves continued balance december 31 2002 13900 accruals 27400 settlements 5300 adjustments provision 1100 balance december 31 2003 34900 accruals 9900 settlements 9800 adjustments provision 100 balance december 31 2004 34900 11 income taxes partnership’s lossearnings income taxes years 2004 2003 2002 taxed foreign jurisdictions provision income taxes earnings follows deferred tax assets liabilities consist following provision income taxes differs amount income tax determined applying applicable finland statutory rate earnings income taxes result following fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 11 income taxes continued reflected partnership recorded various deferred tax liabilitiesassets realization dependent generating sufficient taxable income management believes likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed valuation allowance increased 24468 2004 valuation reserve required sfas 109 “accounting income taxes” evidence losses certain foreign tax jurisdictions three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided current year begin expiring 2014 beyond based current tax laws 12 operating leases partnership certain subsidiaries obligated operating lease agreements primarily office space rental expense totaled 4845 2004 4333 2003 3106 2002 future minimum rental commitments noncancelable leases follows fiscal year 4455 4045 3872 3834 3894 thereafter 3237 23337 13 capital lease 2002 partnership entered lease transaction office building finland transaction qualified capital lease summarized follows following minimum lease payments made years indicated capital lease effect december 31 2004 fiscal year 1220 thereafter 27948 less interest 15100 net minimum lease payments capital lease 18948 fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 14 litigation uncertainties ordinary course business partnership subsidiaries enter contracts providing assessment damages nonperformance delays completion suits claims may brought partnership customers alleging deficiencies either equipment plant construction seeking resulting alleged damages based knowledge facts circumstances relating partnership’s liabilities insurance coverage management partnership believes disposition suits result material charges assets earnings materially excess amounts previously provided accounts ultimate legal financial liability partnership respect claims lawsuits proceedings cannot estimated certainty additional information concerning estimates used partnership becomes known partnership reassesses position respect gain contingencies accrued liabilities potential exposures estimates particularly sensitive future change relate legal matters subject change events evolve additional information becomes available administration litigation process increases number claims filed costs resolve claims cause partnership increase estimates costs associated claims could material adverse effect business financial condition results operations cash flows 15 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate values cash shortterm investments considered available sale carrying amount approximates fair value shortterm maturity instruments longterm debt fair value partnership’s thirdparty longterm debt including current installments estimated based quoted market prices similar issues current rates offered partnership debt remaining maturities practicable estimate fair value partnership’s intercompany debt market type debt instrument foreign currency contracts fair values financial instruments used hedging purposes estimated obtaining quotes brokers partnership exposed market risks fluctuations foreign exchange rates financial instruments utilized partnership reduce risk partnership hold issue financial instruments trading purposes partnership exposed credit loss event nonperformance counterparties financial instruments significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies see notes 4 10 carrying amounts fair values estimated fair values partnership’s financial instruments follows fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 15 financial instruments risk management continued ordinary course business partnership contingently liable performance letters credit bank guarantees totaling 188875 264262 december 31 2004 2003 respectively partnership’s past experience material claims made financial instruments management partnership expect material losses result offbalancesheet instruments therefore opinion fair value instruments zero december 31 2004 partnership 17756 foreign currency contracts outstanding foreign currency contracts mature 2005 contracts established various international subsidiaries sell variety currencies either receive respective functional currencies payment obligations third parties financial instruments potentially subject partnership concentrations credit risk consist principally cash equivalents trade receivables partnership places cash equivalents financial institutions limits amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising partnership’s customer base dispersion across different business geographic areas except indicated note 16 december 31 2004 2003 partnership significant concentrations credit risk 16 concentrations year ended december 31 2004 approximately 37 partnership’s operating revenues two thirdparty customers approximately 9 operating revenues one affiliated company management considers credit risk low thirdparty customers pay monthly according project progress related accounts receivable current 17 related party transactions partnership enters longterm contracts subcontractor subcontracts work certain foster wheeler affiliates included statement operations relating contracts follows included consolidated balance sheet 2004 2003 related longterm contract activity intercompany borrowings foster wheeler affiliates following fw netherlands cv subsidiaries notes consolidated financial statements continued thousands dollars 17 related party transactions continued also reflected balance sheet due uncertainty collection based going concern issues addressed note 2 partnership reduced intercompany notes receivable charged partners’ capital notes receivable us affiliates yearoveryear change reflected consolidated statement changes partners’ capital consolidated statement cash flows impact partners’ capital reduction 33567 11942 december 31 2004 2003 respectively costs incurred foster wheeler ltd certain affiliates behalf partnership charged partnership management fee fees 1399 1186 752 2004 2003 2002 respectively fees represent management’s estimation reasonable allocation partnership’s share costs related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 financial services sarl subsidiary consolidated financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying consolidated balance sheets related consolidated statements operations cash flows changes shareholders’ deficit present fairly material respects financial position financial services sarl subsidiary “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 financial services sarl subsidiary consolidated statement operations thousands dollars see notes consolidated financial statements financial services sarl subsidiary consolidated balance sheet thousands dollars except per share amount see notes consolidated financial statements financial services sarl subsidiary consolidated statement changes shareholders’ deficit thousands dollars 1 accumulated deficit includes excess fair value recorded amount intangible assets acquired affiliated company 190000 net tax benefit 5700 capitalization note receivable 50 see notes consolidated financial statements financial services sarl subsidiary consolidated statement cash flows thousands dollars noncash financing activities date formation financial services sarl received 405000 notes receivable affiliated companies assumed 405 000 notes payable affiliated company april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc see note 5 see notes consolidated financial statements financial services sarl subsidiary notes consolidated financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries financial services sarl “company” organized laws luxembourg subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 08 fwllc perryville indirectly wholly owned subsidiaries foster wheeler ltd principal operation company provide financing foster wheeler affiliates around world addition fw hungary licensing limited liability company “fw hungary” wholly owned subsidiary company provides management developing licensing beneficial rights foster wheeler ltd’s intellectual property fw hungary currently licenses rights various foster wheeler affiliates outside united states company’s transactions relationships parent affiliated companies discussed notes 2 3 5 7 currently company holds notes receivable various united states affiliates accordingly financial position results operations cash flows company could differ significantly would resulted company independent entity company’s functional currency us dollar 2 liquidity going concern accompanying consolidated financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfor debt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity foster wheeler ltd’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 foster wheeler ltd’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding foster wheeler ltd’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client foster wheeler ltd reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected foster wheeler ltd’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totaling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 2 liquidity going concern continued minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s company’s ability continue going concern 3 purchase fw hungary licensing limited liability company december 2003 company acquired 100 fw hungary previously wholly owned subsidiary fw technologies holding llc “fw tech holding” approximately 50000 transaction financed issuing 42500 demand note payable bearing interest 9 fw tech holding issuing additional ownership interest company approximate value 7500 perryville exchange respective 85 15 ownership interests fw hungary company reflected transaction reorganization companies common control accordingly accompanying consolidated financial statements include activity fw hungary consolidated statements financial position results operations cash flows periods presented 4 summary significant accounting policies principles consolidation consolidated financial statements include accounts company wholly owned foreign subsidiary intercompany transactions balances eliminated company’s fiscal year ends december 31 use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date consolidated financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 4 summary significant accounting policies continued statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collection notes interest receivable royalty income affiliates taxes revenue recognition revenue recognized accrual basis company’s primary source revenue interest income royalty income affiliated companies cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less accounts interest receivable affiliates accounts receivable interest receivable consists amounts due related parties presented net realizable value see note 5 income taxes company files tax return luxembourg income tax expense company’s consolidated statement operations calculated separate company basis subsidiary files tax return foreign jurisdiction company agreement luxembourg tax jurisdiction whereby company required pay minimum tax provision made foreign income taxes payable company’s subsidiary hungary statutory rate 4 twelve months ended december 31 2004 3 twelve months ended december 31 2003 new hungarian legislation increased statutory rate 4 3 effective january 1 2004 increase statutory rate 16 certain exemptions bring effective tax rate company 8 effective january 1 2006 addition royalty income foreign sources company’s subsidiary subject foreign tax withholding deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described 5 related party transactions company acquired 405000 notes receivable various affiliated companies assignment fwllc may 25 2001 notes interest rates ranging 700 850 exchange notes company assumed obligation finance 405000 fwllc’s debt related carrying charges debt interest rates ranging 675 900 april 1 2003 company transferred 205000 notes receivable 205000 notes payable back fwllc interest rate remaining notes receivable also changed 685 per annum april 1 2003 balance note payable interest rate 675 per annum april 1 2003 september 24 2004 september 24 2004 result foster wheeler ltd equity debt exchange discussed note 2 interest rate obligations assumed company changed weighted average rate 771107 per annum debt matures november 15 2005 11417 september 24 2011 141437 may 1 2016 47146 september 24 2004 company acquired 120000 demand note receivable bears interest 1045275 affiliated company assignment fwllc exchange note company assumed obligation finance 120000 fwllc’s debt related carrying charges debt interest rate 10359 financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 5 related party transactions continued interest income notes receivable recognized years ended december 31 2004 2003 2002 amounted 16835 18320 31875 respectively interest receivable notes amounted 19050 2491 december 31 2004 december 31 2003 respectively reflected consolidated balance sheet due uncertainty collection based going concern issue addressed note 2 company reduced intercompany interest receivable us affiliates charged accumulated deficit chargecredit accumulated deficit recorded amounts 31 260 periods ended december 31 2004 december 31 2003 respectively reflect excess interest receivable interest payable affiliates see discussion company’s credit risk interest expense notes payable recognized years ended december 31 2004 2003 2002 amounted 16804 18580 31969 respectively interest payable fwllc december 31 2004 2003 12637 2283 respectively company required fund obligations fwllc extent collects amounts due notes receivable affiliates see note 2 contingencies associated affiliates’ ability repay debt extent amounts notes receivable become uncollectible fwllc agrees assume obligation company pursuant note transfer debt assumption agreement dated may 25 2001 addition company agrees extent obligation notes payable reduced whatever reason company’s rights notes receivable correspondingly transferred fwllc result company credit risk relating notes receivable fw hungary made investment foster wheeler licensing services gp “fwls” 190000 december 22 2000 issuance 190000 note payable fwls later assigned fwllc fwls held licensed property included intellectual property confidential informational licensing rights marketing intangibles foster wheeler ltd may 18 2001 fwls dissolved fw hungary acquired licensed property exchange ownership interest transfer licensed property seen transaction entities common control result licensed property recorded carrying value zero note payable bears interest annual rate 90 three years ended december 31 2004 2003 2002 interest expense 15195 17000 17100 respectively unpaid interest december 31 2004 2003 10155 1164 respectively fw hungary enters licensing agreements licensor lp certain foreign affiliates foster wheeler ltd affiliates pay royalty fw hungary based agreed upon range 10 40 affiliates’ current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis years ended december 31 2004 2003 2002 royalty income 23733 20473 25114 respectively accounts receivable affiliates december 31 2004 2003 represents unpaid royalty fees 8566 389 respectively january 1 2001 fw hungary entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable fw hungary shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless fw hungary affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2004 2003 2002 2225 532 1744 respectively december 31 2004 2003 2225 532 respectively payable affiliates pursuant agreement financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 5 related party transactions continued foster wheeler inc indirectly wholly owned subsidiary foster wheeler ltd acts banking agent company managing cash financing requirements needed company charges interest advances made company related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 6 income taxes components earnings income taxes years 2004 2003 2002 taxed follows benefitprovision income taxes earnings follows benefitprovision income taxes determined applying luxembourg statutory rate applicable company due enactment new legislation hungarian tax rate increased 4 effective january 1 2004 increase 16 certain exemptions bring effective tax rate company 8 effective january 1 2006 accordingly deferred tax provisions include benefit 6596 2004 1757 2003 reflect increase value deferred tax assets provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following financial services sarl subsidiary notes consolidated financial statements continued thousands dollars 7 financial instruments risk management fair value company’s longterm debt estimated based quoted market prices similar issues carrying amounts fair value company’s longterm debt follows december 31 2004272854 295019 respectively december 26 2003200000 150500 respectively practicable estimate fair value company’s intercompany debt 214479 december 31 2004 169403 december 31 2003 market value type debt instrument fw hungary licensing limited liability company financial statements december 31 2004 report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion accompanying statement financial position related statements operations cash flows changes member’s interest present fairly material respects financial position fw hungary licensing limited liability company “company” indirect whollyowned subsidiary foster wheeler ltd “parent” december 31 2004 december 31 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion accompanying financial statements prepared assuming company parent continue going concern discussed note 2 financial statements parent incurred significant losses three years period ended december 31 2004 shareholders’ deficit 513283000 december 31 2004 parent substantial debt obligations 2004 required obtain additional amendment senior credit facility provide covenant relief modifying certain definitions financial measures utilized calculation certain financial covenants realization assets satisfaction liabilities normal course business dependent among things parent’s ability return profitability complete planned restructuring activities generate cash flows operations collections receivables fund operations including obligations resulting asbestos claims well maintenance credit facilities bonding capacity adequate conduct business matters raise substantial doubt company’s parent’s ability continue going concern management’s plan regard matters also described note 2 financial statements include adjustments might result outcome uncertainty pricewaterhousecoopers llp florham park new jersey march 30 2005 fw hungary licensing limited liability company statement operations thousands dollars see notes financial statements fw hungary licensing limited liability company statement financial position thousands dollars see notes financial statements fw hungary licensing limited liability company statement member’s interest thousands dollars 1 adjustments reflect excess fair value recorded amount intangible assets acquired affiliated company 190000 net tax benefit 5700 capitalization note receivable 50 see notes financial statements fw hungary licensing limited liability company statement cash flows thousands dollars noncash financing activities december 2003 fw hungary licensing limited liability company received noncash capital contribution 50000 financial services sarl “sarl” exchange reduction fw hungary’s note payable sarl 50000 see note 4 see notes financial statements fw hungary licensing limited liability company notes financial statements thousands dollars 1 nature operations relationship foster wheeler ltd subsidiaries fw hungary licensing limited liability company “company” organized december 1 2000 laws hungary company december 2003 wholly owned subsidiary financial services sarl “sarl” “member” subsidiary foster wheeler llc “fwllc” 992 perryville services company ltd “perryville” 8 indirectly wholly owned subsidiaries foster wheeler ltd prior december 2003 company owned fw technologies holdings llc “fwth” prior dissolution subsidiary fwllc 999 perryville 1 see note 4 principal operation company management developing licensing beneficial rights foster wheeler ltd’s intellectual property company currently licenses rights various foster wheeler affiliates outside united states company’s transactions relationships sarl fwllc affiliated companies discussed notes 2 4 6 accordingly financial position results operations cash flows company could differ significantly would resulted company independent entity company’s functional currency us dollar 2 liquidity going concern accompanying financial statements prepared going concern basis contemplates realization assets satisfaction liabilities normal course business company’s ability continue going concern largely dependent foster wheeler ltd’s ability continue going concern foster wheeler ltd company may however able continue going concern realization assets satisfaction liabilities normal course business dependent among things foster wheeler ltd’s company’s ability operate profitably generate cash flows operations collections receivables fund obligations including resulting asbestosrelated liabilities well foster wheeler ltd’s ability maintain credit facilities bonding capacity adequate conduct business foster wheeler ltd incurred significant operating losses years threeyear period ended december 31 2004 shareholders’ deficit 513283 december 31 2004 foster wheeler ltd consummated equityfordebt exchange issued common shares preferred shares warrants purchase common shares new notes exchange certain outstanding debt securities trust securities exchange offer reduced foster wheeler ltd’s existing debt excluding reduction deferred accrued interest 31128 437041 improved shareholders’ deficit 448136 combined proceeds issuance new notes used repay amounts outstanding previous senior credit facility eliminated substantially material scheduled corporate debt maturities prior 2011 completing exchange foster wheeler ltd outstanding debt obligations approximately 570073 december 31 2004 august 2002 foster wheeler ltd negotiated senior credit facility comprised 71000 term loan 69000 revolving credit facility 149900 letter credit facility april 30 2005 maturity date connection equityfor debt exchange foster wheeler ltd prepaid term loan amounts outstanding revolving credit facility accordingly borrowings outstanding senior credit facility december 31 2004 letters credit 90018 remained outstanding senior credit facility december 31 2004 march 2005 senior credit facility replaced new 5year 250000 senior credit agreement new senior credit agreement includes 75000 sublimit borrowings rate equal libor plus spread standby letters credit issued new senior credit agreement carry fixed price throughout life facility senior credit agreement collateralized assets andor stock certain foster wheeler ltd’s domestic subsidiaries certain foreign subsidiaries fw hungary licensing limited liability company notes financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd paid upfront fees lender approximately 8225 conjunction execution senior credit agreement fees paid predominately first quarter 2005 deferred amortized expense life agreement foster wheeler ltd finalized saleleaseback arrangement office building corporate headquarters third quarter 2002 arrangement foster wheeler ltd leases facility initial noncancelable period 20 years longterm capital lease obligation 45280 december 31 2004 included longterm debt foster wheeler ltd’s consolidated balance sheet new senior credit agreement saleleaseback arrangement quarterly financial covenant compliance requirements management’s forecast indicates foster wheeler ltd compliance financial covenants throughout 2005 forecast assumes significant level new contracts improved performance existing contracts however assurance foster wheeler ltd comply covenants foster wheeler ltd violates covenant senior credit agreement saleleaseback arrangement repayment amounts outstanding agreements could accelerated following borrowings outstanding could also accelerated 2011 senior notes 2005 senior notes convertible subordinated notes trust preferred securities subordinated robbins facility exit funding obligations certain specialpurpose project debt facilities total amount foster wheeler ltd debt could accelerated 463563 december 31 2004 foster wheeler ltd would able repay amounts borrowed payment dates accelerated holders foster wheeler ltd’s new 2011 senior notes security interest stock debt assets certain foster wheeler ltd’s subsidiaries 2011 senior notes contain incurrence covenants limit foster wheeler ltd’s ability undertake certain actions including incurring debt making certain payments investments granting liens selling assets entering specific intercompany transactions among others management monitors covenants ensure foster wheeler ltd remains compliance indenture connection exchange holders foster wheeler ltd’s 2005 senior notes agreed amend indenture governing notes effectively eliminate security interest previously held notes january 26 2004 subsidiaries uk entered twoyear revolving credit facility saberasu japan investments ii bv netherlands facility provided 45000 additional revolving loans available provide working capital december 31 2004 facility remained undrawn december 2004 uk subsidiaries gave notice canceling revolving credit facility effective january 24 2005 since january 15 2002 foster wheeler ltd exercised right defer payments trust preferred securities aggregate liquidation amount trust preferred securities december 31 2004 71177 completing equityfordebt exchange previous senior credit facility required foster wheeler ltd defer payment dividends trust preferred securities accordingly dividends paid 2004 2003 december 31 2004 amount dividends deferred plus accrued interest approximates 23460 foster wheeler ltd intends continue defer payment dividends trust preferred securities january 15 2007 full term allowed underlying agreement deferred dividend obligation satisfied foster wheeler ltd right defer subsequent dividend payments additional 20 consecutive quarters new senior credit agreement requires approval lenders make payments trust preferred securities extent payments contractually required underlying trust preferred securities agreements fw hungary licensing limited liability company notes financial statements continued thousands dollars 2 liquidity going concern continued foster wheeler ltd’s european power subsidiary finland party two eurodenominated performance bond facilities financial institutions contain covenants obligations facilities guaranteed foster wheeler ltd covenants include limitation amount dividends 75 subsidiary’s annual earnings ii requirement payment dividends certain restricted payments subject subsidiary minimum equity ratios calculated equity divided total assets defined facilities addition facilities require subsidiary maintain minimum equity ratio one performance bond facilities dedicated specific project december 31 2004 performance bonds outstanding equivalent 24522 none drawn date covenants facility tested quarterly second facility general performance bond facility december 31 2004 performance bonds outstanding favor several clients equivalent 10114 none drawn result operating losses foreign subsidiary second quarter 2004 equity foster wheeler ltd’s subsidiary fell minimum equity ratios breaching covenants contained two performance bond facilities august 6 2004 august 9 2004 foster wheeler ltd’s foreign subsidiary obtained waivers financial institutions providing performance bond facilities waiver projectspecific performance bond facility requires foreign subsidiary make dividends restricted payments including intercompany loans debt service existing intercompany loans royalties management fees long foreign subsidiary’s equity remains minimum equity ratio levels long performance bonds outstanding foster wheeler ltd’s subsidiary remained minimum equity ratio december 31 2004 march 15 2005 bond expired banks funded client foster wheeler ltd reimbursed banks bond therefore longer outstanding intention foster wheeler ltd issue letter credit new senior credit agreement thus recover cash client waiver general performance bond facility effective march 31 2005 date approximately 4900 forecasted outstanding facility foster wheeler ltd provided standby letter credit back general performance bond facility intends facility permanently replaced last performance bond issued expired therefore foster wheeler ltd believes matter adverse impact forecasted liquidity foreign subsidiary’s inability pay dividends restricted payments failure remain compliance minimum equity ratio covenant reflected foster wheeler ltd’s liquidity forecasts management closely monitors liquidity updates us liquidity forecasts weekly forecasts cover among analyses existing cash balances cash flows operations cash repatriations loans nonus subsidiaries asset sales collections receivables claims recoveries working capital needs unused credit line availability foster wheeler ltd’s cash flow forecasts continue indicate sufficient cash available fund foster wheeler ltd’s us foreign working capital needs throughout 2005 december 31 2004 foster wheeler ltd cash equivalents shortterm investments restricted cash totaling 390186 compared 430170 december 26 2003 390186 total december 31 2004 319612 held foreign subsidiaries foster wheeler ltd’s domestic operating entities cash flow positive however generate sufficient cash flow cover costs related foster wheeler ltd’s indebtedness obligations fund us pension plans corporate overhead expenses consequently foster wheeler ltd requires cash distributions nonus subsidiaries normal course operations meet us operations’ fw hungary licensing limited liability company notes financial statements continued thousands dollars 2 liquidity going concern continued minimum working capital needs service debt foster wheeler ltd’s current 2005 forecast assumes total cash repatriation nonus subsidiaries approximately 107000 royalties management fees intercompany loans debt service intercompany loans dividends 2004 2003 foster wheeler ltd repatriated approximately 77000 100000 respectively nonus subsidiaries assurance forecasted foreign cash repatriation occur nonus subsidiaries need keep certain amounts available working capital purposes pay known liabilities general corporate purposes amounts exceed directly comparable foreign component restricted cash previously noted addition certain foster wheeler ltd’s nonus subsidiaries parties loan agreements covenants subject statutory requirements jurisdictions organization restrict amount funds subsidiaries may distribute repatriation funds may also subject funds taxation result factors foster wheeler ltd may able repatriate utilize funds held nonus subsidiaries amount forecasted commercial operations domestic contract retained foster wheeler ltd connection sales assets foster wheeler environmental corporation “environmental” commenced january 2004 plant processes lowlevel nuclear waste us department energy “doe” foster wheeler ltd funded plant’s construction costs operates facility majority foster wheeler ltd’s invested capital recovered early stages processing first stream waste materials project successfully processed quantities first waste stream materials ahead schedule currently finalizing processing line second waste stream 2004 project generated net cash flow approximately 53300 additional 17800 capital recovery dependent initial processing second waste stream materials capital recovery expected 2005 foster wheeler ltd’s inability operate profitably generate cash flows operations reliance repatriated cash foreign subsidiaries fund domestic obligations maintain minimum debt covenants avoid possible acceleration debt raises substantial doubt foster wheeler ltd’s company’s ability continue going concern 3 summary significant accounting policies fiscal year company’s fiscal year ends december 31 use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses period reported actual results could differ estimates changes estimates reflected periods become known significant estimates relate collectibility royalty income affiliates income taxes revenue recognition revenue recognized accrual basis company’s primary source revenue royalty income related parties cash equivalents cash equivalents include highly liquid shortterm investments purchased original maturities three months less accounts receivable affiliates accounts receivable consist solely amounts due related parties see note 4 income taxes company files tax return hungary provision made foreign income taxes payable hungary statutory rate 4 twelve months ended december 31 2004 3 twelve months ended december 31 2003 new hungarian legislation increased statutory rate fw hungary licensing limited liability company notes financial statements continued thousands dollars 3 summary significant accounting policies continued 4 3 effective january 1 2004 increase statutory rate 16 certain exemptions bring effective tax rate company 8 effective january 1 2006 addition company’s royalty income foreign sources subject foreign tax withholding income tax expense company’s condensed statement operations calculated separate company basis deferred income taxes provided liability method whereby deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss carryforwards deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized deferred tax assets adjusted reflect increase hungarian tax rates described 4 related party transactions company made investment foster wheeler licensing services gp “fwls” 190000 december 22 2000 issuance 190000 note payable fwls later assigned fwllc fwls held licensed property included intellectual property confidential informational licensing rights marketing intangibles foster wheeler ltd may 18 2001 fwls dissolved company acquired licensed property exchange ownership interest transfer licensed property seen transaction entities common control result licensed property recorded carrying value zero december 1 2003 fwllc transferred 190000 note receivable company financial services sarl “sarl” transfer part reorganization company whereby portion note 50000 contributed additional membership units recorded additional capital company sarl subsequently acquired 100 interest company december 2003 note payable sarl bears interest annual rate 90 interest expense years ended december 31 2004 2003 2002 11338 17000 17100 respectively company enters licensing agreements licensor lp certain foreign affiliates foster wheeler ltd affiliates pay royalty company based agreed upon range 10 40 affiliates’ current year net revenues operating revenues less intercompany revenues agreements oneyear periods right extension revision royalty income calculated billed quarterly basis years ended december 31 2004 2003 2002 royalty income 23733 20473 25114 respectively accounts receivable affiliates december 31 2004 december 31 2003 8610 389 respectively represents mainly unpaid royalty fees january 1 2001 company entered cost sharing agreement certain foster wheeler affiliates share collective knowledge jointly develop intangible property costs developing property allocable company shall fifty percent pretax net expenses affiliates year agreement effective five years shall automatically renew additional twoyear terms unless company affiliates give thirty days notice prior end term renewal term amount costs incurred agreement years ended december 31 2004 2003 2002 2225 532 1744 respectively december 31 2004 2003 2225 532 respectively payable affiliates pursuant agreement related party transactions discussed eliminated foster wheeler ltd subsidiaries consolidated financial statements years ended december 31 2004 december 26 2003 december 27 2002 fw hungary licensing limited liability company notes financial statements continued thousands dollars 4 related party transactions continued management foster wheeler ltd considered whether costs borne affiliates company allocated company determined costs immaterial 5 income taxes components earnings income taxes years 2004 2003 2002 taxed follows benefitprovision income taxes earnings follows deferred tax assets consist following benefit provision income taxes determined applying hungarian statutory rate applicable company due enactment new legislation hungarian tax rate increased 4 effective january 1 2004 increase 16 certain exemptions bring effective tax rate company 8 effective january 1 2006 accordingly deferred tax provisions include benefit 6596 2004 1757 2003 reflect increase value deferred tax assets provision income taxes differs amount income tax determined applying applicable statutory rate earnings income taxes result following item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ltd opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ltd “the company” subsidiaries december 28 2007 december 29 2006 results operations cash flows three years period ended december 28 2007 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 28 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 note 8 consolidated financial statements company changed manner accounts sharebased compensation pension postretirement benefits fiscal year 2006 discussed note 15 consolidated financial statements company changed manner accounts uncertain tax positions fiscal year 2007 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 26 2008 foster wheeler ltd subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement changes shareholders’ equitydeficit thousands dollars except share data see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement comprehensive incomeloss thousands dollars see notes consolidated financial statements foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data foster wheeler ltd subsidiaries consolidated statement cash flows thousands dollars except share data continued noncash financing activities april 2006 2555800 common shares exchanged 50000 aggregate principal amount 2011 senior notes see note 6 information regarding equityfordebt exchange 2005 71289 preferred shares converted 9275898 common shares resulting 1 reduction preferred share capital 92 increase common share capital 91 reduction paidin capital august 2005 11268928 common shares exchanged 65214 trust preferred securities see note 6 information regarding equityfordebt exchange november 2005 12053962 common shares exchanged 150003 2011 senior notes see note 6 information regarding equityfordebt exchange see notes consolidated financial statements foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies principles consolidation consolidated financial statements include accounts foster wheeler ltd significant domestic foreign subsidiaries well certain entities controlling interest intercompany transactions balances eliminated fiscal year 52 53week annual accounting period ending last friday december domestic operations december 31 foreign operations domestic operations fiscal years 2007 2006 2005 included 52 weeks capital alterations january 8 2008 shareholders approved increase authorized share capital special general meeting common shareholders increase authorized share capital necessary order effect twoforone stock split common shares approved board directors november 6 2007 stock split effected january 22 2008 form stock dividend common shareholders record close business january 8 2008 ratio one additional foster wheeler common share respect common share outstanding result capital alterations references share capital number shares stock options restricted awards per share amounts cash dividends reference shares consolidated financial statements unless otherwise noted adjusted reflect stock split retroactive basis use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs customer vendor claims employee benefit plan obligations sharebased compensation plans uncertain tax positions deferred taxes asbestos liabilities expected recoveries among others revenue recognition longterm contracts revenues profits longterm fixedprice contracts recorded percentageofcompletion method progress towards completion measured using physical completion individual tasks contracts value 5000 greater progress toward completion fixedpriced contracts value less 5000 measured using costtocost method revenues profits costreimbursable contracts recorded services rendered based estimated revenue per manhour including incentives assessed probable include flowthrough costs consisting materials equipment subcontractor services revenue costreimbursable contracts responsible engineering specifications procurement services costs contracts process stated cost increased profits recorded completed effort decreased estimated losses less billings customer progress payments uncompleted contracts numerous contracts various stages completion contracts require estimates determine extent revenue profit recognition estimates may revised time additional information becomes available accordance accounting disclosure requirements american institute certified public accountants statement position “sop” 811 “accounting performance constructiontype certain productiontype contracts” statement financial accounting standards “sfas” 154 “accounting changes error corrections replacement apb opinion 20 fasb statement 3” review material contracts monthly revise estimates appropriate estimate revisions include increases decreases estimated profit result events earning project incentive bonuses incurrence forecasted incurrence contractual liquidated damages performance schedule issues executing services purchasing thirdparty materials equipment costs differing previously estimated testing completed foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle 38 29 45 separate projects final estimated profit revisions exceeding 1000 fiscal years 2007 2006 2005 respectively changes final estimated profits resulted net increasedecrease contract profit 35150 5670 99555 fiscal years 2007 2006 2005 respectively please see note 17 information related changes final estimated profits claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated additional costs record claims accordance paragraph 65 sop 811 states recognition amounts additional contract revenue related claims appropriate probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process december 28 2007 consolidated financial statements assumed recovery commercial claims 22200 3700 yet expended similarly december 29 2006 consolidated financial statements assumed recovery commercial claims customers 3900 recorded consolidated balance sheet certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract deferred precontract costs december 28 2007 december 29 2006 certain specialpurpose subsidiaries global power business group reimbursed customers costs including amounts related principal repayments nonrecourse project debt building operating certain facilities lives corresponding service contracts cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less cash equivalents 800036 490934 maintained foreign subsidiaries december 28 2007 december 29 2006 respectively subsidiaries require portion funds support liquidity working capital needs well comply required minimum capitalization contractual restrictions accordingly portion funds may readily available repatriation us entities trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed final payments amounts withheld might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity industry practice however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities consolidated balance sheet respectively inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 15861 9466 december 28 2007 december 29 2006 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash held investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently significant investments affiliates consolidated recorded using equity method affiliates investment ownership less 20 carried cost intangible assets intangible assets consist principally goodwill trademarks patents goodwill allocated reporting units relative fair value basis time original purchase price allocation patents trademarks amortized straightline basis periods 11 40 years test goodwill impairment reporting unit level defined sfas 142 “goodwill intangible assets” test twostep process first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value estimated based discounted future cash flows exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount impairment loss second step foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill sfas 142 also requires intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” december 28 2007 december 29 2006 goodwill 53345 51573 respectively increase goodwill 1772 resulted increase 4173 related changes foreign currency exchange rates partially offset goodwill impairment charge 2401 related winding operations one domestic reporting units goodwill related global power business group 2007 fair value reporting units exceeded carrying amounts except domestic reporting unit noted described note 2 february 2007 acquired finnish company owns patented coal flow measuring technology conjunction acquisition recorded 1463 identifiable intangible assets total unamortized identifiable intangible assets 61190 62004 december 28 2007 december 29 2006 respectively following table details amounts relating assets amortization expense related patents trademarks recorded within cost operating revenues consolidated statement operations totaled 3649 3581 3571 fiscal years 2007 2006 2005 respectively amortization expense expected approximate 3600 year next five years income taxes deferred tax assetsliabilities established difference financial reporting income tax bases assets liabilities well operating loss tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized deferred tax assets liabilities adjusted effects changes tax laws rates date enactment record provision us federal income taxes foreign subsidiary earnings expect earnings permanently reinvested outside united states unremitted earnings foreign subsidiaries intended permanently reinvested federal income tax provided aggregated 179060 december 28 2007 practicable estimate additional tax would incurred amounts repatriated june 2006 fasb issued fin 48 “accounting uncertainty income taxes interpretation fasb statement 109 accounting income taxes” addresses determination whether tax benefits claimed expected claimed tax return recorded financial statements fin 48 recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement fin 48 also provides guidance derecognition benefit uncertain tax position classification unrecognized tax benefits balance sheet accounting classification interest penalties income tax uncertainties accounting interim periods disclosures recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions consolidated statement operations foreign currency functional currency foreign operations local currency country domicile assets liabilities foreign subsidiaries translated us dollars periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included income expense respectively foreign currency transaction losses fiscal years 2007 2006 2005 follows interest rate risk use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt certain affiliates equity interest also use interest rate swap contracts manage interest rate risk associated limited recourse project debt upon entering swap contracts designate interest rate swaps cash flow hedges accordance sfas 133 “accounting derivative instruments hedging activities” assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income consolidated statement comprehensive incomeloss december 28 2007 december 29 2006 net gains swap contracts 1673 342 respectively recorded net tax 635 203 respectively included accumulated comprehensive loss consolidated balance sheet restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current credit agreement contains limitations cash dividend payments earnings per common share basic diluted earningsloss per common share computed using net incomeloss attributable common shareholders rather total net income described note 13 completed two common share purchase warrant offer transactions january 2006 increased number common shares delivered upon exercise class b warrants offer period issued 747896 additional common shares result warrant offers since warrant holders necessarily common shareholders prior warrant offers issuance additional shares considered pro rata common share dividend common shareholders rather fair value additional shares treated preferential distribution subset common foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued shareholders accordingly required reduce net income attributable common shareholders fair value additional common shares calculating earnings per common share fiscal year 2006 fair value additional shares issued 19445 determined using common share price time issuance shares basic earningsloss per common share computed dividing net incomeloss attributable common shareholders weightedaverage number common shares outstanding reporting period excluding nonvested restricted shares 165960 659262 2222362 december 28 2007 december 29 2006 december 30 2005 respectively restricted shares restricted share units collectively “restricted awards” included weightedaverage number common shares outstanding shares vest diluted earningsloss per common share computed dividing net incomeloss attributable common shareholders combination weightedaverage number common shares outstanding reporting period impact dilutive securities outstanding stock options warrants purchase common shares nonvested portion restricted awards extent securities dilutive profitable periods outstanding stock options warrants dilutive effect treasury stock method average common share price period exceeds assumed proceeds exercise warrant option assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase common shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds loss periods basic diluted loss per common share identical since effect potentially dilutive securities antidilutive therefore excluded calculations foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued computations basic diluted earningsloss per common share follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table summarizes common share equivalent potentially dilutive securities excluded denominator used calculation diluted earningsloss per common share due antidilutive effect sharebased compensation plans sharebased compensation plans described note 12 adopted provisions sfas 123r “sharebased payment” december 31 2005 first day fiscal year 2006 using modified prospective transition method sharebased compensation expense recognized consolidated statement operations fiscal years 2007 2006 includes compensation expense sharebased payments granted prior yet vested december 31 2005 based grant date fair value originally estimated accordance provisions sfas 123 “accounting stockbased compensation” recognize compensation expense sharebased payment awards granted december 30 2005 based grant date fair value estimated accordance provisions sfas 123r elected use modified prospective transition method results periods prior fiscal year 2006 restated prior adoption sfas 123r sharebased employee compensation expense related stock options recognized consolidated statement operations exercise price option least equal common share price grant date accordance measurement recognition provisions accounting principles board “apb” opinion 25 “accounting stock issued employees” permitted sfas 123 result recognition sharebased compensation expense generally limited expense attributed restricted awards accordance sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” provided pro forma net income loss net earnings loss per common share disclosures period prior adoption sfas 123r applied fair value method measuring compensation expense sharebased compensation plans including stock options compensation costs stockbased compensation plans accounted using fair value method accounting prescribed foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued sfas 123 net loss attributable common shareholders basic diluted loss per common share fiscal year 2005 would follows estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility common share price date grant using historical volatility adjusted periods unusual stock price activity • expected term estimate expected term options granted chief executive officer based combination vesting schedules contractual life option past history estimates future exercise behavior patterns outlined sfas 123r grants employees remaining directors estimate expected term using “simplified” method outlined staff accounting bulletin 107 “topic 14 sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted awards using market price common shares date grant recognize fair value restricted award compensation cost ratably using straightline attribution method service period generally vesting period foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest recent accounting developments september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 defines fair value establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements february 2008 fasb issued partial oneyear deferral sfas 157 nonfinancial assets liabilities subject fair value measurement nonrecurring basis standard effective financial assets liabilities well assets liabilities required measured fair value recurring basis financial statements financial statements issued fiscal years beginning november 15 2007 expect adoption new standard material impact financial position results operations cash flows february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” sfas 159 permits entities choose measure fair value many financial instruments certain assets liabilities currently required measured fair value unrealized gains losses items fair value option elected reported earnings sfas 159 affect existing accounting literature requires certain assets liabilities carried fair value sfas 159 effective fiscal years beginning november 15 2007 expect elect fair value option provided new standard december 2007 fasb issued sfas 141 revised 2007 “business combinations” sfas 141r replaces sfas 141 “business combinations” changes business acquisitions accounted sfas 141r requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed business combination certain provisions standard among things impact determination acquisitiondate fair value consideration paid business combination including contingent consideration exclude transaction costs acquisition accounting change accounting practices acquired contingencies acquisitionrelated restructuring costs inprocess research development indemnification assets tax benefits provisions sfas 141r apply prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2008 early adoption permitted currently assessing impact sfas 141r may financial position results operations cash flows december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 amends accounting reporting standards noncontrolling interest subsidiary often referred “minority interest” deconsolidation subsidiary sfas 160 noncontrolling interest subsidiary reported equity parent company’s consolidated financial statements sfas 160 also requires parent company’s consolidated statement operations include parent noncontrolling interest share subsidiary’s statement operations formerly noncontrolling interest share shown reduction income parent’s consolidated statement operations sfas 160 effective fiscal years interim periods within fiscal years beginning december 15 2008 sfas 160 applied prospectively beginning fiscal year statement initially applied however presentation disclosure requirements shall applied retrospectively periods presented foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued currently assessing impact sfas 160 may financial position results operations cash flows 2 business combinations april 7 2006 completed purchase remaining 51 interest mf power company 49 owned us prior acquisition subsequent acquisition 100 equity interests mf power renamed fw power srl “fw power” fw power dedicated development construction operation electric power generating wind farm projects italy accordance terms purchase agreement required pay purchase price 16393 12580 approximately 15200 exchange rate effect time payment paid closing final payment 3440 approximately 4800 exchange rate effect time payment paid september 2007 upon start construction last three wind farms developed fw power part purchase contract seller fw power included within global engineering construction business segment february 2007 purchased stock finnish company owns patented coal flow measuring technology purchase price net cash acquired 1112 approximately 1473 exchange rate effect time acquisition purchase price allocation pro forma financial information acquisition material consolidated financial statements company included within global power business segment february 2008 acquired outstanding capital stock biopharmaceutical engineering company based philadelphia pennsylvania acquisition cost 12781 cash subject certain postclosing adjustments acquisition agreement allows earnout payment additional 8700 paid certain milestones met following three years company provides design engineering manufacture installation validation startupcommissioning services life science industry purchase price allocation pro forma information acquisition material consolidated financial statements company included within global engineering construction business segment foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 3 accounts notes receivable following table shows components trade accounts notes receivable following table shows components nontrade accounts notes receivable 4 land buildings equipment land buildings equipment stated cost set forth foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment continued depreciation expense fiscal years 2007 2006 2005 34576 26191 23982 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 equity interests noncontrolling equity interests two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile two electric power generation projects 42 owned us wastetoenergy project 39 owned us wind farm project 50 owned us project chile 85 owned us however controlling interest chilean project result participating rights held minority shareholder following summarized financial information entities whole equity interest share equity net earnings partiallyowned affiliates recorded within income consolidated statement operations totaled 36445 26640 24129 fiscal years 2007 2006 2005 respectively third quarter 2006 majority owners certain italian projects sold interests another thirdparty prior sale share equity net earnings projects reported pretax basis income associated taxes reported provision income taxes partners elected passthrough taxation treatment local law direct result ownership change arising sale subject entities foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 equity interests continued precluded electing passthrough taxation treatment result commencing fiscal year 2006 share equity aftertax earnings projects reported income change reduced income provision taxes 5000 8600 fiscal years 2007 2006 respectively investment equity affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet totaled 190887 150752 december 28 2007 december 29 2006 respectively distributions 23784 18149 18272 received fiscal years 2007 2006 2005 respectively guaranteed certain performance obligations chilean project contingent obligation measured annually based operating results chilean project preceding year current payment obligation guarantee december 28 2007 also guarantee supports obligations subsidiary chilean project’s operations maintenance agreement guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee addition provided 10000 debt service reserve letter credit cover debt service payments event chilean project generate sufficient cash flows make payments required maintain debt service reserve letter credit term chilean project’s debt matures 2014 december 28 2007 amounts ever drawn letter credit chilean project’s operations maintenance agreement subsidiary provides services management operation maintenance refineryelectric power generation facility annual service fees services 8309 8276 7511 fiscal years 2007 2006 2005 respectively recorded operating revenues consolidated statement operations receivable partiallyowned affiliate chile 6168 3199 recorded trade accounts notes receivable consolidated balance sheet december 28 2007 december 29 2006 respectively share undistributed retained earnings equity investees amounted 87206 57666 december 28 2007 december 29 2006 respectively 6 equityfordebt exchanges april 2006 consummated offer exchange 2555800 common shares 50000 outstanding aggregate principal amount 2011 senior notes exchange reduced carrying value 2011 senior notes 51648 representing aggregate principal amount plus corresponding premium improved shareholders’ equitydeficit 50567 exchange resulted 58763 increase common stock paidin capital partially offset 8196 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange november 2005 completed offer exchange 12053962 common shares 150003 outstanding aggregate principal amount 2011 senior notes exchange reduced carrying value 2011 senior notes 155299 representing aggregate principal amount plus corresponding premium associated exchanged notes improved shareholders’ equitydeficit 151076 exchange resulted 167909 increase common stock paidin capital partially offset 16833 charge income pretax charge substantially noncash related primarily difference carrying value 2011 senior notes including unpaid accrued interest market price common shares closing date exchange concurrent exchange offer foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 equityfordebt exchanges continued also solicited consents holders outstanding 2011 senior notes amend governing indenture eliminate substantially restrictive operating financial covenants certain events default contained therein august 2005 completed offer exchange common shares portion trust preferred securities trust preferred securities 2608548 tendered part exchange resulting issuance 11268928 common shares exchange reduced aggregate liquidation amount existing trust preferred securities 65214 reduced amount deferred accrued interest 26052 improved shareholders’ equitydeficit 87571 exchange resulted increase common stock paidin capital totaling 129084 partially offset 41513 charge income pretax charge substantially noncash related primarily difference carrying value trust preferred securities including deferred accrued interest market price common shares closing date exchange 7 longterm debt following table shows components longterm debt domestic senior credit agreement october 2006 executed fiveyear domestic senior credit agreement used domestic foreign operations may 2007 executed amendment domestic senior credit agreement increase facility 100000 450000 reduce pricing portion letters credit issued facility restore provision permits future incremental increases 100000 total availability facility issue 450000 letter credit facility portion letters credit issued domestic senior credit foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued agreement performance pricing decreased increased result improvements reductions credit rating domestic senior credit agreement reported moody’s investors service andor standard poor’s “sp” also option use 100000 450000 revolving borrowings rate equal adjusted libor plus 150 subject also performance pricing noted result improvement sp credit rating march 2007 achieved lowest possible pricing performance pricing provisions domestic senior credit agreement paid 5710 fees expenses conjunction execution domestic senior credit agreement fourth quarter 2006 fees expenses amortized expense fiveyear term agreement commencing fourth quarter 2006 assets andor stock certain domestic foreign subsidiaries collateralize obligations domestic senior credit agreement domestic senior credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ltd change foster wheeler ltd’s fiscal year respect foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business addition domestic senior credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined domestic senior credit agreement also limits aggregate amount capital expenditures single fiscal year 40000 subject certain exceptions must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions domestic senior credit agreement 245765 189036 letters credit outstanding agreement december 28 2007 december 29 2006 respectively letter credit fees currently range 150 160 outstanding amount excluding fronting fee 0125 per annum funded borrowings agreement december 28 2007 december 29 2006 prior domestic senior credit agreement march 2005 entered fiveyear 250000 senior credit agreement used domestic foreign operations voluntarily replaced senior credit agreement october 2006 fiscal year 2006 recorded charge 14955 connection termination agreement capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued following minimum lease payments made years indicated capital lease obligations december 28 2007 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facilities wastetoenergy wind farm projects majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance chilean project camden county energy recovery associates debt represents solid waste disposal resource recovery system revenue bonds bear interest 75 due annually december 1 2004 2010 mature december 1 2010 bonds collateralized pledge certain revenues assets project plant wastetoenergy project located new jersey result purchase remaining 51 interest fw power consummated april 7 2006 consolidate specialpurpose limited recourse project debt fw power owner certain electric power generating wind farms italy see note 2 information regarding fw power acquisition upon acquisition fw power project financing vallesaccarda wind farm project base facility valueadded tax “vat” facility base facility variable interest rate based upon 6month euribor plus 15 repayable semiannually based upon predefined payment schedule june 30 2015 vat facility variable interest rate based upon 6month euribor plus 09 repayable semiannually based upon actual vat received commercial operation december 31 2010 december 2007 fw power refinanced base vat facilities related vallesaccarda wind farm project new base vat facilities also secured new base vat facilities scampitella wind farm project base facilities bear interest variable rates based upon 6month euribor plus spread varying 08 11 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2019 vat facilities bear interest 05 repayable semiannually based upon actual vat received commercial operation june 30 2010 december 31 2013 vallesaccarda scampitella wind farms respectively debt collateralized certain revenues assets fw power total borrowing capacity fw power credit facilities 75350 approximately 110950 exchange rate december 28 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued executed interest rate swap contracts effectively convert approximately 75 base facilities weightedaverage fixed interest rate 447 swap contracts place life facilities see note 1 “summary significant accounting policies interest rate risk” accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 52 56 respectively december 28 2007 energia holdings llc debt bears interest 11443 due annually april 15 2004 2015 matures april 15 2015 notes collateralized certain revenues assets specialpurpose subsidiary indirect owner refineryelectric power generation project chile subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois entered certain subordinated obligations subordinated obligations include 1999c bonds due october 15 2009 “1999c bonds due 2009” 1999c bonds due october 15 2024 “1999c bonds due 2024” 1999d accretion bonds due october 15 2009 “1999d bonds” 1999c bonds due 2009 1999c bonds due 2024 bear interest 725 subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date total amount 1999d bonds due october 15 2009 325 intermediate term loans china 702 interest “intermediate term loans” 2005 one chinese subsidiaries 52 owned us consolidate financial statements entered two intermediate term loans intermediate term loans bear interest 702 due repaid 2008 convertible subordinated notes 650 interest due june 1 2007 “convertible notes” 2001 issued convertible notes aggregate principal amount 210000 september 2004 completed offer exchange common shares preferred shares 206930 convertible notes june 2006 executed open market purchase 1000 outstanding aggregate principal amount convertible notes repaid remaining 2070 convertible notes scheduled maturity date june 1 2007 interest costs interest costs incurred fiscal years 2007 2006 2005 18603 24944 50618 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 longterm debt continued aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows 8 pensions postretirement benefits defined benefit pension plans united states united kingdom france canada finland postretirement benefit plans health care life insurance benefits united states canada also defined contribution plans united states united kingdom finally certain benefit plans including government mandated postretirement programs adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” december 29 2006 last day fiscal year 2006 sfas 158 requires us recognize funded status defined benefit pension postretirement benefit plans consolidated balance sheet sfas 158 also requires us recognize gains losses recognized component annual service cost component comprehensive incomeloss net tax upon adoption sfas 158 recorded net actuarial losses prior service costcredits net transition asset net change accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans cover certain fulltime employees plans retirement benefits primarily function years service level compensation us pension plans frozen new entrants additional benefit accruals canadian finnish french plans noncontributory uk plan closed new entrants contributory foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued defined benefit pension obligations funded status recognized funded status defined benefit pension plans consolidated balance sheet part recognized following amounts accumulated comprehensive loss foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued estimated net actuarial loss prior service cost net transition asset amortized accumulated comprehensive loss net periodic benefit cost next fiscal year 20423 1890 37 respectively accumulated benefit obligation aggregated accumulated benefit obligation defined benefit pension plans 1093005 1134254 december 28 2007 december 29 2006 respectively information defined benefit pension plans accumulated benefit obligation excess plan assets 1 information us plans december 28 2007 included since plan assets exceed accumulated benefit obligation components net periodic benefit cost changes recognized comprehensive incomeloss charges recorded accordance provisions sfas 88 “accounting settlements curtailments defined benefit pension plans termination benefits” related settlement obligations former employees united kingdom canada 297 2006 settlement obligations former employees finland former executives supplemental executive retirement plan “serp” 290 2005 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued investment policy defined benefit pension plans united states united kingdom canada governed written investment policy pension plans finland france plan assets investment policy us plans allocates assets accordance policy guidelines identify target maximum minimum allocations asset class target allocation 725 equities 275 fixedincome securities minimum maximum allocations 625 775 equities 225 325 bonds 0 5 cash continually reviewing investment policy ensure investment strategy aligned plan liabilities projected plan benefit payments investment policy uk plans designed respond changes funding levels bond equity allocations currently range 40 bonds 60 equities 50 bonds 50 equities depending funding level investment policy canadian plan uses balanced approach allocates investments pooled funds accordance policy’s asset mix guidelines identify target maximum minimum allocations asset class target allocation 45 bonds 50 equities 5 cash minimum maximum allocations 425 575 equities 40 50 bonds 25 75 cash longterm rate return assumptions expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets declined 75 73 past three years foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued contributions expect required make mandatory contributions us pension plans fiscal year 2008 expect contribute total approximately 33400 foreign pension plans fiscal year 2008 estimated future benefit payments expect make following benefit payments defined benefit pension plans postretirement benefit plans certain employees united states canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined pension plan working us certain benefits provided insurance companies additionally one subsidiaries united states also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan accounted sfas 112 “employer’s accounting postemployment benefits” closed new entrants since 1988 total liabilities sip 14948 16383 december 28 2007 december 29 2006 respectively reflected postretirement benefit obligation funded status information obligation measured using provisions sfas 106 “employers’ accounting postretirement benefits pensions” amended sfas 158 benefit assets sip reflect cash surrender value insurance polices purchased cover obligations sip totaled 5302 5135 december 28 2007 december 29 2006 respectively benefit assets recorded assets consolidated balance sheet reflected postretirement benefit obligation funded status information foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued postretirement benefit obligation funded status recognized funded status postretirement benefit plans consolidated balance sheet part recognized following amounts accumulated comprehensive loss estimated net actuarial loss prior service credit amortized accumulated comprehensive loss net periodic postretirement benefit cost next fiscal year 792 4762 respectively foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued components net periodic postretirement benefit cost changes recognized comprehensive incomeloss assumed healthcare cost trend rates significant effect amounts reported postretirement benefit plans onepercentagepoint change assumed health care cost trend rates would following effects contributions expect contribute total approximately 7611 postretirement benefit plans fiscal year 2008 net health care cost subsidy foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued estimated future postretirement benefit payments expect make following postretirement benefit payments defined contribution plans us subsidiaries 401k plan salaried employees contribute 100 match first 3 50 match next 3 base pay employee contributions subject annual internal revenue code limit 401k plan also provision discretionary employer contribution equal 50 second 3 employee’s contribution maximum 15 base salary discretionary employer contribution tied meeting performance targets entire calendar year contribution approved board directors fiscal years 2007 2006 us subsidiaries paid discretionary employer contribution 401k plan total us subsidiaries contributed 5570 4325 2813 401k plan fiscal years 2007 2006 2005 respectively fiscal year 2008 us subsidiaries also roth 401k plan salaried employees also fiscal year 2008 change employer contribution match contribute 100 match employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code discretionary match place depended meeting performance targets required annual approval board directors discontinued effective april 1 2003 uk subsidiaries commenced defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed 2561 1179 479 fiscal years 2007 2006 2005 respectively defined contribution plan benefits certain foreign subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 37811 30001 recorded within pension postretirement employee benefits consolidated balance sheet december 28 2007 december 29 2006 respectively related benefits 9 guarantees warranties agreed indemnify certain thirdparties relating businesses andor assets previously owned sold thirdparties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 guarantees warranties continued also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable performance standby letters credit bank guarantees surety bonds totaling 818600 646700 december 28 2007 december 29 2006 respectively balances include standby letters credit issued domestic senior credit agreement discussed note 7 facilities worldwide based upon past experience material claims made financial guarantees also guaranteed certain performance obligations chilean refineryelectric power generation project hold noncontrolling equity interest see note 5 information 10 financial instruments risk management following methods assumptions used estimate fair value class financial instruments practicable estimate fair value cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value shortterm maturity instruments longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities foreign currency forward contracts estimate fair value foreign currency forward contracts used solely hedging purposes obtaining quotes financial institutions interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 financial instruments risk management continued carrying amounts fair values estimated fair values financial instruments follows december 28 2007 274316 foreign currency forward exchange contracts outstanding foreign currency forward exchange contracts mature 2008 2010 contracts established various international subsidiaries sell variety currencies receive respective functional currencies payment obligations thirdparties financial instruments potentially subject us concentrations credit risk consist principally cash equivalents trade receivables place cash equivalents financial institutions limit amount credit exposure one financial institution concentrations credit risk respect trade receivables limited due large number customers comprising customer base dispersion across different business geographic areas december 28 2007 december 29 2006 significant concentrations credit risk 11 preferred shares issued 599944 preferred shares connection 2004 equityfordebt exchange 1887 preferred shares outstanding december 28 2007 preferred share convertible holder’s option 130 common shares approximately 246310 additional common shares outstanding preferred shares converted preferred shareholders voting rights except certain limited circumstances preferred shares right receive dividends distributions including liquidating distributions asconverted basis declared paid common shares preferred shares 001 liquidation preference per share 12 sharebased compensation plans sharebased compensation plans include restricted awards stock option awards compensation cost sharebased plans 7095 16474 8919 charged income fiscal years 2007 2006 2005 respectively related income tax benefit recognized consolidated statement operations 246 323 348 fiscal years 2007 2006 2005 respectively received 18076 17595 1200 cash option exercises sharebased compensation plans fiscal years 2007 2006 2005 respectively omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted stock units performancecontingent shares performancecontingent units cashbased awards equity foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued based awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaces prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued authorized unissued common shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards issued omnibus plan temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance fasb emerging issues task force topic d98 “classification measurement redeemable securities” adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity prior sharebased compensation plans september 2004 board directors adopted 2004 stock option plan “2004 plan” reserved 7334730 common shares issuance 2004 plan provided shares issued come authorized unissued common shares board directors determined price options granted pursuant 2004 plan options granted 2004 plan expire maximum three years date granted noted awards granted 2004 plan october 2001 granted 130000 inducement options exercise price 4985 per share chief executive officer connection employment agreement options vested 20 year term agreement price options granted pursuant agreements fair market value date grant options granted agreement expire ten years date granted april 1995 shareholders approved 1995 stock option plan “1995 plan” 1995 plan amended april 1999 may 2002 reserved 530000 common shares issuance 1995 plan provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant 1995 plan could exercised within one year date grant option exercised ten years date granted noted awards granted 1995 plan april 1990 shareholders approved stock option plan directors foster wheeler “directors plan” april 29 1997 shareholders approved amendment directors plan authorized granting options purchase 40000 shares common stock nonemployee directors foster wheeler directors plan provided shares issued come authorized unissued reacquired common stock price options granted pursuant plan could less 100 fair market value shares date grant options granted pursuant directors plan could exercised within one year date grant option exercised ten years date granted noted awards granted directors plan foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued stock option awards summary stock option activity fiscal years 2007 2006 2005 presented following table summarizes outstanding stock options december 28 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued following table summarizes exercisable stock options december 28 2007 calculated intrinsic value options exercise price lower market price common shares december 28 2007 aggregate intrinsic value outstanding options exercisable options december 28 2007 calculated difference market price common shares exercise price underlying options exercise price lower market price common shares date total intrinsic value options exercised fiscal years 2007 2006 2005 88828 49601 2793 determined date exercise december 28 2007 8626 total unrecognized compensation cost related stock options cost expected recognized expense weightedaverage period approximately 27 months restricted awards summary restricted share activity fiscal years 2007 2006 2005 presented foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 sharebased compensation plans continued summary restricted share unit activity fiscal years 2007 2006 2005 presented december 28 2007 9661 total unrecognized compensation cost related restricted awards cost expected recognized weightedaverage period approximately 27 months total fair value restricted awards vested fiscal years 2007 2006 2005 33408 47085 7309 respectively 13 common share purchase warrants connection equityfordebt exchange consummated 2004 issued 4152914 class common share purchase warrants 40771560 class b common share purchase warrants class warrant entitles owner purchase 33682 common shares exercise price 4689 per common share thereunder subject terms warrant agreement warrant agent us class warrants exercisable september 24 2009 class b warrant entitled owner purchase 01446 common shares exercise price 4689 per common share thereunder subject terms conditions warrant agreement warrant agent us class b warrants exercisable september 24 2007 january 2006 completed transactions increased number common shares delivered upon exercise class b common share purchase warrants offer period raised 75336 net proceeds exercise price per warrant increased offers holders approximately 95 class warrants 57 class b warrants participated offers resulting aggregate issuance approximately 16807000 common shares cumulatively december 28 2007 3945306 class warrants 38736956 class b warrants exercised 19639572 common shares number common shares issuable upon exercise remaining outstanding class warrants approximately 699265 december 28 2007 remaining outstanding class b warrants expired september 24 2007 holders class warrants entitled vote receive dividends exercise rights common shareholders purpose warrants duly exercised currently maintain intend continue maintain times warrants exercisable “shelf” registration statement relating issuance common shares underlying warrants benefit warrant holders subject terms registration rights agreement registration statement became effective december 28 2005 also connection equityfordebt exchange consummated 2004 entered registration rights agreement certain selling security holders agreed file registration statement cover resales securities held immediately following exchange offer filed registration statement accordance agreement october 29 2004 registration statement became foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 common share purchase warrants continued effective december 23 2004 must remain effect december 23 2009 unless certain events occur terminate obligations registration rights agreement prior date fail maintain registration statement required becomes unavailable two 45day periods consecutive 12month period required pay damages rate 137 per day registration statement effective december 28 2007 maximum exposure provision approximately 8700 expect incur damages related registration rights agreement 14 accumulated comprehensive loss components accumulated comprehensive loss tax effect related pension postretirement benefit plan adjustments benefit 96117 108752 december 28 2007 december 29 2006 respectively tax effect related minimum pension liability adjustments benefit 59062 december 30 2005 tax effect related gains derivatives designated cash flow hedges 635 203 december 28 2007 december 29 2006 respectively accumulated foreign currency translation adjustments currently adjusted income taxes relate permanent investments international subsidiaries foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes components incomeloss income taxes fiscal years 2007 2006 2005 following tax jurisdictions provision income taxes follows foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced domestic certain foreign tax benefits valuation allowance based upon available evidence likely deferred tax assets would realized fiscal year 2007 reversed valuation allowance previously established one foreign operating units due improved operational performance positive evidence deferred tax assets realized however reduction offset need increase valuation allowance us certain foreign jurisdictions result valuation allowance increased 12182 fiscal year 2007 valuation allowance required sfas 109 “accounting income taxes” evidence losses operations three recent fiscal years statutory purposes majority deferred tax assets valuation allowance provided begin expiring fiscal year 2024 later based current tax laws subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies various foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued jurisdictions operate number jurisdictions file tax returns given year statute limitations certain jurisdictions may expire without examination within 12month period balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject us including federal state local nonus income tax examinations tax authorities years fiscal year 2002 number tax years audit relevant state foreign tax authorities anticipate several audits may concluded foreseeable future including fiscal year 2008 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate impact change time adopted provisions fin 48 december 30 2006 first day fiscal year 2007 result adoption fin 48 recognized 4356 reduction opening balance shareholders’ equity resulted changes amount tax benefits recognized related uncertain tax positions accrual interest penalties reconciliation beginning ending amount unrecognized tax benefit follows december 28 2007 52175 unrecognized tax benefits 51763 would recognized affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions consolidated statement operations recorded 2737 interest expense penalties fiscal year 2007 24251 accrued payment interest penalties december 28 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 15 income taxes continued provision income taxes differs amount income tax determined applying applicable us statutory rate incomeloss income taxes result following 16 derivative financial instruments maintain foreign currency riskmanagement strategy uses foreign currency forward exchange contracts protect us unanticipated fluctuations cash flows may arise volatility currency exchange rates functional currencies subsidiaries foreign currencies operating purchases sales denominated utilize contracts solely hedge specific foreign currency exposures whether qualify hedge accounting sfas 133 fiscal years 2007 2006 2005 none contracts met requirements hedge accounting sfas 133 accordingly recorded pretax foreign exchange gainloss 324 7610 3933 fiscal years 2007 2006 2005 respectively amounts recorded following line items consolidated statement operations periods indicated marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet fiscal years 2007 2006 2005 included cash inflows settlement derivatives 5253 2035 707 respectively within net change contracts process billings excess costs estimated earnings uncompleted contracts operating activities section consolidated statement cash flows exposed credit loss event nonperformance counterparties significant financial institutions primarily rated “bbb” better standard poor’s equivalent recognized credit rating agencies december 28 2007 116535 owed us counterparties 157781 owed us counterparties foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 derivative financial instruments continued maximum term hedging exposure variability cash flows approximately 42 months use interest rate swap contracts manage interest rate risk associated variable rate specialpurpose limited recourse project debt certain affiliates equity interest also use interest rate swap contracts manage interest rate risk associated limited recourse project debt see notes 1 7 information regarding interest rate swap contracts 17 business segments operate two business groups global engineering construction group “global ec group” global power group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation distribution facilities gasification facilities global ec group provides engineering project management construction management services purchases equipment materials services thirdparty suppliers contractors global ec group also involved design facilities new developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids biofuels global ec group owns one leading refinery residue upgrading technologies hydrogen production process used oil refineries petrochemical plants additionally global ec group experience able work wide range processes owned others global ec group performs environmental remediation services together related technical engineering design regulatory services global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities europe global ec group generates revenues engineering construction activities pursuant contracts spanning approximately four years duration returns equity investments various production facilities global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations industrial facilities worldwide steam generating equipment includes full range technologies offering independent power producer utility industrial clients highvalue technology solutions economically converting wide range fuels including coal petroleum coke oil gas biomass municipal solid waste steam power circulating fluidizedbed boiler technology “cfb” ideally suited burning wide range fuels including lowquality fuels high moisture content “wastetype” fuels believe generally recognized one environmentally cleanest solidfuel steam generating technologies available world today cfb pulverized coal “pc” boilers offer supercritical oncethroughunit designs improve energy efficiency therefore environmental performance units oncethrough supercritical boilers operate higher steam pressures traditional plants results higher efficiencies lower emissions including emissions carbon dioxide “co2” considered greenhouse gas longer term actively developing oxycombustion technology cfb pc boilers believe oxycombustion one part practical solution capturing storing majority co2 coal power plants technology produces concentrated stream co2 part boiler combustion process avoiding need large expensive postcombustion co2 separation equipment also design manufacture install auxiliary equipment includes feedwater heaters steam condensers heatrecovery equipment global power group also offers full line new retrofit nitrogenoxide “nox” reduction systems selective noncatalytic catalytic nox reduction systems foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued well complete lownox combustion systems provide broad range site services relating products including construction erection services maintenance engineering plant upgrading life extensions global power group also provides research analysis experimental work fluid dynamics heat transfer combustion fuel technology materials engineering solid mechanics addition global power group owns operates cogeneration independent power production wastetoenergy facilities well power generation facilities process petrochemical industries global power group generates revenues engineering activities equipment supply construction contracts operating activities pursuant longterm sale project outputs electricity steam operating maintenance agreements royalties licensing technology returns equity investments various power production facilities addition two business groups also represent operating segments financial reporting purposes report corporate center expenses related certain legacy liabilities asbestos corporate finance group “cf group” also treat operating segment financial reporting purposes conduct business global basis global ec group accounted largest portion operating revenues last ten years fiscal year 2007 global ec group accounted 72 total operating revenues global power group accounted 28 total operating revenues geographic dispersion thirdparty revenues fiscal year 2007 based upon project executed follows use several financial metrics measure performance business segments addition metrics included consolidated financial statements ebitda primary earnings measure used chief operating decision maker except one client accounted approximately 12 13 consolidated revenues inclusive flowthrough revenues fiscal years 2007 2006 respectively single client accounted ten percent consolidated revenues fiscal years 2007 2006 2005 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued identifiable assets group assets directly related support operations group corporate assets principally cash investments real estate insurance receivables 1 includes general corporate income expense captive insurance operation eliminations 2 includes fiscal year 2007 increaseddecreased contract profit 35150 regular reevaluation contract profit estimates 54520 global ec group 19370 global power group foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued charge 7374 cf group reflecting revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate gains 13519 settlement coverage litigation certain asbestos insurance carriers recorded cf group 3 includes fiscal year 2006 increaseddecreased contract profit 5670 regular reevaluation contract profit estimates 14720 global ec group 20390 global power group charge 15533 cf group reflecting revaluation asbestos liability related asset net asbestosrelated gains 115664 recorded cf group primarily settlement coverage litigation certain asbestos insurance carriers aggregate charge 14955 recorded cf group conjunction voluntary termination prior domestic senior credit agreement net charge 12483 recorded cf group conjunction debt reduction initiatives completed april may 2006 4 includes fiscal year 2005 increased contract profit 99555 regular reevaluation contract profit estimates 66274 global ec group 33281 global power group charge 113680 cf group revaluation estimated asbestos liability asbestos insurance receivable credit agreement costs cf group associated prior senior credit facility 3500 aggregate charge 58346 cf group recorded conjunction exchange offers trust preferred securities 2011 senior notes foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 business segments continued thirdparty revenues presented based geographic region contracting subsidiary located location client job site longlived assets presented based geographic region contracting subsidiary located thirdparty revenues industry follows 18 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 18 operating leases continued 54293 37634 32601 fiscal years 2007 2006 2005 respectively future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains amortized income term respective leases amortization 4602 4168 4124 fiscal years 2007 2006 2005 respectively december 28 2007 december 29 2006 balance deferred gains 66226 68331 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 19 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending united states united kingdom plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier united states summary us claim activity follows 1 claims resolved fiscal year 2006 include court dismissals without payment mass claim filings approximating 22900 claims 2 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued approximately 131000 open claims subsidiaries respondents approximately 31000 open claims wherein administrative agreements named defendants lawsuits involving approximately 100000 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 65 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed approximately 11 request damages ranging 10 50 approximately 11 request damages ranging 51 1000 approximately 10 request damages ranging 1001 10000 remaining 3 request damages ranging 10001 small number cases 50000 majority requests monetary damages asserted multiple named defendants single complaint following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated yearend 2022 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date since yearend 2004 worked analysis research planning corporation “arpc” nationally recognized consultants projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend next 15 years based review fiscal year 2007 activity arpc recommended assumptions used estimate future asbestos liability updated yearend 2007 accordingly developed revised estimate aggregate indemnity defense costs yearend 2022 considering advice arpc fourth quarter 2007 increased liability asbestos indemnity defense costs yearend 2022 403300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 7400 fourth quarter 2007 amount paid asbestos litigation defense case resolution 86700 83300 83800 fiscal years 2007 2006 2005 respectively december 28 2007 total cumulative indemnity costs paid approximately 625300 total cumulative defense costs paid approximately 248400 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued december 28 2007 total asbestosrelated liabilities comprised estimated liability 165100 relating open outstanding claims valued estimated liability 238200 relating future unasserted claims yearend 2022 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred yearend 2022 period incidence new claims forecasted decrease year believe likely new claims filed 2022 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred 2022 historically defense costs represented approximately 28 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 28 2007 approximately 26 average cost per resolved claim increasing believe continue increase future asbestosrelated asset recorded within accounts notes receivableother december 28 2007 reflects amounts due next 12 months executed settlement agreements insurers include estimate future settlements recorded asbestosrelated insurance recovery receivable includes estimate recoveries insurers unsettled insurance coverage litigation referred based upon application new jersey law certain insurance coverage issues assumptions relating cost allocation factors well estimate amount recoveries existing settlements insurers amounts discounted time value money since yearend 2005 worked peterson risk consulting nationally recognized experts estimation insurance recoveries review estimate value settled insurance asset assist estimation unsettled asbestos insurance asset based insurance policy data historical claim data future liability estimates including expected timing payments allocation methodology assumptions provided peterson risk consulting provided analysis unsettled insurance asset december 28 2007 utilized analysis determine estimate value unsettled insurance asset december 28 2007 december 28 2007 estimated value unsettled asbestos insurance asset related ongoing litigation new york state court subsidiaries’ insurers 27600 litigation relates amounts insurance coverage available asbestosrelated claims proper allocation coverage among subsidiaries’ various insurers subsidiaries selfinsurers believe amounts subsidiaries might allocated selfinsurer would immaterial adverse outcome pending insurance litigation described could limit remaining insurance recoveries result reduction insurance asset however favorable outcome part litigation could increase remaining insurance recoveries current estimate prevail whole part litigation revalue asset relating remaining available insurance recoveries based asbestos liability estimated time last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred fiscal year 2006 subsidiaries reached agreements settle foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued disputed asbestosrelated insurance coverage four insurers primarily result insurance settlements increased asbestosrelated insurance asset recorded gain 96200 fiscal year 2006 fiscal year 2007 subsidiaries reached agreement settle disputed asbestosrelated insurance coverage four additional insurers including two fourth quarter result settlements increased asbestosrelated insurance asset recorded gain 4900 fourth quarter 13500 fiscal year 2007 intend continue attempt negotiate additional settlements insurers achievable reasonable basis order minimize amount future costs would required fund cash flows generated operations unless settle remaining insurers recovery amounts significantly excess current estimate likely amount insurance settlements cover future asbestosrelated costs required fund portion future costs reduce cash flows working capital also fiscal year 2006 successful appeal new york state trial court decision previously held new york rather new jersey law applies coverage litigation subsidiaries’ insurers result increased insurance asset recorded gain 19500 february 13 2007 subsidiaries’ insurers granted permission appellate court appeal decision new york court appeals state’s highest court october 11 2007 new york court appeals upheld appellate court decision favor even coverage litigation resolved manner favorable us insurance recoveries litigation settlements may limited insolvencies among insurers assumed recovery estimate asbestos insurance asset currently insolvent insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis failure realize expected insurance recoveries delays receiving material amounts insurers could material adverse effect financial condition cash flows based yearend 2007 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 70400 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations range approximately 70 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline funded 19000 asbestos liability indemnity payments defense costs cash flows fiscal year 2007 net cash received insurance settlements expect fund total 25000 asbestos liability indemnity defense costs cash flows fiscal year 2008 net cash expected received existing insurance settlements continue collect cash insurance settlements assuming increase asbestosrelated insurance liability future insurance settlements asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 866 claims brought uk subsidiaries 342 remained open december 28 2007 none settled claims resulted material costs us december 28 2007 recorded total liabilities 48500 comprised estimated liability relating open outstanding claims 9000 estimated liability relating future unasserted claims yearend 2022 39500 total 3000 recorded accrued expenses 45500 recorded asbestosrelated liability consolidated balance sheet asset equal amount recorded expected uk asbestosrelated insurance recoveries 3000 recorded accounts notes receivableother 45500 recorded asbestosrelated insurance recovery receivable consolidated balance sheet liability estimates based uk house lords judgment pleural plaque claims amount compensable injury accordingly reduced liability assessment ruling reversed legislation asbestos liability related asset recorded uk would approximately 66100 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves compact cfb boiler arbitration asia arbitration commenced us march 2004 arising compact cfb boiler engineered supplied erected client asia addition claims damages breach contract client seeking rescind contract based upon alleged material misrepresentations us relief granted could compelled reimburse client purchase price paid 25700 addition unquantified damages vigorously defended case counterclaimed unpaid receivables 5200 plus interest various breaches nonperformance client due age ongoing dispute reserve full amount receivable previously taken procedurally liability damages portions case separated hearing liability portion concluded june 2006 decision liability portion rendered may 2007 client’s claim rescission denied awarded unpaid receivable plus interest also awarded delay damages arbitration costs counsel fees subject proof amounts damages phase arbitration discussions client ensued following award result agreement reached september 2007 reestablished receivable recognized award delay damages arbitration costs counsel fees fiscal year 2007 results amounts due agreement collected october 2007 foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued thermal electric power plant arbitration south america arbitration also commenced us july 2005 respect thermal electric power plant south america designed supplied erected member consortium parties plant’s concrete foundations experienced cracking allegedly due outofspecification materials used concrete poured consortium’s subcontractor client adopted extensive plan repair foundations seeking reimbursement repair costs 9500 alleging extensive repair effort nature emergency mitigation client also claiming estimated cost totally demolish reconstruct foundations point future 14300 plus lost profits demolition reconstruction period 9400 arbitration hearing concluded arbitrator dismissed client’s claims us arbitrator’s favorable decision confirmed civil court power plant arbitration eastern europe june 2006 commenced arbitration client seeking final payment services connection two power plants designed built eastern europe dispute primarily concerns whether liable client liquidated damages “lds” contract delayed completion projects client contends owed lds limited contract approximately 37600 approximately 55400 exchange rate effect december 28 2007 retaining security lds approximately 22000 approximately 32400 exchange rate effect december 28 2007 contract payments otherwise due us work performed client contends owed additional 6900 approximately 10200 exchange rate effect december 28 2007 cost consumable materials incur due extended commissioning period projects cost relocate piece equipment one projects cost various warranty repairs punch list work seeking payment 22000 approximately 32400 exchange rate effect december 28 2007 recorded within contracts process consolidated balance sheet retention held client lds plus approximately 4900 approximately 7200 exchange rate effect december 28 2007 interest retained funds well approximately 9100 approximately 13400 exchange rate effect december 28 2007 additional compensation extra work performed beyond original scope contracts client’s failure procure required property insurance project provided coverage damages incurred project related turbine repairs arbitration hearing liability currently underway accordingly premature predict outcome matter power plant dispute ireland 2006 dispute arose client material corrosion occurring two power plants designed built ireland began operation december 2005 june 2006 boilers plants designed burn milled peat primary fuel supplied different local sources peat supplied range specified contract matter still investigation believe variation agreed specifications cause alkali halides corrosion affecting boiler tubes identified technical solution ameliorate boiler tube corrosion client process evaluating proposed solution boiler tube corrosion disavowing responsibility fuel specification client refused pay cost corrective work reserved rights us contract could include repairing rejecting plants recovering consequential damages event determined grossly negligent advised client responsible cost corrective work address corrosion resulting outofspecification fuel anticipate discussions client near future regarding claim foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued also corrosion occurring subcontractorprovided emissions control equipment induction fans backend power plants cause backend corrosion discovered second quarter 2007 extensive previously assessed investigation based upon information gathered date believe corrosion due principally low set point temperature design emissions control equipment set subcontractor proves case believe subcontractor would responsible cost remedy problem agreement although may direct responsibility cost client agreement date subcontractor denied responsibility corrosion contending result outofspecification fuel supplied client reserved rights client proves case extent incur costs correcting problem intend pursue claims subcontractor andor client depending upon cause corrosion due potential magnitude amounts involved assurance collect amounts subcontractor may determined liable plant rejection standpoint believe backend corrective work materially impact availability guaranty client described contract plants contains availability guaranty requiring plants meet specified energy generation levels three year period availability guaranty expressly conditioned upon use contractspecified fuel availability guaranty provides liquidated damages could reach contract cap liquidated damages 17500 approximately 25800 exchange rate effect december 28 2007 addition liquidated damages event availability either plants average best two first three years operation 80 client may entitled certain remedies significant would right reject plants seek reimbursement 351000 contract price paid plants approximately 516800 exchange rate effect december 28 2007 plus restoration costs sites client alleged least one plants failed meet availability guaranty disputed advised client believe responsible availability guaranty expressly subject client’s provision specified fuel event parties able resolve dispute contract provides arbitration conducted institution engineers ireland arbitration procedure proceeding damages client may seek could include may limited cost correct corrosion boiler tubes emissions control equipment liquidated damages availability guaranty consequential damages including limited lost profits event gross negligence proven event rejection total amount paid respect plants contract otherwise plus cost dismantle plants costs claimed could exceed abovestated contract price paid plants liquidated damages would vigorously oppose claims arbitration completed necessary corrective actions certain defects conveyor equipment plants believe subcontractor provided equipment responsible defects investigation continuing fourth quarter 2006 established contingency 25000 relation project primarily result second quarter 2007 discovery extensive backend corrosion contingency increased 30000 second quarter 2007 performance subsidiary executing foregoing contract ireland guaranteed foster wheeler ltd addition 16700 approximately 24600 exchange rate effect december 28 2007 outstanding retention bonds issued favor client due inherent commercial legal technical uncertainties underlying estimation project claims described amounts ultimately realized paid us could differ materially foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows camden county wastetoenergy project one project subsidiaries camden county energy recovery associates lp “ccera” owns operates wastetoenergy facility camden county new jersey “project” pollution control finance authority camden county “pcfa” issued bonds finance construction project acquire landfill camden county’s use pursuant loan agreement pcfa ccera proceeds bonds loaned pcfa ccera used ccera finance construction facility accordingly proceeds loan recorded debt ccera’s balance sheet therefore included consolidated balance sheet ccera’s obligation service debt incurred pursuant loan agreement limited depositing tipping fees electric revenues received trustee pcfa bonds trustee required pay ccera service fees prior servicing pcfa bonds ccera debt repayment obligations loan agreement pcfa 1997 united states supreme court effectively invalidated new jersey’s longstanding municipal solid waste flow rules regulations eliminating guaranteed supply municipal solid waste project corresponding tipping fee revenue result tipping fees reduced market rate order provide steady supply fuel project since ruling marketbased revenues expected sufficient service debt outstanding bonds issued pcfa finance construction project 1998 ccera filed suit pcfa parties seeking among things void applicable contracts agreements governing project camden county energy recovery assoc v nj department environmental protection et al superior court new jersey mercer county l26898 since 1999 state new jersey provided subsidies sufficient ensure payment pcfa’s debt service payments became due bonds outstanding connection project issued pcfa us ccera bonds guaranteed either us ccera litigation defendants asserted among things equitable portion outstanding debt project allocated ccera even though ccera guarantee bonds time cannot determine ultimate outcome foregoing potential effects ccera project state new jersey fail subsidize debt service default debt service payment bondholders might proceed attempt exercise remedies among things seizing collateral securing bonds believe collateral includes ccera’s plant environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation currently engaged investigation andor remediation supervision applicable regulatory authorities four subsidiaries’ former facilities addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose water supply contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated investigation among things attempt identify sources tce residential wells although fwec believed evidence available time sufficient support determination governmental entity fwec prp tce residential wells fwec october 2004 began providing potentially affected foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued residences bottled water thereafter arranged installation maintenance testing filters remove tce water drawn wells august 2005 fwec entered settlement agreement usepa whereby fwec agreed arrange pay hookup public water affected residences involved extension water main installation laterals main affected residences foregoing hookups completed residences hooked fwec ceased providing bottled water filters fwec incurring costs related public outreach communications affected area fwec may required pay agencies’ costs overseeing responding situation also possibility fwec would incur costs conduct investigation regarding tce accrued best estimate cost related foregoing review estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related litigation described beyond accruals made costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph possible reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source march 2006 complaint filed action entitled sarah martin jeffrey martin v foster wheeler energy corporation case 337606 court common pleas luzerne county pennsylvania subsequently removed united states district court middle district pennsylvania complaint alleged filed behalf martins 25 others similarly situated owning residing property impacted threatened impacts tce released former fwec facility complaint sought recover costs environmental remediation continued environmental monitoring alleged class members’ property diminution property value costs associated obtaining healthy water establishment medical monitoring trust fund statutory treble punitive damages interest costs suit april 2007 court martin case preliminarily approved class action settlement jointly filed plaintiffs fwec preliminary settlement subject class members’ optinoptout process holding fairness hearing court number class members optedout preliminary settlement number objected preliminary settlement fair fairness hearing court december 2007 entered order finally approving settlement terms settlement fwec pay class counsel total approximately 1600 exchange release class members claims respect matters subject litigation release extend claims optout settlement class agreed upon purposes settlement consists three categories persons live property within approximately 150 feet area tce inferred exist groundwater one three categories class includes persons live residences tce detected private wells 2004 accrued provision sufficient cover settlement april 2006 complaint filed action entitled donna rose cunningham michael cunningham v foster wheeler energy corporation united states district court middle district pennsylvania complaint’s allegations generally similar martin case except complaint behalf cunninghams alleged class except cunninghams included foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 19 litigation uncertainties continued claim embarrassment humiliation emotional distress accrued provision believe appropriate matter based upon investigation proceedings date fwec vigorously defend proceedings however premature predict ultimate outcome proceedings may 2006 complaint filed action entitled gary prezkop personal representative estate mary prezkop deceased gary prezkop right v foster wheeler energy corporation leonard lulis case 000545 court common pleas philadelphia county pennsylvania complaint’s allegations generally similar martin cunningham cases also included claims mary prezkop’s alleged wrongful death fiscal year 2007 matter settled amount material impact us environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated ccera project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment even equipment installed ccera believes project’s sponsor would responsible pay equipment however sponsor may sufficient funds may assert responsible budgetary estimates cost installing additional control equipment approximately 30000 based last assessment foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 quarterly financial data unaudited impact potentially dilutive securities options purchase common shares warrants purchase common shares nonvested portion restricted awards included calculation diluted loss per common share loss periods due antidilutive effect foster wheeler ltd subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 20 quarterly financial data unaudited continued 1 net income quarter ended december 28 2007 includes charge 7374 reflecting revaluation asbestos liability related asset resulting primarily increased asbestos defense costs projected yearend 2022 addition another year rolling 15year asbestos liability estimate net gain 4886 settlement coverage litigation certain asbestos insurance carriers 2 discussed “earnings per common share” section note 1 fair value additional shares issued part warrant offer transactions consummated january 2006 reduced net income attributable common shareholders calculating earningsloss per common share fair value additional shares issued 19445 foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders foster wheeler ag opinion consolidated financial statements listed accompanying index present fairly material respects financial position foster wheeler ag subsidiaries “the company” december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a company’s form 10k responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp florham park new jersey february 23 2012 foster wheeler ag subsidiaries consolidated statement operations thousands dollars except per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated balance sheet thousands dollars except share data per share amounts see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement changes equity thousands dollars except share data see notes consolidated financial statements foster wheeler ag subsidiaries consolidated statement cash flows thousands dollars see notes consolidated financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies basis presentation special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things previously outstanding whole common shares foster wheeler ltd cancelled common shareholders foster wheeler ltd became common shareholders foster wheeler ag swiss corporation foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies steps scheme arrangement together certain related transactions collectively referred throughout notes consolidated financial statements “redomestication” effectively changed place incorporation bermuda canton zug switzerland january 2010 relocated principal executive offices geneva switzerland please see note 18 information related redomestication fiscal year foster wheeler ag ends december 31 calendar year foster wheeler ag’s fiscal quarters end last day march june september fiscal years nonus operations parent’s fiscal year foster wheeler ltd parent company prior redomestication 52 53week annual accounting period ending last friday december ended december 26 2008 fiscal year us operations 52 53week annual accounting period ending last friday december certain prior period amounts reclassified conform current year presentation principles consolidation consolidated financial statements include accounts foster wheeler ag significant us nonus subsidiaries well certain entities controlling interest intercompany transactions balances eliminated see “ variable interest entities” information related consolidation variable interest entities capital alterations see “ basis presentation” note 18 information related redomestication use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities date financial statements revenues expenses periods reported actual results could differ estimates changes estimates reflected periods become known significant estimates used accounting longterm contracts including estimates total costs progress toward completion customer vendor claims employee benefit plan obligations sharebased compensation plans addition also use estimates accounting uncertain tax positions deferred taxes asbestos liabilities expected recoveries assessing goodwill impairment among others revenue recognition longterm contracts revenues profits longterm contracts recorded percentageofcompletion method progress towards completion fixedprice contracts measured based physical completion individual tasks contracts value 5000 greater contracts value less 5000 progress toward completion measured based ratio costs incurred total estimated contract costs costtocost method progress towards completion costreimbursable contracts measured based ratio quantities expended total forecasted quantities typically manhours incentives also recognized foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued percentageofcompletion basis realization incentive assessed probable include flowthrough costs consisting materials equipment subcontractor services operating revenues cost operating revenues costreimbursable contracts overall responsibility contractor engineering specifications procurement services costs contract profit impact flowthrough costs included operating revenues cost operating revenues contracts process stated cost increased profits recorded completed effort less billings customer progress payments uncompleted contracts full provision loss contracts made time loss becomes probable regardless stage completion point numerous contracts progress various stages completion accounting revenues profits longterm contracts requires estimates total contract costs estimates progress toward completion determine extent revenue profit recognition estimates may revised additional information becomes available specific project circumstances change review material contracts monthly basis revise estimates appropriate developments earning project incentive bonuses incurring expecting incur contractual liquidated damages performance schedule issues providing services purchasing thirdparty materials equipment costs differing previously estimated testing completed facilities turn eliminates confirms completion warrantyrelated costs project incentives recognized probable earned project incentives frequently tied cost schedule andor safety targets therefore tend earned late project’s life cycle changes estimated final contract revenues costs either increase decrease final estimated contract profit period change estimate recognized cumulative impact change recorded based progress achieved period change following table summarizes number separate projects experienced final estimated contract profit revisions impact contract profit excess 1000 relating revaluation work performed prior periods changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global engineering construction group “global ec group” global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements changes final estimated contract profit revisions 2009 included 24300 positive settlements two projects global ec group business segment 14800 associated receipt payment longoutstanding arbitration award please see note 14 information related changes final estimated contract profit impact business segment results claims amounts excess agreed contract price amounts included original contract price seek collect customers others delays errors specifications designs contract terminations disputed unapproved change orders scope price causes unanticipated foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued additional costs record claims additional contract revenue probable claims result additional contract revenue amount reliably estimated two requirements satisfied existence following conditions contract evidence provides legal basis claim additional costs caused circumstances unforeseen contract date result deficiencies performance costs associated claim identifiable otherwise determinable reasonable view work performed evidence supporting claim objective verifiable requirements met revenue claim may recorded extent contract costs relating claim incurred costs attributable claims treated costs contract performance incurred recorded contracts process consolidated financial statements included following regarding commercial claims certain circumstances may defer precontract costs probable costs recovered future contract deferred costs would included contract costs upon execution anticipated contract deferred precontract costs immaterial december 31 2011 2010 certain specialpurpose subsidiaries global power group business segment reimbursed customers costs building operating certain facilities lives corresponding service contracts depending specific legal rights obligations arrangements cases reimbursements treated operating revenues gross value cases reduction cost cash equivalents cash equivalents include highly liquid shortterm investments original maturities three months less date acquisition dependent cash repatriations cover essentially payments expenses holding company principal executive offices switzerland cover cash needs related asbestos related liability overhead expenses us discretion cover acquisition shares share repurchase program cash equivalents 588307 824938 held nonus entities december 31 2011 2010 respectively entities require portion funds support liquidity working capital needs well comply required minimum capitalization requirements cases contractual restrictions accordingly portion funds may readily available repatriation entities switzerland us trade accounts receivable trade accounts receivable represent amounts billed customers accordance terms longterm contracts customers may withhold certain percentages billings completion acceptance work performed refer retention receivables final payment retention receivables might received within oneyear period conformity industry practice however full amount accounts receivable including amounts withheld included current assets consolidated balance sheet please see note 3 detailed information regarding retention receivable balances trade accounts receivable continually evaluated collectibility provisions established projectspecific basis issue associated client’s ability make payments circumstances client making payment due contractual issues foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued contracts process billings excess costs estimated earnings uncompleted contracts longterm contracts amounts recorded contracts process billings excess costs estimated earnings uncompleted contracts may realized paid respectively within oneyear period conformity relevant industry accounting standards however full amount contracts process billings excess costs estimated earnings uncompleted contracts included current assets current liabilities respectively consolidated balance sheet inventories principally materials supplies stated lower cost market determined primarily averagecost method inventories 16738 11255 december 31 2011 2010 respectively amounts recorded within current assets consolidated balance sheet land buildings equipment depreciation computed straightline basis using estimated lives ranging 10 50 years buildings 3 35 years equipment depreciation expense allocated cost operating revenues selling general administrative expenses based manner underlying assets deployed expenditures maintenance repairs charged expense incurred renewals betterments capitalized upon retirement disposition fixed assets cost related accumulated depreciation removed accounts resulting gains losses reflected earnings restricted cash following table details restricted cash balances held entities investments advances unconsolidated affiliates use equity method accounting affiliates investment ownership ranges 20 50 unless significant economic governance considerations indicate unable exert significant influence case cost method used equity method also used affiliates investment ownership greater 50 controlling interest currently investments affiliates investment ownership 20 greater consolidated recorded using equity method affiliates investment ownership less 20 carried cost variable interest entities sometimes form separate legal entities corporations partnerships limited liability companies connection execution single contract project upon formation separate legal entity perform evaluation determine whether new entity variable interest entity vie whether primary beneficiary new entity would require us consolidate new entity financial results reassess initial determination whether entity vie upon occurrence certain events whether primary beneficiary outlined current accounting guidelines entity vie determine accounting entity voting interest accounting guidelines foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued entity determined vie either total equity investment sufficient entity finance activities without additional subordinated financial support b characteristics controlling financial interest missing ability make decisions voting rights obligation absorb losses right receive benefits c voting rights equity holders proportional obligations absorb losses entity andor rights receive benefits entity substantially entity’s activities either involve conducted behalf investor disproportionately voting rights december 31 2011 2010 participated certain entities determined vies including gasfired cogeneration facility martinez california refineryelectric power generation project chile consolidate operations martinez project record participation chile based project equity method accounting additionally december 31 2010 wastetoenergy facility camden new jersey determined vie due operating agreement place time project sponsor operating agreement terminated end second quarter 2011 therefore camden project longer considered vie december 31 2011 consolidated operations camden project december 31 2010 primary beneficiary although camden project longer considered vie continued consolidate project december 31 2011 100 outstanding voting equity project please see note 5 information regarding participation projects goodwill intangible assets goodwill arising business acquisitions allocated appropriate reporting unit relative fair value basis time acquisition intangible assets consist principally patents trademarks customer relationships pipeline backlog technology amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist estimated useful lives intangible assets december 31 2011 2010 ranged patents 3 25 years trademarks 3 40 years customer relationships pipeline backlog 1 13 years technology 7 years 2011 adopted accounting standards update “asu” 201108 “intangibles goodwill topic 350 testing goodwill impairment” asu 201108 amends existing guidance order simplify entities test goodwill impairment amended guidance entity required calculate fair value reporting unit unless entity determines qualitative assessment morelikelythannot fair value reporting unit less carrying amount adoption standard material impact results operations financial position test goodwill impairment reporting unit level determined components one level operating segments components constitute businesses discrete financial information available segment management regularly reviews operating results components presently goodwill exists three reporting units one within global power group business segment two within global ec group business segment first perform qualitative assessment determine whether morelikelythannot fair value reporting unit greater carrying amount assessments performed perform impairment test reporting units determined morelikelythannot fair value reporting unit less carrying amount first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value exceeds carrying amount goodwill considered impaired carrying amount exceeds fair value second step must performed measure amount foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued impairment loss second step compares implied fair value reporting unit’s goodwill carrying amount goodwill fourth quarter year evaluate goodwill reporting unit assess recoverability impairments recognized earnings impairment loss would recognized amount equal excess carrying amount goodwill implied fair value goodwill december 31 2011 2010 estimated fair value reporting units sufficiently excess carrying values even conducting various sensitivity analyses key assumptions adjustment carrying values goodwill required intangible assets determinable useful lives amortized respective estimated useful lives reviewed impairment together tangible longlived assets whenever events circumstances indicate impairment may exist income taxes deferred tax assetsliabilities established difference financial reporting income tax basis assets liabilities well operating loss tax credit carryforwards deferred tax assets liabilities adjusted effects changes tax laws rates date enactment deferred tax assets reduced valuation allowance opinion management likely portion deferred tax assets realized evaluating ability realize deferred tax assets within various tax jurisdictions arise consider available positive negative evidence including scheduled reversals taxable temporary differences projected future taxable income tax planning strategies recent financial performance projecting future taxable income requires significant assumptions future operating results well timing character taxable income numerous jurisdictions make provision incremental income taxes subsidiary earnings retained subsidiary’s country domicile expect earnings indefinitely reinvested jurisdiction unremitted earnings subsidiaries intended permanently reinvested incremental income tax provided aggregated 317700 december 31 2011 practicable estimate additional tax would incurred amounts repatriated recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements position based largest benefit greater fifty percent likelihood realized upon ultimate settlement recognize interest accrued potential tax liability related unrecognized tax benefits interest expense recognize potential penalties deductions net consolidated statement operations foreign currency functional currency foster wheeler ag us dollar functional currency nonus operations typically local currency country domicile assets liabilities nonus entities translated us dollars reporting currency periodend exchange rates resulting translation adjustment recorded separate component within accumulated comprehensive loss income expense accounts cash flows translated weightedaverage exchange rates period foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued transaction gains losses arise exchange rate fluctuations transactions denominated currency functional currency included deductions net consolidated statement operations net balance foreign currency transaction gains losses 2011 2010 2009 follows fair value measurements fair value defined price would received sell asset paid transfer liability orderly transaction market participants measurement date financial accounting standards board accounting standards codification fasb asc 82010 defines fair value establishes fair value hierarchy prioritizes inputs used measure fair value provides guidance required disclosures fair value measurements fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities lowest priority unobservable inputs financial assets liabilities recorded fair value recurring basis consist primarily assets liabilities arising derivative financial instruments defined benefit pension plan assets see note 10 information regarding derivative financial instruments note 8 information regarding defined benefit pension plan assets following methods assumptions used estimate fair value class financial instruments practicable estimate fair value financial instruments valued independent fair value hierarchy • cash equivalents restricted cash carrying value cash equivalents restricted cash approximates fair value demand nature many deposits shortterm maturity instruments financial instruments valued within fair value hierarchy • shortterm investments shortterm investments primarily consist deposits maturities excess three months less one year shortterm investments carried cost plus accrued interest approximates fair value • longterm debt estimate fair value longterm debt including current installments based quoted market prices similar issues current rates offered debt remaining maturities using level 2 inputs • foreign currency forward contracts estimate fair value foreign currency forward contracts obtaining quotes financial institutions market transactions either listed overthecounter markets corroborate observable market data using level 2 inputs • interest rate swaps estimate fair value interest rate swaps based quotes obtained financial institutions corroborate observable market data using level 2 inputs • defined benefit pension plan assets estimate fair value investments equity securities yearend based quotes obtained financial institutions fair value investments commingled funds invested primarily debt equity securities based net asset values foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued communicated respective asset manager corroborate valuations observable market data using level 1 2 inputs additionally hold investments private investment funds valued net asset value communicated asset manager using level 3 unobservable market data inputs external legal fees external legal fees expensed incurred recorded deductions net consolidated statement operations exception external legal fees associated asbestos defense costs please refer note 16 information related accounting asbestos defense costs incurred external legal fees excluding asbestos defense costs approximately 17800 16400 2011 2010 2009 respectively include external legal fees related project claims restrictions shareholders’ dividends declared paid cash dividend since july 2001 plans declare pay cash dividends current us senior secured credit agreement contains limitations cash dividend payments retirement shares share repurchase program september 12 2008 announced share repurchase program pursuant board directors authorized repurchase 750000 outstanding shares designation repurchased shares cancellation november 4 2010 board directors proposed increase share repurchase program 335000 designation repurchased shares cancellation approved shareholders extraordinary general meeting february 24 2011 swiss law cancellation shares previously repurchased share repurchase program must approved shareholders repurchased shares remain treasury shares balance sheet cancellation based aggregate share repurchases program december 31 2011 authorized repurchase additional 91546 outstanding shares repurchases made discretion compliance applicable securities laws legal requirements depend variety factors including market conditions share price factors program obligate us acquire particular number shares program expiration date may suspended discontinued time treasury shares carried cost consolidated balance sheet cancellation shares approved shareholders cancellation registered commercial register canton zug switzerland upon effectiveness cancellation shares cost shares cancelled removed treasury shares consolidated balance sheet par value cancelled shares removed registered shares consolidated balance sheet excess cost treasury shares par value removed paidin capital consolidated balance sheet 2011 annual general meeting shareholders may 3 2011 obtained specific shareholder approval cancellation treasury shares held december 31 2010 amended articles association reduce share capital accordingly july 22 2011 cancellation shares registered commercial register canton zug switzerland shares acquired december 31 2010 remain treasury shares shareholder approval cancellation granted future general meeting shareholders repurchased treasury shares longer considered outstanding results reduction weightedaverage number shares outstanding reporting period calculating earnings per share described foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued earnings per share basic earnings per share computed dividing net income attributable foster wheeler ag weightedaverage number shares outstanding reporting period diluted earnings per share computed dividing net income attributable foster wheeler ag combination weightedaverage number shares outstanding reporting period impact dilutive securities outstanding stock options warrants purchase shares nonvested portion restricted shares restricted stock units performancebased restricted stock units collectively “restricted awards” extent securities dilutive previously outstanding warrants included earnings per share calculation 2009 remaining warrants expired october 2 2009 profitable periods outstanding stock options warrants dilutive effect treasury stock method average share price period exceeds assumed proceeds exercise option warrant assumed proceeds include exercise price compensation cost future service yet recognized consolidated statement operations tax benefits would recorded paidin capital option warrant exercised treasury stock method assumed proceeds assumed used repurchase shares current period dilutive impact nonvested portion restricted awards determined using treasury stock method proceeds include unrecognized compensation cost tax benefits assumed proceeds computations basic diluted earnings per share follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 1 summary significant accounting policies continued following table summarizes options included calculation diluted earnings per share assumed proceeds options per share basis greater average share price period would result antidilutive effect diluted earnings per share recent accounting developments june 2011 financial accounting standards board issued asu 201105 “comprehensive income” asu 201105 amends existing guidance order increase prominence items reported comprehensive income eliminates option present components comprehensive income part statement changes equity presentation format currently employ asu 201105 nonowner changes equity required presented either single continuous statement comprehensive income two separate consecutive statements public companies asu 201105 effective fiscal years interim periods within fiscal years beginning december 15 2011 although yet determined manner presentation select adoption standard beginning consolidated financial statements included quarterly report form 10q quarter ending march 31 2012 material impact results operation financial position 2 business combinations december 2011 acquired stock grafwulff gmbh company based germany purchase price approximately 22300 approximately 29400 exchange rate date acquisition net cash acquired company designs manufactures installs equipment utilizes circulating dry ash flue gas scrubbing technology types steam generators power industrial sectors preliminary purchase price allocation included balance sheet december 31 2011 results operations since acquisition date significant consolidated financial statements pro forma impact assuming acquisition occurred beginning year company’s financial results included within global power group business segment december 2010 acquired assets proprietary sulfur recovery technology business 1000 sulfur recovery technology used treat gas streams containing hydrogen sulfide purpose reducing sulfur content fuel products recover saleable sulfur byproduct acquisition included patents knowhow skilled personnel purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment october 2009 acquired substantially assets houston operations atlas engineering inc privately held company purchase price approximately 21000 purchase price may increased estimated 12000 contingent consideration depending acquired company’s ebitda defined purchase agreement transaction first three years closing date estimated fair value contingent consideration liability consolidated balance sheet december 31 2011 2595 acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment april 2009 acquired substantially assets offshore engineering division ope holdings ltd canadian company listed tsx venture exchange refer ope foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 2 business combinations continued purchase price approximately 8900 acquired company active upstream oil gas engineering services purchase price allocation pro forma information acquisition material consolidated financial statements company’s financial results included within global ec group business segment 3 accounts notes receivable net following table shows components trade accounts notes receivable recorded provision outstanding retention receivable balances december 31 2011 2010 following table shows components accounts notes receivable net 4 land buildings equipment land buildings equipment stated cost set forth foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 4 land buildings equipment continued depreciation expense 2011 2010 2009 42073 46833 39357 respectively certain office manufacturing facilities finland contain asbestos required remove asbestos facilities significantly renovated demolished present plans undertake major renovation would require removal asbestos demolition facilities sufficient information estimate fair value asset retirement obligation settlement date range potential settlement dates specified information currently available apply expected present value technique recognize liability period sufficient information available reasonably estimate fair value asset retirement obligation 5 investments investment unconsolidated affiliates noncontrolling interest two electric power generation projects one wastetoenergy project one wind farm project italy refineryelectric power generation project chile also 50 noncontrolling interest project based italy generates earnings royalty payments linked price natural gas based outstanding equity interests entities 4165 two electric power generation projects italy 39 wastetoenergy project 50 wind farm project notional 85 equity interest project chile however primary beneficiary result participating rights held minority shareholder determining primary beneficiary considered minority shareholder’s right approve activities project significantly impact project’s economic performance include right approve reject annual financial capital operating budget annual operating plan right approve reject appointment general manager senior management approval rights respect capital expenditures beyond included annual budget february 27 2010 earthquake occurred coast chile caused significant damage unconsolidated affiliate’s facility chile result damage project’s facility suspended normal operating activities date subsequent date unconsolidated affiliate filed claim insurance carrier preliminary assessment extent damage completed estimate required cost repairs developed based assessment cost estimate well correspondence received insurance carrier expect property damage insurance recovery sufficient cover costs repairing facility insurance carrier also provided preliminary assessment business interruption insurance recovery due unconsolidated affiliate advanced insurance proceeds assessment based assessment expect business interruption insurance recovery substantially compensate unconsolidated affiliate loss profits facility suspended normal operating activities unconsolidated affiliate’s receivable related remaining balance property damage business interruption insurance recovery assessment approximately 66400 december 31 2011 included current assets table facility began operating less normal utilization second quarter 2011 achieved normal operating activities third quarter 2011 summarized financial information presented project chile includes estimated recovery property damage insurance policy sufficient cover costs incurred repair facility estimated recovery business interruption insurance policy fixed costs along estimated recovery lost profits period facility suspended normal operating activities accordance authoritative accounting guidance business interruption insurance project recorded estimated recovery lost profits substantially contingencies related insurance claim resolved third quarter 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued account investments italy chile equity method following summarized financial information entities whole based projects located investment unconsolidated affiliates recorded within investments advances unconsolidated affiliates consolidated balance sheet equity net earnings unconsolidated affiliates recorded within income net consolidated statement operations investments equity earnings unconsolidated affiliates italy chile included global ec group global power group business segments respectively consolidated financial statements reflect following amounts related unconsolidated affiliates italy chile equity earnings project chile 30871 20670 2011 2010 respectively increase equity earnings 2011 compared 2010 primarily driven increase project’s volume electricity produced 2011 well higher marginal rates 2011 electrical power generation equity earnings 2011 2010 included equity interest tax estimated recovery project chile’s business interruption insurance policy covers period date earthquake period facility resumed normal operating activities 2010 two equity interest investments electric power generation projects italy centro energia teverola spa cet centro energia ferrara spa cef hold 4165 shares company terminated longterm incentivized power offtake agreements place foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued authority energy light termination power offtake agreements respective partners cet cef reviewed economic viability plant result decision made shut cet plant effective january 1 2011 following termination power offtake agreement partner cef decided continue operate cef plant least temporarily merchant basis considered possible sale plant result foregoing operating decisions cet cef recorded impairment charges fourth quarter 2010 write fixed assets fair value financial statements additionally fourth quarter 2010 investments cet cef reduced equity losses based cet’s cef’s 2010 financial results inclusive respective impairment charges result foregoing carrying value cet cef investments approximated fair value december 31 2010 2011 partner cef concluded would continue operate plant continuing consider longterm economic viability plant potential disposal options equity earnings cet cef investments 2011 insignificant equity loss cet cef investments 2010 totaled 8200 inclusive 2010 impairment charges totaling 13200 guaranteed certain performance obligations project chile contingent obligation measured annually based operating results project chile preceding year shared equally minority interest partner current payment obligation guarantee december 31 2011 addition provided 10000 debt service reserve letter credit cover debt service payments event project chile generate sufficient cash flows make payments required maintain debt service reserve letter credit term project chile’s debt matures 2014 december 31 2011 amounts drawn letter credit anticipate amounts drawn letter credit also whollyowned subsidiary provides operations maintenance services project chile included assessing damage caused earthquake related repair facility suspended normal operating activities record fees operations maintenance services operating revenues consolidated statement operations corresponding receivable trade accounts notes receivable consolidated balance sheet consolidated financial statements include following balances related project chile also guaranteed performance obligations whollyowned subsidiary operations maintenance agreement governing project chile guarantee limited 20000 life operations maintenance agreement extends 2016 amounts ever paid guarantee share undistributed retained earnings equity investees amounted approximately 118800 112700 december 31 2011 2010 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 5 investments continued investments majority equity partner general partner gasfired cogeneration project martinez california determined vie december 31 2011 2010 100 equity wastetoenergy project camden new jersey determined vie december 31 2010 due operating agreement place time project sponsor operating agreement terminated end second quarter 2011 therefore camden project longer considered vie december 31 2011 primary beneficiary project vies since power direct activities significantly impact vie’s performance activities include operations maintenance facilities accordingly primary beneficiaries vie consolidate entities also consolidated camden project december 31 2011 even though longer vie since owned 100 outstanding voting equity project aggregate net assets entities periods determined vies presented 1 represents martinez california project vie december 31 2011 excluding intercompany balances 2 represents aggregate martinez california camden new jersey projects vies december 31 2010 excluding intercompany balances 6 goodwill intangible assets tracked accumulated goodwill impairments since december 29 2001 first day fiscal year 2002 date adoption accounting guidelines related assessment goodwill impairment accumulated goodwill impairment losses date foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 goodwill intangible assets continued following table provides rollforward goodwill balances december 2011 acquired company based germany designs manufactures installs circulating dry ash flue gas scrubbing technology types steam generators included within global power group business segment please refer note 2 information regarding acquisition following table provides net carrying amount goodwill geographic region reporting units located foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 6 goodwill intangible assets continued following table sets forth amounts relating identifiable intangible assets december 31 2011 net carrying amounts identifiable intangible assets 59768 global power group 14618 global ec group amortization expense related identifiable intangible assets recorded within cost operating revenues consolidated statement operations amortization expense related assets identifiable intangible assets material 2011 2010 2009 following table details amortization expense related identifiable intangible assets period 7 borrowings following table shows components longterm debt foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued interest costs interest costs incurred 2011 2010 2009 12859 14842 17166 respectively capital lease obligations entered series capital lease obligations primarily office buildings assets capital lease obligations summarized follows following minimum lease payments made years indicated capital lease obligations december 31 2011 specialpurpose limited recourse project debt specialpurpose limited recourse project debt represents debt incurred finance construction cogeneration facility wind farm projects owner majorityowner certain assets project collateralize notes andor bonds obligations respect debt limited contributing project equity construction phase projects guarantee operating performance project chile described note 5 fw power srl owner certain electric power generating wind farms italy project financing two wind farm projects base facilities valueadded tax “vat” facilities base facilities bear interest variable rates based upon 6month euribor plus spread varying 09 10 throughout life debt repayable semiannually based upon predefined payment schedule december 31 2022 vat facilities bear interest based upon 6month euribor plus spread 05 repayable semiannually based upon actual vat received commercial operation december 31 2013 debt collateralized certain revenues assets fw power srl total borrowing capacity fw power srl credit facilities 75300 approximately 97400 exchange rate december 31 2011 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued executed interest rate swap contracts effectively convert approximately 90 base facilities weightedaverage fixed interest rate 448 swap contracts place life facilities see note 10 “derivative financial instruments interest rate risk” accounting policy related interest rate swap contracts interest rates vat facilities portion base facilities subject interest rate swap contracts 214 244 respectively december 31 2011 energia holdings llc notes collateralized certain revenues assets specialpurpose subsidiary indirect ownership interest project chile described note 5 subordinated robbins facility exit funding obligations “robbins bonds” connection restructuring debt incurred finance construction wastetoenergy facility village robbins illinois us assumed certain subordinated obligations 1999c bonds due october 15 2024 “1999c bonds” robbins bonds outstanding december 31 2011 remaining subordinated obligations paid full scheduled maturity dates 1999c bonds subject mandatory sinking fund reduction prior maturity redemption price equal 100 principal amount thereof plus accrued interest redemption date october 3 2008 acquired portion 1999c bonds plus accrued unpaid interest date aggregate maturities aggregate principal repayments sinking fund requirements longterm debt excluding payments capital lease obligations next five years follows us senior secured credit agreement july 30 2010 foster wheeler ag foster wheeler ltd certain foster wheeler ltd’s subsidiaries bnp paribas administrative agent entered fouryear amendment restatement us senior secured credit agreement entered october 2006 amended restated us senior secured credit agreement provides facility 450000 includes provision permits future incremental increases aggregate 225000 total additional availability facility amended restated us senior secured credit agreement permits us issue 450000 letters credit facility letters credit issued amended restated us senior secured credit agreement performance pricing decreased increased result improvements reductions corporate credit rating reported moody’s investors service refer moody’s andor standard poor’s refer sp received corporate credit rating bbb issued sp third quarter 2010 amended restated us senior secured credit agreement reduces pricing letters credit issued agreement based current credit ratings letter credit fees performance financial letters credit issued amended restated us senior secured credit agreement 1000 2000 per annum outstanding amount respectively excluding fronting fees also option use 100000 450000 revolving borrowings rate equal adjusted libor defined agreement plus 2000 subject also performance pricing noted fees expenses incurred conjunction execution amended restated us senior credit agreement approximately 4300 amortized expense fouryear term agreement commenced third quarter 2010 result amending restating october 2006 us senior secured credit agreement july 2010 incurred charge 2010 1600 related unamortized fees expenses remaining october 2006 agreement recorded deductions net consolidated statement operations foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 7 borrowings continued assets andor stock certain subsidiaries collateralize obligations amended restated us senior secured credit agreement amended restated us senior secured credit agreement contains various customary restrictive covenants generally limit ability among things incur additional indebtedness guarantees create liens encumbrances property sell transfer certain property thereafter rent lease property substantially purposes property sold transferred enter merger similar transaction make investments declare dividends make restricted payments enter agreements affiliates arms’ length basis enter agreement limits ability create liens ability subsidiary pay dividends engage new lines business respect foster wheeler ag change foster wheeler ag’s fiscal year respect foster wheeler ag foster wheeler ltd one holding company subsidiaries directly acquire ownership operating assets used conduct business event corporate credit rating issued moody’s least baa3 issued sp least bbb liens securing obligations amended restated us senior secured credit agreement automatically released terminated addition amended restated us senior secured credit agreement contains financial covenants requiring us exceed total leverage ratio compares total indebtedness ebitda maintain minimum interest coverage ratio compares ebitda interest expense terms defined amended restated us senior secured credit agreement must compliance total leverage ratio times interest coverage ratio measured quarterly compliance financial covenants provisions us senior secured credit agreement prior subsequent amendment restatement agreement approximately 225600 310100 letters credit outstanding us senior secured credit agreement december 31 2011 2010 respectively letter credit fees us senior secured credit agreement outstanding december 31 2011 2010 ranged 1000 2000 outstanding amount excluding fronting fees funded borrowings outstanding us senior secured credit agreement december 31 2011 2010 8 pensions postretirement benefits defined benefit pension plans united states us united kingdom uk canada finland france india south africa postretirement benefit plans refer opeb plans health care life insurance benefits us canada also defined contribution retirement plans us uk finally certain benefit plans including government mandated postretirement programs recognize funded status defined benefit pension opeb plans consolidated balance sheet recognize gains losses recognized component annual service cost component comprehensive income net tax record net actuarial losses prior service costcredits net transition obligationsassets within accumulated comprehensive loss consolidated balance sheet defined benefit pension plans defined benefit pension plans pension plans cover certain fulltime employees pension plans retirement benefits primarily function years service level compensation us pension plans closed new entrants additional benefit accruals canada finland france india pension plans noncontributory uk pension plan closed new entrants additional benefit accruals south africa pension plan contributory plans foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued effective march 31 2010 closed uk pension plan future defined benefit accrual result uk plan closure recognized pretax curtailment gain statement operations 2010 approximately £13300 approximately 20100 exchange rate effect time pension plan closure result change uk governmental standard 2011 uk pension plan adopted use uk consumer prices index basis inflationary increases calculation pension benefits uk retail prices index former uk governmental standard used uk pension plan accounted change plan amendment may 31 2011 based remeasurement obligation time recognized decrease pension plan liability consolidated balance sheet corresponding pretax prior service credit comprehensive income 2011 approximately £29600 approximately 48100 exchange rate effect time change postretirement benefit plans certain employees us canada may become eligible health care life insurance benefits “other postretirement benefits” qualify commence normal early retirement pension benefits defined us canada pension plans working us additionally one subsidiaries us also benefit plan referred survivor income plan “sip” provides coverage employee’s beneficiary upon death employee plan closed new entrants since 1988 total liabilities sip 17539 16086 december 31 2011 2010 respectively reflected postretirement benefit obligation funded status information assets held fund benefits provided sip reflect cash surrender value insurance policies purchased cover obligations sip totaled 5703 5609 december 31 2011 2010 respectively assets recorded assets consolidated balance sheet reflected opeb funded status information components net periodic benefit cost changes recognized comprehensive income include foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued 1 2010 curtailment gain resulted closure uk pension plan future benefit accrual charges incurred related settlement pension obligations former employees canada pension plan 2009 net charges incurred related settlement pension obligations former employees uk canada finland pension plans 2 2011 uk pension plan adopted use uk consumer prices index basis inflationary increases calculation pension benefits accounted plan amendment following summary net periodic pension costcredit defined benefit pension plan uk pension plan closed future benefit accrual effective march 31 2010 estimated amortization expense recognized net periodic benefit cost next year includes foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued following table summarizes weightedaverage assumptions used estimate net periodic benefit cost projected benefit obligation year salary growth applicable frozen pension plans future salary levels affect benefits payable na applicable expected longterm rate return plan assets developed using weightedaverage methodology blending expected returns class investment pension plans’ portfolio expected returns asset class developed considering past performance future considerations annually review adjust required longterm rate return pension plans weightedaverage expected longterm rate return plan assets ranged 68 71 past three years assumed healthcare cost trend rates postretirement benefit plans assumed healthcare cost trend rates significant effect costs obligations reported postretirement benefit plans onepercentagepoint change assumed healthcare cost trend rates would following effects foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued projected benefit obligations funded status years ended december 31 2011 2010 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued defined benefit pension plans accumulated benefit obligation excess plan assets balances years ended december 31 2011 2010 include information plans united kingdom south africa since plan assets plans exceeded accumulated benefit obligation contributions based minimum statutory funding requirements 2012 required make mandatory contributions us pension plans based minimum statutory funding requirements 2012 expect contribute total mandatory contributions approximately 22400 nonus pension plans approximately 5600 postretirement benefit plans estimated future benefit payments expect make following benefit payments plan assets defined benefit pension plans us uk canada india south africa governed written investment policy pension plans finland france plan assets investment policy pension plans allocates assets accordance policy guidelines identify target andor maximum minimum allocations asset class guidelines vary pension plan asset class generally range 40 60 equities 40 60 fixed income 0 10 cash exception plan contributions temporarily awaiting longerterm investment guidelines expressly endorse ranges generally 10 less investments exposed various risks interest rate market credit risks due level uncertainty related certain investment securities least reasonably possible changes values investment securities occur near term changes could materially affect fair value defined benefit plan assets turn would result change net pension benefit liability consolidated balance sheet accordingly valuation investments year end may indicative future valuations amounts could realized upon future liquidation develop investment policies pension plans take risks account continually review investment policies ensure investment strategy aligned pension plan liabilities projected pension plan benefit payments based current holdings believe individual pension plans exposed significant concentration risk particular sector asset class foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued pension plan assets valued established framework measuring fair value accordance us generally accepted accounting principles see note 1 information regarding measurement fair value us generally accepted accounting principles accounting policy pension plan assets measured within fair value framework consist investments equity securities commingled funds investments debt equity securities private investment fund assets quoted prices active markets used value investments available investments valued closing price available last reported bid price accordance current accounting guidance valuations include use funds’ reported net asset values commingled fund investments private investment funds commingled funds valued net asset value underlying securities corroborate valuations observable market data using level 1 2 inputs within fair value framework fair value private investment fund assets based net asset value investments funds including hedge funds communicated asset manager net asset values underlying funds turn valued based net asset values investments equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles investments private investment fund assets valued using level 3 unobservable market data inputs fair values defined benefit pension plan assets december 31 2011 2010 asset category follows 1 publicly traded equity securities 2 primarily equity securities focus longterm returns 3 primarily corporate fixed income securities focus intermediateterm longterm maturities 4 primarily government fixedincome securities focus current income capital preservation varying maturities 5 primarily shortterm maturities two years less various issuers focus preservation capital 6 private investment funds primarily invest funds including hedge funds turn invest equity securities commingled funds investments debt equity securities limited partnerships similar pooled investment vehicles foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 8 pensions postretirement benefits continued level 3 gains losses level 3 plan assets december 31 2009 2010 activity 2010 table provides summary changes fair value level 3 plan assets 2011 defined contribution plans us subsidiaries 401k plan salaried employees match 100 employee contributions first 6 eligible base pay subject annual limit eligible earnings internal revenue code total us subsidiaries contributed approximately 9400 7000 7800 401k plan 2011 2010 2009 respectively us subsidiaries also roth 401k plan salaried employees uk subsidiaries offer defined contribution plan salaried employees defined contribution plan amounts credited percentage earnings percentage increased within prescribed limits five years membership fund matched employee termination two years’ service employee may receive balance account otherwise termination retirement employee receives annuity combination lumpsum annuity uk subsidiaries contributed approximately 10500 8400 3800 2011 2010 2009 respectively defined contribution plan benefits certain nonus subsidiaries participate governmentmandated indemnity postretirement programs employees liabilities 19430 20877 recorded within pension postretirement employee benefits consolidated balance sheet december 31 2011 2010 respectively related benefits foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 9 guarantees warranties agreed indemnify certain third parties relating businesses andor assets previously owned sold third parties indemnifications relate primarily potential environmental tax exposures activities conducted us prior sale businesses andor assets possible predict maximum potential amount future payments similar indemnifications due conditional nature obligations unique facts circumstances involved particular indemnification also maintain contingencies warranty expenses certain longterm contracts generally warranty contingencies accrued life contract sufficient balance maintained cover aggregate exposure conclusion project contingently liable standby letters credit bank guarantees surety bonds totaling 990300 1010600 december 31 2011 2010 respectively primarily guarantees performance projects currently execution warranty amounts include standby letters credit issued us senior secured credit agreement discussed note 7 facilities worldwide material claims made guarantees based experience current expectations anticipate material claims also guaranteed certain performance obligations refineryelectric power generation project based chile hold noncontrolling interest see note 5 information foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments exposed certain risks relating ongoing business operations risks managed using derivative financial instruments relate primarily foreign currency exchange rate risk significantly lesser extent interest rate risk derivative financial instruments recognized assets liabilities fair value consolidated balance sheet foreign currency exchange rate risk operate worldwide basis substantial operations europe subject us foreign currency exchange rate risk mainly relative british pound euro polish zloty risk management policies hedge translation risk exposure activities affiliates recorded functional currency typically local currency country domicile affiliate ordinary course business affiliates enter transactions currencies respective functional currencies seek minimize resulting foreign currency transaction risk contracting procurement goods services currency sales value related longterm contract mitigate risk use foreign currency forward contracts hedge exposed item anticipated purchases revenues back functional currency notional amount foreign currency forward contracts provides one measure transaction volume outstanding balance sheet date december 31 2011 total gross notional amount approximately 233500 related foreign currency forward contracts amounts ultimately realized upon final settlement financial instruments along gains losses underlying exposures within longterm contracts depend actual market exchange rates remaining life instruments contract maturity dates range 2012 2013 exposed credit loss event nonperformance counterparties commercial banks primarily rated “bbb” better sp equivalent recognized credit rating agencies increases fair value currencies sold forward result losses increases fair value currencies bought forward result gains foreign currency forward contracts used mitigate currency foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 10 derivative financial instruments continued risk projects gain loss portion marktomarket adjustment related completed portion underlying project included cost operating revenues time underlying foreign currency exposure occurs gain loss remaining portion marktomarket adjustment specifically portion relating uncompleted portion underlying project reflected directly cost operating revenues period marktomarket adjustment occurs also utilize foreign currency forward contracts mitigate nonproject related currency risks recorded deductions net gain loss remaining uncompleted portion projects nonproject related transactions follows marktomarket adjustments foreign currency forward exchange contracts unrealized gains losses primarily recorded either contracts process billings excess costs estimated earnings uncompleted contracts consolidated balance sheet 2011 2010 2009 included net cash inflowsoutflows settlement derivatives 315 5289 10600 respectively within “net change contracts process billings excess costs estimated earnings uncompleted contracts” component cash flows operating activities consolidated statement cash flows interest rate risk use interest rate swap contracts manage interest rate risk associated portion variable rate specialpurpose limited recourse project debt aggregate notional amount receivevariablepayfixed interest rate swaps 65700 december 31 2011 upon entering swap contracts designate interest rate swaps cash flow hedges assess inception ongoing basis whether interest rate swaps highly effective offsetting changes cash flows project debt consequently record fair value interest rate swap contracts consolidated balance sheet balance sheet date changes fair value interest rate swap contracts recorded component comprehensive income impact interest rate swap contracts cash flow hedging relationships follows see note 12 related tax benefits cash flow hedges recognized comprehensive income years ended december 31 2011 2010 2009 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans sharebased compensation plans include stock options restricted awards following table summarizes sharebased compensation expense related income tax benefit estimate fair value option award date grant using blackscholes option valuation model recognize grant date fair value option compensation expense ratably using straightline attribution method service period generally vesting period blackscholes model incorporates following assumptions • expected volatility estimate volatility share price date grant using “lookback” period coincides expected term defined believe using “lookback” period coincides expected term appropriate measure determining expected volatility • expected term estimate expected term using “simplified” method outlined staff accounting bulletin 107 “sharebased payment” • riskfree interest rate estimate riskfree interest rate using us treasury yield curve periods equal expected term options effect time grant • dividends use expected dividend yield zero declared paid cash dividend since july 2001 plans declare pay cash dividends used following weightedaverage assumptions estimate fair value options granted periods indicated estimate fair value restricted share unit awards using market price shares date grant recognize fair value restricted share unit award compensation expense ratably using straightline attribution method service period generally vesting period certain executives awarded performancebased restricted share units performance rsus awards number restricted share units ultimately vest depend share price performance specified performance goals defined performancebased award agreements estimate grant date fair value performance rsu award using monte carlo valuation model recognize fair value performance rsu award compensation expense ratably using straightline attribution method service period generally vesting period estimate prevesting forfeitures time grant using combination historical data demographic characteristics revise estimates subsequent periods actual forfeitures differ estimates record sharebased compensation expense awards expected vest foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued december 31 2011 breakdown unrecognized compensation cost related weightedaverage period cost recognized follows omnibus incentive plan may 9 2006 shareholders approved omnibus incentive plan “omnibus plan” omnibus plan allows granting stock options stock appreciation rights restricted stock restricted share units performancecontingent shares performancecontingent units including performance rsus cashbased awards equitybased awards employees nonemployee directors thirdparty service providers omnibus plan effectively replaced prior sharebased compensation plans options equitybased awards granted prior sharebased compensation plans maximum number shares stock options restricted stock awards may granted omnibus plan 9560000 shares plus shares become available issuance pursuant terms awards previously granted prior compensation plans outstanding may 9 2006 awards expire terminate otherwise forfeited exercised settled full exceed 10000000 shares awarded pursuant omnibus plan issued conditionally authorized shares omnibus plan includes “change control” provision provides cash redemption equity awards issued omnibus plan certain limited circumstances accordance securities exchange commission accounting series release 268 “presentation financial statements redeemable preferred stocks” present redemption amount equity awards temporary equity consolidated balance sheet equity award amortized vesting period redemption amount represents intrinsic value equity award grant date accordance current accounting guidance regarding classification measurement redeemable securities adjust redemption amount reporting period unless becomes probable equity awards become redeemable upon change control event upon vesting equity awards reclassify intrinsic value equity awards determined grant date permanent equity reconciliation temporary equity years ended december 31 2011 2010 2009 follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued articles association provide conditional capital 62317956 shares issuance shares sharebased compensation plans outstanding share purchase warrants convertible securities may issue future conditional capital decreases upon issuance shares connection exercise outstanding stock options vesting restricted stock units offsetting increase issued authorized share capital december 31 2011 remaining available conditional capital 59781738 shares prior sharebased compensation plans prior sharebased compensation plans include 1995 stock option plan stock option plan directors foster wheeler approved shareholders awards granted plans connection redomestication foster wheeler ag assumed foster wheeler ltd’s obligations foster wheeler ltd’s sharebased incentive award programs similar employee sharebased awards see note 18 information related redomestication stock option awards summary employee stock option activity 2011 2010 2009 presented based grant date fair value options foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued following table summarizes stock options outstanding exercisable december 31 2011 december 31 2011 aggregate intrinsic value outstanding options exercisable options 113 respectively exercise date total intrinsic value options exercised 2011 2010 2009 4250 10268 483 respectively restricted awards restricted awards consist restricted shares restricted share units performancebased restricted share units summary restricted awards activity 2011 2010 2009 presented foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 11 sharebased compensation plans continued 1 represents maximum number shares could awarded based performance criteria specified award december 31 2011 2010 2009 restricted shares outstanding restricted share activity 2011 2010 total fair value restricted awards vested 2011 2010 2009 11303 10129 16043 respectively 12 accumulated comprehensive loss adjustments included comprehensive lossincome foreign currency translation cash flow hedges pension postretirement benefits related tax provisionbenefit balances attributable noncontrolling interests foster wheeler ag cash flow hedges include impact unconsolidated affiliates accounted equity method accounting tax currently provided foreign currency translation adjustments comprehensive income relate earnings indefinitely reinvested subsidiary’s country domicile foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 12 accumulated comprehensive loss continued rollforward accumulated comprehensive loss adjusted comprehensive incomeloss items attributable foster wheeler ag amounts net tax 13 income taxes components incomeloss income taxes 2011 2010 2009 following tax jurisdictions provision income taxes follows foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued deferred tax assetsliabilities consist following realization deferred tax assets dependent generating sufficient taxable income prior expiration various attributes believe likely remaining net deferred tax assets consideration valuation allowance realized future earnings andor tax planning strategies amount deferred tax assets considered realizable however could change near future estimates future taxable income carryforward period changed reduced us certain nonus tax benefits valuation allowance based consideration available evidence indicates likely deferred tax assets realized 2011 valuation allowance increased 25147 primarily result losses jurisdictions full valuation allowance previously recorded primarily us statutory purposes majority deferred tax assets valuation allowance provided begin expiring 2025 later based current tax laws subsidiaries file income tax returns numerous tax jurisdictions including united states several us states numerous nonus jurisdictions around world tax returns also filed jurisdictions subsidiaries execute projectrelated work statute limitations varies jurisdiction number jurisdictions file tax returns given year statute limitations number foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued jurisdictions may expire within 12 months balance sheet date result expect recurring changes unrecognized tax benefits due expiration statute limitations none expected individually significant exceptions longer subject income tax examinations tax authorities years 2007 2011 2010 settled tax audits europe resulted reduction unrecognized tax benefits corresponding reduction provision income taxes 1450 1700 respectively number tax years audit tax authorities various jurisdictions including us several states within us anticipate several audits may concluded foreseeable future including 2012 based status audits reasonably possible conclusion audits may result reduction unrecognized tax benefits however possible estimate magnitude reduction time following table summarizes activity related unrecognized tax benefits recognized would affect effective tax rate existing valuation allowance considerations recognize interest accrued unrecognized tax benefits interest expense penalties unrecognized tax benefits deductions net consolidated statement operations previously accrued interest andor penalties ultimately assessed reduce current year expense table summarizes activity interest penalties unrecognized tax benefits 2011 2010 2009 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 13 income taxes continued provision income taxes differs amount income tax computed applying us federal statutory rate 35 income taxes result following although swiss corporation exclusively traded us exchange therefore reconcile effective tax rate us federal statutory rate 35 facilitate meaningful comparison peer companies us capital markets 14 business segments operate two business groups global ec group global power group global ec group global ec group operates worldwide designs engineers constructs onshore offshore upstream oil gas processing facilities natural gas liquefaction facilities receiving terminals gastoliquids facilities oil refining chemical petrochemical pharmaceutical biotechnology facilities related infrastructure including power generation facilities distribution facilities gasification facilities processing facilities associated metals mining sector global ec group also involved design facilities developing market sectors including carbon capture storage solid fuelfired integrated gasification combinedcycle power plants coaltoliquids coaltochemicals biofuels additionally global ec group also involved development engineering construction ownership operation power generation facilities conventional renewable sources wastetoenergy facilities global ec group generates revenues design engineering procurement construction project management activities pursuant contracts generally span approximately four years duration returns equity investments various power production facilities global power group global power group designs manufactures erects steam generating auxiliary equipment electric power generating stations district heating industrial facilities worldwide additionally global power group owns wastetoenergy facility controlling interest combinedcycle gas turbine facility operates two cogeneration power facilities steamelectric refineryelectric power generation global power group generates revenues engineering activities equipment supply construction contracts operating maintenance agreements royalties licensing technology returns investments power production facilities global power group’s steam generating equipment includes broad range steam generation environmental technologies offering independent power producers utilities municipalities industrial clients foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued highvalue technology solutions converting wide range fuels coal lignite petroleum coke oil gas solar biomass municipal solid waste flue gases steam used power generation district heating industrial processes corporate finance group addition two business groups also represent two operating segments financial reporting purposes report corporate center expenses captive insurance operation expenses related certain legacy liabilities asbestos corporate finance group also represents operating segment financial reporting purposes refer cf group operating revenues conduct business global basis global ec group accounted largest portion operating revenues last ten years 2011 global ec group accounted 77 total operating revenues global power group accounted 23 total operating revenues operating revenues geographic region based upon projects executed 2011 follows australasia primarily represents australia new zealand pacific islands one client accounted approximately 26 25 24 consolidated operating revenues inclusive flowthrough revenues 2011 2010 2009 respectively however associated flowthrough revenues included percentages accounted approximately 25 23 22 consolidated operating revenues 2011 2010 2009 respectively single client accounted ten percent consolidated revenues 2011 2010 2009 foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued ebitda primary measure operating performance used chief operating decision maker define ebitda net income attributable foster wheeler ag interest expense income taxes depreciation amortization reconciliation ebitda net income attributable foster wheeler ag shown includes general corporate income expense captive insurance operation elimination transactions balances related intercompany interest ebitda table includes following foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 changes final estimated contract profit revisions 2011 included impact two outofperiod corrections reductions final estimated profit totaling 7800 included final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded 2011 material previously issued financial statements material 2011 financial statements 3 please refer note 16 information regarding revaluation asbestos liability related asset 4 curtailment gain closure uk pension plan future defined benefit accrual global ec group 5 settlement fee received net charges incurred due client’s decision proceed prospective power project development italy within global ec group identifiable assets identifiable assets group assets directly related support operations group assets cf group principally cash investments real estate insurance receivables accounting policies business segments described summary significant accounting policies significant intersegment transactions relate interest intercompany balances account interest arrangements thirdparty transactions ie current market rates include elimination activity results cf group foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued thirdparty operating revenues presented based geographic region contracting subsidiary located location client job site additional country detail thirdparty revenues determined based upon location contracting subsidiary presented balances represent portion total operating revenues presented table switzerland country domicile foster wheeler ag longlived assets presented based geographic region contracting subsidiary located december 31 2011 2010 contracting subsidiaries switzerland foster wheeler ag country domicile longlived assets 5162 5094 respectively foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 14 business segments continued operating revenues industry follows 15 operating leases certain subsidiaries obligated operating lease agreements primarily office space many instances subsidiaries retain right sublease office space rental expense leases follows future minimum rental commitments noncancelable leases follows entered saleleaseback transactions office building spain 2000 office building united kingdom 1999 connection transactions recorded deferred gains recognized income term respective leases gain recognized 4202 4004 4036 2011 2010 2009 respectively december 31 2011 2010 balance deferred gains 36987 41328 respectively included longterm liabilities consolidated balance sheet yearoveryear change deferred gain balance includes impact changes foreign currency exchange rates 16 litigation uncertainties asbestos us uk subsidiaries defendants numerous asbestosrelated lawsuits outofcourt informal claims pending us uk plaintiffs claim damages personal injury alleged arisen exposure use asbestos connection work allegedly performed subsidiaries 1970s earlier foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued united states summary us claim activity follows 1 claims valued liability include claims certain inactive court dockets claims six years old considered abandoned certain items approximately 124540 open claims subsidiaries respondents approximately 28260 open claims wherein administrative agreements named defendants lawsuits involving approximately 96280 plaintiffs open administrative claims filed blanket administrative agreements various law firms representing claimants specify monetary damages sought based analysis lawsuits approximately 54 specify monetary damages sought merely recite amount monetary damages sought meets exceeds required minimum jurisdiction suit filed following table summarizes range requested monetary damages sought asbestos lawsuits 1 specified monetary damages sought recited amount monetary damages sought meets exceeds required jurisdictional minimum jurisdiction suit filed 2 small number cases range 50000 majority requests monetary damages asserted multiple named defendants single complaint foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued following us asbestosrelated assets liabilities recorded consolidated balance sheet dates set forth total us asbestosrelated liabilities estimated december 31 2026 although likely claims continue filed date uncertainties inherent longterm forecast prevent us making reliable estimates indemnity defense costs might incurred date worked analysis research planning corporation arpc nationally recognized consultants united states respect projecting asbestos liabilities estimate amount asbestosrelated indemnity defense costs yearend based forecast next 15 years year recorded estimated asbestos liability level consistent arpc’s reasonable best estimate based review 2011 activity arpc recommended assumptions used estimate future asbestos liability updated december 31 2011 accordingly developed revised estimate aggregate indemnity defense costs december 31 2026 considering advice arpc 2011 revalued liability asbestos indemnity defense costs december 31 2026 294300 brought liability level consistent arpc’s reasonable best estimate connection updating estimated asbestos liability related asset recorded charge 16001 2011 primarily related revaluation asbestos liability includes adjustments actual settlement experience different estimates accrual rolling 15year asbestosrelated liability estimate total asbestosrelated liabilities comprised estimates liability relating open outstanding claims valued liability future unasserted claims december 31 2026 liability estimate based upon following information andor assumptions number open claims forecasted number future claims estimated average cost per claim disease type mesothelioma lung cancer nonmalignancies breakdown known future claims disease type mesothelioma lung cancer nonmalignancies well factors total estimated liability discounted time value money includes estimate forecasted indemnity amounts forecasted defense costs total defense costs indemnity liability payments estimated incurred foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued december 31 2026 period incidence new claims forecasted decrease year believe likely new claims filed december 31 2026 light uncertainties inherent longterm forecasts believe reasonably estimate indemnity defense costs might incurred december 31 2026 yearend 2011 total cumulative indemnity costs paid prior insurance recoveries approximately 764900 total cumulative defense costs paid approximately 367300 approximately 32 total defense indemnity costs overall historic average combined indemnity defense cost per resolved claim december 31 2011 approximately 31 average cost per resolved claim increasing believe continue increase future last several years certain subsidiaries entered settlement agreements calling insurers make lumpsum payments well payments time use subsidiaries fund asbestosrelated indemnity defense costs certain cases reimbursement portions outofpocket costs previously incurred 2011 2010 2009 subsidiaries reached agreements certain insurers settle disputed asbestosrelated insurance coverage result settlements increased asbestosrelated insurance asset recorded settlement gains please see table breakout gains period asbestosrelated assets executed settlement agreements insurers due next 12 months recorded within accounts notes receivableother amounts due beyond 12 months recorded within asbestosrelated insurance recovery receivable asbestosrelated insurance recovery receivable also includes best estimate actual probable insurance recoveries relating liability pending estimated future asbestos claims yearend 2026 asbestosrelated assets discounted time value money insurance recoveries may limited future insolvencies among insurers receivables related bankruptcy courtapproved settlements liquidation proceedings assumed recovery estimate asbestosrelated insurance asset currently insolvent insurers considered financial viability legal obligations subsidiaries’ insurance carriers believe insurers guarantors continue reimburse significant portion claims defense costs relating asbestos litigation december 31 2011 2010 recorded allowance uncollectible balances asbestosrelated insurance assets write receivables insurers become insolvent writeoffs 2011 2010 2009 2011 reached agreement insurer bankruptcy liquidation written receivable prior 2009 asset awarded bankruptcy liquidation insurer 4500 included asbestosrelated assets december 31 2011 insurers may become insolvent future insurers may fail reimburse amounts owed us timely basis fail realize expected insurance recoveries experience delays receiving material amounts insurers business financial condition results operations cash flows could materially adversely affected following table summarizes net asbestosrelated provision foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued net asbestosrelated provision result revaluation asbestos liability related asset resulting adjustments actual settlement experience different estimates accrual rolling 15year asbestos liability estimate partially offset gains settlement coverage litigation asbestos insurance carriers following table summarizes approximate asbestosrelated payments insurance proceeds expect net cash outflows 7400 result asbestos liability indemnity defense payments excess insurance settlement proceeds 2012 estimate assumes additional settlements insurance companies elections us fund additional payments continue collect cash insurance settlements assuming increase asbestosrelated insurance liability asbestosrelated insurance receivable recorded consolidated balance sheet continue decrease estimate liabilities assets related asbestos claims recoveries subject number uncertainties may result significant changes current estimates among uncertainties ultimate number type claims filed amounts claim costs impact bankruptcies companies asbestos claims uncertainties surrounding litigation process jurisdiction case well potential legislative changes increases number claims filed costs resolve claims could cause us increase estimates costs associated asbestos claims could material adverse effect financial condition results operations cash flows based december 31 2011 liability estimate increase 25 average per claim indemnity settlement amount would increase liability 47700 impact expense would dependent upon available additional insurance recoveries assuming change assumptions currently used estimate insurance asset increase would result charge statement operations approximately 80 increase liability longterm cash flows would ultimately change amount increase estimated liability excess 25 percentage increase would expected funded additional insurance recoveries decline foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued united kingdom subsidiaries united kingdom also received claims alleging personal injury arising exposure asbestos date 997 claims brought uk subsidiaries 301 remained open december 31 2011 none settled claims resulted material costs us following table summarizes asbestosrelated liabilities assets uk subsidiaries based open outstanding claims estimate future unasserted claims 2026 liability estimates based uk house lords judgment pleural plaque claims amount compensable injury ruling reversed legislation total asbestos liability related asset recorded uk would approximately 42000 project claims ordinary course business parties litigation involving clients subcontractors arising project contracts litigation includes claims counterclaims us canceled contracts additional costs incurred excess current contract provisions well back charges alleged breaches warranty contract commitments found liable claimscounterclaims us would incur charge earnings extent reserve established matter accounts liability exceeds established reserves due inherent commercial legal technical uncertainties underlying estimation project claims described herein amounts ultimately realized paid us could differ materially balances included financial statements could result additional material charges earnings could also materially adversely impact financial condition cash flows power plant dispute ireland 2006 dispute arose client material corrosion occurred two power plants designed built ireland began operation december 2005 june 2006 also corrosion occurred subcontractorprovided emissions control equipment induction fans backend foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued power plants due principally low set point temperature design emissions control equipment set subcontractor identified technical solutions resolve boiler tube corrosion emissions control equipment corrosion fourth quarter 2008 entered settlement client implemented technical solutions exchange full release claims related corrosion including release client’s right original contract reject plants availability guaranty client’s agreement share cost ameliorative work related boiler tube corrosion accordingly client withdrew notice arbitration january 2009 originally filed may 2008 2006 end 2008 recorded charges totaling 61700 relation project implementation final phase technical solutions completed 2011 power plant arbitration north america january 2010 commenced arbitration client connection power plant project louisiana seeking among relief declaration rights purchase order respect 17800 retention monies 82000 letter credit held client purchase order supply two boilers ancillary equipment project substantially completed released commercial operation february 2010 client project’s engineering procurement construction contractor december 2011 client signed settlement agreement resolved claims associated matter closed obligations connection project settlement included release power plant owner claims arising performance plant effect settlement agreement reflected 2011 results operations environmental matters cercla remedial matters us federal statutes resource conservation recovery act comprehensive environmental response compensation liability act 1980 “cercla” clean water act clean air act similar state laws current owner operator real property past owners operators real property disposal toxic hazardous substances took place past ownership operation may jointly severally liable costs removal remediation toxic hazardous substances property regardless whether materials released violation law whether owner operator knew responsible presence substances moreover cercla similar state laws persons arrange disposal treatment hazardous toxic substances may also jointly severally liable costs removal remediation substances disposal treatment site whether site owned operated person refer offsite facility liability offsite facilities typically allocated among financially viable responsible parties based factors relative amount waste contributed site toxicity waste relationship waste contributed party remedy chosen site factors currently operate industrial facilities also transferred interests industrial facilities formerly owned operated likely result current former operations hazardous substances affected facilities real property situated also received may continue receive claims pursuant indemnity obligations present owners facilities transferred claims may require us incur costs investigation andor remediation foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued currently engaged investigation andor remediation supervision applicable regulatory authorities two subsidiaries’ former facilities including mountain top described addition sometimes engage investigation andor remediation without supervision regulatory authority although expect environmental conditions present former facilities cause us incur material costs excess reserves established possible various events could cause us incur costs materially excess present reserves order fully resolve issues surrounding conditions assurance provided discover additional environmental conditions currently formerly owned operated properties additional claims made respect formerly owned properties requiring us incur material expenditures investigate andor remediate conditions notified potentially responsible party “prp” cercla similar state laws three offsite facilities sites liability substantially less total site remediation costs percentage waste attributable us compared attributable prps low believe share cleanup obligations offsite facilities received notice potential liability exceed 500 aggregate also received responded request information united states environmental protection agency “usepa” regarding fourth offsite facility know actions usepa may take regarding fourth offsite facility mountain top february 1988 one subsidiaries foster wheeler energy corporation “fwec” entered consent agreement order usepa pennsylvania department environmental protection “padep” regarding former manufacturing facility mountain top pennsylvania order essentially required fwec investigate remediate necessary contaminants including trichloroethylene “tce” soil groundwater facility pursuant order 1993 fwec installed “pump treat” system remove tce groundwater possible present time predict long fwec required operate maintain system fall 2004 fwec sampled private domestic water supply wells certain residences mountain top identified approximately 30 residences whose wells contained tce levels excess safe drinking water act standards subject residences located approximately one mile southwest tce previously discovered soils former fwec facility since time fwec usepa padep cooperated responding foregoing although fwec believed evidence available sufficient support determination fwec responsible tce residential wells fwec immediately provided affected residences bottled water followed water filters pursuant settlement agreement usepa hooked public water system pursuant amendment settlement agreement fwec subsequently agreed usepa arrange pay hookup several additional residences even though tce detected wells residences hookups agreedupon residences completed fwec incurring costs related public outreach communications affected area may required pay agencies’ costs overseeing responding situation fwec also incurring costs connection remedial investigation feasibility study “rifs” march 2009 agreed conduct april 2009 usepa proposed listing national priorities list “npl” area consisting fwec’s former manufacturing facility affected residences also stated proposed listing may finalized fwec complies agreement conduct foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 16 litigation uncertainties continued rifs fwec submitted comments opposing proposed listing fwec accrued best estimate cost foregoing reviews estimate quarterly basis costs fwec could exposed could include among things fwec’s counsel consulting fees agency oversight andor response costs andor exposure related potential litigation costs related possible investigation andor remediation present possible determine whether fwec determined liable items described paragraph reliably estimate potential liability associated items one thirdparties determined source tce fwec evaluate options regarding potential recovery costs fwec incurred options could include seeking recover costs determined source environmental matters operations especially manufacturing power plants subject comprehensive laws adopted protection environment regulate land use laws primary relevance operations regulate discharge emissions water air also include hazardous materials handling disposal waste disposal types environmental regulation laws regulations many cases require lengthy complex process obtaining licenses permits approvals applicable regulatory agencies noncompliance laws result imposition material civil criminal fines penalties believe substantial compliance existing environmental laws however assurance provided become subject enforcement proceedings could cause us incur material expenditures assurance provided need incur material expenditures beyond existing reserves make capital improvements operational changes necessary allow us comply future environmental laws regard foregoing wastetoenergy facility operated camden county energy recovery associates lp “ccera” project subsidiary subject certain revisions new jersey’s mercury air emission regulations revisions make ccera’s mercury control requirements stringent especially last phase revisions becomes effective 2012 ccera’s management believes data generated recent stack testing tends indicate facility able comply even stringent regulatory revisions without installing additional control equipment estimates cost installing additional control equipment approximately 30000 based last assessment foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited contract profit net income attributable foster wheeler ag quarter ended march 31 2011 included pretax impact two outofperiod corrections reductions final estimated profit totaling 7800 included pretax final estimated profit reductions global ec group global power group 3200 4600 respectively corrections recorded quarter ended march 31 2011 material previously issued financial statements material 2011 financial statements foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 17 quarterly financial data unaudited continued net income attributable foster wheeler ag fourth quarter table includes following 1 please refer “revenue recognition longterm contracts” note 1 information regarding changes final estimated contract profit 2 please refer note 16 information regarding revaluation asbestos liability related asset 18 redomestication foster wheeler ag incorporated laws switzerland november 18 2008 registered commercial register canton zug switzerland november 25 2008 whollyowned subsidiary foster wheeler ltd special courtordered meeting common shareholders held january 27 2009 common shareholders foster wheeler ltd approved scheme arrangement bermuda law february 9 2009 receipt approval scheme arrangement supreme court bermuda satisfaction certain conditions transactions contemplated scheme arrangement effected pursuant scheme arrangement among things holder whole common shares foster wheeler ltd par value 001 per share outstanding immediately transaction effected received registered shares foster wheeler ag par value chf 300 per share approximately 258 based exchange rate february 9 2009 date redomestication completed oneforone basis respect outstanding foster wheeler ltd common shares case fractional shares foster wheeler ltd cash fractional shares lieu registered shares foster wheeler ag additional paidin capital decreased amount scheme arrangement effectively changed place incorporation bermuda canton zug switzerland scheme arrangement approved common shareholders foster wheeler ltd january 27 2009 sanctioned supreme court bermuda january 30 2009 february 9 2009 following steps occurred pursuant scheme arrangement 1 fractional common shares foster wheeler ltd totaling approximately 1336 shares cancelled foster wheeler ltd paid holder fractional shares cancelled amount based average high low trading prices foster wheeler ltd common shares nasdaq global select market february 5 2009 2063 business day immediately preceding effectiveness scheme arrangement foster wheeler ag subsidiaries notes consolidated financial statements amounts thousands dollars except share data per share amounts 18 redomestication continued 2 previously outstanding whole common shares foster wheeler ltd totaling 126276112 whole shares cancelled 3 foster wheeler ltd acting behalf shareholders issued 1000 common shares constituted foster wheeler ltd’s common shares time foster wheeler ag 4 foster wheeler ag increased share capital filed amended articles association reflecting share capital increase swiss commercial register 5 foster wheeler ag issued aggregate 126276112 registered shares holders whole foster wheeler ltd common shares cancelled result scheme arrangement common shareholders foster wheeler ltd became common shareholders foster wheeler ag foster wheeler ltd became whollyowned subsidiary foster wheeler ag holding company owns stock various subsidiary companies connection consummation scheme arrangement • concurrently issuance registered shares holders whole foster wheeler ltd common shares foster wheeler ag issued holders preferred shares aggregate 139802 registered shares number registered shares foster wheeler ag holders would entitled receive converted preferred shares common shares foster wheeler ltd immediately prior effectiveness scheme arrangement foster wheeler ltd paying cash lieu fractional common shares otherwise issuable totaling approximately one share • foster wheeler ag executed supplemental warrant agreement pursuant assumed foster wheeler ltd’s obligations warrant agreement agreed issue registered shares foster wheeler ag upon exercise warrants accordance terms • foster wheeler ag assumed foster wheeler ltd’s existing obligations connection awards granted foster wheeler ltd’s incentive plans similar employee awards refer foregoing transactions together steps scheme arrangement “redomestication” january 2010 relocated principal executive offices geneva switzerland foster wheeler ag schedule ii valuation qualifying accounts amounts thousands item 9 nanitem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statementssee item 8 report 2 financial statement schedules schedule ii valuation qualifying accountssee item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits exhibit exhibits 31 memorandum association foster wheeler ltd filed annex ii foster wheeler ltd’s form s4a file 33352468 filed march 9 2001 incorporated herein reference 32 memoranda reduction share capital memorandum increase share capital dated december 1 2004 filed exhibit 992 foster wheeler ltd’s form 8k filed december 2 2004 incorporated herein reference 33 certificate designation relating foster wheeler ltd’s series b convertible preferred shares adopted september 24 2004 filed exhibit 31 foster wheeler ltd’s form 10q quarter ended september 24 2004 incorporated herein reference 34 byelaws foster wheeler ltd amended november 30 2004 filed exhibit 993 foster wheeler ltd’s form 8k dated november 29 2004 filed december 2 2004 incorporated herein reference 40 foster wheeler ltd hereby agrees furnish copies instruments defining rights holders longterm debt foster wheeler ltd consolidated subsidiaries commission upon request 101 indenture dated may 31 2001 among foster wheeler ltd foster wheeler llc bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 44 foster wheeler ltd’s registration statement form s3 registration 33364090 filed june 28 2001 incorporated herein reference 102 first supplemental indenture dated february 20 2002 foster wheeler ltd bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 46 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 103 supplemental indenture dated september 24 2004 among foster wheeler ltd foster wheeler llc bny midwest trust company trustee relating foster wheeler ltd’s 650 convertible subordinated notes due 2007 filed exhibit 48 foster wheeler ltd’s registration statement form s4 registration 333107054 filed december 27 2003 incorporated herein reference exhibit exhibits 104 form amended restated declaration trust fw preferred capital trust fw preferred capital trust ii among foster wheeler ltd trustees names therein filed exhibit 48 foster wheeler ltd’s registration statement form s3 registration 33352369 filed june 24 1998 incorporated herein reference 105 junior subordinated indenture dated january 13 1999 among foster wheeler ltd harris trust savings bank trustee relating 900 preferred securities series filed exhibit 42 foster wheeler ltd’s registration statement form s3 registration 33352369 filed june 24 1998 incorporated herein reference 106 first supplemental indenture dated january 13 1999 among foster wheeler ltd harris trust savings bank trustee relating 900 preferred securities series filed exhibit 43 foster wheeler ltd’s registration statement form s3 registration 33352369 filed june 24 1998 incorporated herein reference 107 amendment guarantee agreement dated march 15 2003 made foster wheeler ltd favor fw preferred capital trust filed exhibit 41 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 108 second supplemental indenture dated march 15 2003 among foster wheeler ltd fw preferred capital trust bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 109 third supplemental indenture dated september 24 2004 foster wheeler llc bny midwest trust company trustee relating 900 preferred securities series liquidation amount 25 per preferred security issued fw preferred capital trust filed exhibit 42 foster wheeler ltd’s registration statement form s4 registration 333107054 filed april 12 2004 incorporated herein reference 1010 indenture dated september 24 2004 among foster wheeler llc guarantors named therein wells fargo bank national association trustee relating 10359 notes due 2011 filed exhibit 42 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1011 first supplemental indenture dated october 28 2005 among foster wheeler llc guarantors named therein wells fargo bank national association trustee relating 10359 notes due 2011 filed exhibit 991 foster wheeler ltd’s form 8k dated october 31 2005 filed november 3 2005 incorporated reference herein 1012 registration rights agreement dated september 24 2004 among foster wheeler ltd foster wheeler llc guarantors listed therein purchasers signatory thereto filed exhibit 45 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1013 waiver registration rights agreement dated february 2 2006 among foster wheeler ltd foster wheeler llc behalf subsidiary guarantors citigroup global capital markets exhibit exhibits 1014 waiver registration rights agreement dated february 2 2006 among foster wheeler ltd foster wheeler llc behalf subsidiary guarantors merrill lynch global allocation fund inc merrill lynch international investment fundmliif global allocation fund merrill lynch variable series fund incmerrill lynch global allocation vi fund merrill lynch series funds incglobal allocation strategy fund 1015 security agreement dated september 24 2004 among foster wheeler llc grantors listed therein wells fargo bank national association filed exhibit 46 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1016 intercreditor agreement dated september 24 2004 among bank america na administrative agent collateral agent wells fargo bank na trustee foster wheeler llc subsidiaries parties thereto filed exhibit 47 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1017 loan agreement guaranty dated march 24 2005 among foster wheeler llc foster wheeler usa corporation foster wheeler north america corp foster wheeler energy corporation foster wheeler inc borrowers guarantors party thereto lenders party thereto morgan stanley co incorporated collateral agent morgan stanley senior funding inc administrative agent documentation agent syndication agent sole lead arranger sole lead bookrunner filed exhibit 992 foster wheeler ltd’s form 8k dated march 24 2005 filed march 29 2005 incorporated herein reference 1018 pledge security agreement dated march 24 2005 among grantors named therein morgan stanley co incorporated collateral agent filed exhibit 993 foster wheeler ltd’s form 8k dated march 24 2005 filed march 29 2005 incorporated herein reference 1019 intercreditor agreement dated march 24 2005 among morgan stanley co incorporated collateral agent wells fargo bank national association trustee foster wheeler llc affiliates party thereto filed exhibit 994 foster wheeler ltd’s form 8 k dated march 24 2005 filed march 29 2005 incorporated herein reference 1020 guarantee facility dated july 22 2005 among foster wheeler limited foster wheeler energy limited foster wheeler world services limited foster wheeler gb limited bank scotland regarding among things £50000000 guarantee facility £150000000 forward foreign exchange facility filed exhibit 991 foster wheeler ltd’s form 10q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference 1021 corporate guarantee dated july 25 2005 among foster wheeler limited foster wheeler energy limited foster wheeler world services limited foster wheeler gb limited bank scotland filed exhibit 992 foster wheeler ltd’s form 10q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference 1022 form debenture dated july 25 2005 issued favor bank scotland security trustee filed exhibit 993 foster wheeler ltd’s form 10q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference exhibit exhibits 1023 lease agreement dated august 16 2002 among energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 1015 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1024 amendment lease agreement dated january 6 2003 energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 1030 foster wheeler ltd’s form 10k fiscal year ended december 27 2002 filed march 25 2003 incorporated herein reference 1025 amendment 2 dated april 21 2003 lease agreement energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 107 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1026 amendment 3 dated july 14 2003 lease agreement dated august 16 2002 energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 106 foster wheeler ltd’s form 10q quarter ended june 27 2003 filed august 8 2003 incorporated herein reference 1027 guaranty suretyship agreement dated august 16 2002 made foster wheeler llc foster wheeler ltd foster wheeler inc foster wheeler international holdings inc energy nj qrs 1510 inc filed exhibit 1014 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1028 deed foster wheeler llc foster wheeler realty services inc cit group inc nj dated march 31 2003 filed exhibit 103 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1029 preliminary agreement sale quotas dated january 31 2006 foster wheeler italiana spa fineldo spa mpe spa 1030 foster wheeler inc directors’ stock option plan filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 registration 3332594599 filed june 27 2001 incorporated herein reference 1031 1995 stock option plan foster wheeler inc amended restated september 24 2002 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1032 foster wheeler annual incentive plan 2002 subsequent years filed exhibit 1011 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1033 foster wheeler ltd 2004 management restricted stock plan filed exhibit 101 foster wheeler ltd’s form 8k dated september 29 2004 filed october 1 2004 incorporated herein reference 1034 form first amendment foster wheeler ltd 2004 management restricted stock plan restricted stock unit award agreement respect nonemployee directors filed exhibit 994 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1035 form second amendment foster wheeler ltd 2004 management restricted stock plan filed exhibit 991 foster wheeler ltd’s form 8k dated may 10 2005 filed november 8 2005 incorporated herein reference exhibit exhibits 1036 form amended restated restricted stock award agreement respect executive officers key employees filed exhibit 995 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1037 form amended restated restricted stock unit agreement respect executive officers key employees filed exhibit 996 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1038 foster wheeler ltd 2004 stock option plan filed exhibit 102 foster wheeler ltd’s form 8k dated september 29 2004 filed october 1 2004 incorporated herein reference 1039 first amendment foster wheeler ltd 2004 stock option plan filed exhibit 991 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1040 form first amendment foster wheeler ltd 2004 stock option plan respect nonemployee directors filed exhibit 992 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1041 form amended restated notice stock option grant respect executive officers key employees filed exhibit 993 foster wheeler ltd’s form 8k dated may 13 2005 filed may 16 2005 incorporated herein reference 1042 warrant agreement foster wheeler ltd mellon investor services llc including forms warrant certificates filed exhibit 410 foster wheeler ltd’s registration statement form s3 file 333120076 filed october 29 2004 incorporated reference herein 1043 master guarantee agreement dated may 25 2001 among foster wheeler llc foster wheeler international holdings inc foster wheeler ltd filed exhibit 109 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 1044 form change control agreement dated may 25 2001 entered company executive officers filed exhibit 105 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 1045 form indemnification agreement directors officers company foster wheeler inc dated november 3 2004 filed exhibit 991 foster wheeler ltd’s form 8k dated november 3 2004 filed november 8 2004 incorporated herein reference 1046 irrevocable letter credit issued lisa fries gardner dated april 18 2003 filed exhibit 103 foster wheeler ltd’s form 10q quarter ended june 27 2003 filed august 8 2003 incorporated herein reference 1047 employment agreement foster wheeler ltd raymond j milchovich dated october 22 2001 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 28 2001 incorporated herein reference 1048 stock option agreement raymond j milchovich dated october 22 2001 filed exhibit 1013 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 1049 first amendment employment agreement foster wheeler ltd raymond j milchovich dated september 13 2002 filed exhibit 101 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference exhibit exhibits 1050 stock option agreement raymond j milchovich dated september 24 2002 filed exhibit 102 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1051 amendment employment agreement foster wheeler ltd raymond j milchovich dated january 23 2003 filed exhibit 1011 foster wheeler ltd’s form 10k fiscal year ended december 27 2002 filed march 25 2003 incorporated herein reference 1052 form third amendment employment agreement foster wheeler ltd raymond j milchovich filed exhibit 991 foster wheeler ltd’s form 8k filed july 23 2004 incorporated herein reference 1053 employment agreement foster wheeler ltd bernard h cherry dated september 23 2002 filed exhibit 104 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1054 change control employment agreement foster wheeler inc bernard h cherry dated november 4 2002 filed exhibit 105 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1055 stock option agreement bernard h cherry dated november 4 2002 filed exhibit 1016 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1056 stock option agreement bernard h cherry dated december 23 2003 filed exhibit 1017 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1057 employment agreement foster wheeler ltd john la duc dated april 14 2004 filed exhibit 992 foster wheeler ltd’s form 8k filed april 15 2004 incorporated herein reference 1058 change control employment agreement foster wheeler inc john la duc dated april 14 2004 filed exhibit 993 foster wheeler ltd’s form 8k filed april 15 2004 incorporated herein reference 1059 employment agreement foster wheeler ltd brian k ferraioli dated april 27 2004 effective december 1 2003 filed exhibit 108 foster wheeler ltd’s form 10q quarter ended march 26 2004 filed may 5 2004 incorporated herein reference 1060 change control agreement foster wheeler inc brian k ferraioli effective december 1 2003 filed exhibit 109 foster wheeler ltd’s form 10q quarter ended march 26 2004 filed may 5 2004 incorporated herein reference 1061 employment agreement foster wheeler ltd peter j ganz dated october 10 2005 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference 1062 change control employment agreement foster wheeler inc peter j ganz dated october 10 2005 filed exhibit 102 foster wheeler ltd’s form 10q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference 1063 restricted stock award agreement peter j ganz dated october 24 2005 filed exhibit 103 foster wheeler ltd’s form 10 q quarter ended september 30 2005 filed november 9 2005 incorporated herein reference exhibit exhibits 121 statement computation consolidated ratio earnings fixed charges preferred shares dividend requirements 140 revised code business conduct ethics filed exhibit 991 foster wheeler ltd’s form 8k dated november 29 2004 filed december 2 2004 incorporated herein reference 210 subsidiaries registrant 230 consent independent registered public accounting firm 311 section 302 certification raymond j milchovich 312 section 302 certification john la duc 321 section 906 certification raymond j milchovich 322 section 906 certification john la duc signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ltd registrant date march 3 2006 lisa fries gardner lisa fries gardner vice president secretary pursuant requirements securities exchange act 1934 report signed march 3 2006 following persons behalf registrant capacities indicated signature title raymond j milchovich raymond j milchovich principal executive officer director chairman board president chief executive officer john la duc john la duc principal financial officer executive vice president chief financial officer brian k ferraioli brian k ferraioli principal accounting officer vice president controller eugene atkinson eugene atkinson director diane c creel diane c creel director stephanie hanburybrown stephanie hanburybrown director joseph j melone joseph j melone director david sloan david sloan director james woods james woods directoritem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ltd registrant peter j ganz peter j ganz executive vice president general counsel secretary date february 27 2007 pursuant requirements securities exchange act 1934 report signed february 27 2007 following persons behalf registrant capacities indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 24 2009 pursuant requirements securities exchange act 1934 report signed february 24 2009 following persons behalf registrant capacities indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 25 2010 pursuant requirements securities exchange act 1934 report signed february 25 2010 following persons behalf registrant capacities indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date march 1 2013 pursuant requirements securities exchange act 1934 report signed march 1 2013 following persons behalf registrant capacities indicated signature title j kent masters director chief executive officer j kent masters principal executive officer franco baseotto executive vice president chief financial officer treasurer franco baseotto principal financial officer lisa z wood vice president controller lisa z wood principal accounting officer clayton c daley jr director clayton c daley jr umberto della sala director umberto della sala steven j demetriou director chairman board steven j demetriou edward g galante director edward g galante john malcolm director john malcolm stephanie newby director stephanie newby roberto quarta director roberto quarta henri philippe reichstul director henri philippe reichstul maureen b tartbezer director maureen b tartbezeritem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 27 2014 pursuant requirements securities exchange act 1934 report signed february 27 2014 following persons behalf registrant capacities indicated signature title j kent masters j kent masters principal executive officer director president chief executive officer franco baseotto franco baseotto principal financial officer executive vice president chief financial officer treasurer lisa z wood lisa z wood principal accounting officer vice president controller clayton c daley jr clayton c daley jr director umberto della sala umberto della sala director steven j demetriou steven j demetriou director chairman board edward g galante edward g galante director john malcolm john malcolm director stephanie newby stephanie newby director henri philippe reichstul henri philippe reichstul director maureen b tartbezer maureen b tartbezer directoritem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 28 2011 pursuant requirements securities exchange act 1934 report signed february 28 2011 following persons behalf registrant capacities indicateditem 15 exhibits financial statement schedules reports form 8k documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits exhibit exhibits 20 agreement plan merger dated may 25 2001 among foster wheeler corporation foster wheeler llc foster wheeler ltd filed exhibit 20 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 31 memorandum association foster wheeler ltd filed annex ii foster wheeler ltd’s form s4a file 33352468 filed march 9 2001 incorporated herein reference 32 byelaws foster wheeler ltd amended may 22 2002 filed exhibit 32 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 40 foster wheeler ltd hereby agrees furnish copies instruments defining rights holders longterm debt foster wheeler ltd consolidated subsidiaries commission upon request 41 rights agreement dated may 21 2001 foster wheeler ltd mellon investor services llc filed annex foster wheeler ltd’s form 8k file 33352468 dated may 25 2001 incorporated herein reference 42 amended restated first supplemental indenture dated august 10 2001 indenture dated november 15 1995 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc formerly known foster wheeler energy international inc foster wheeler energy corporation foster wheeler inc foster wheeler international holdings inc bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 43 second supplemental indenture relating indenture dated november 15 1995 dated august 16 2002 foster wheeler llc guarantors thereto bny midwest trust company filed exhibit 41 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 44 registration rights agreement dated may 31 2001 among foster wheeler ltd foster wheeler llc lehman brothers inc banc america securities llc first union securities inc filed exhibit 46 foster wheeler ltd’s form s3 registration 33364090 filed june 28 2001 incorporated herein reference 45 form specimen share certificate foster wheeler ltd’s common shares filed annex ii foster wheeler ltd’s form 8k file 33352468 filed may 25 2001 incorporated herein reference 46 first supplemental indenture dated february 20 2002 foster wheeler ltd bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 46 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference exhibit exhibits 47 guaranty dated august 16 2002 guarantors party thereto favor holders foster wheeler llc’s 675 notes due november 15 2005 bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 48 indenture dated may 31 2001 among foster wheeler ltds foster wheeler llc bny midwest trust company filed exhibit 44 foster wheeler ltd’s form s3 registration 33364090 filed june 28 2001 incorporated herein reference 101 retirement consulting agreement richard j swift dated april 2 2001 filed exhibit 101 foster wheeler corporation’s current report form 8k file 00100286 dated april 5 2001 incorporated herein reference 102 form change control agreement dated may 25 2001 entered company executive officers filed exhibit 105 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 103 foster wheeler inc directors’ stock option plan filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 registration 33325945 dated june 27 2001 incorporated herein reference 104 1995 stock option plan foster wheeler inc amended restated september 24 2002 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 105 1984 stock option plan foster wheeler inc filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 file 33352468 dated june 27 2001 incorporated herein reference 106 master guarantee agreement dated may 25 2001 among foster wheeler llc foster wheeler international holdings inc foster wheeler ltd filed exhibit 109 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 107 employment agreement foster wheeler ltd raymond j milchovich dated october 22 2001 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 28 2001 incorporated herein reference 108 stock option agreement raymond j milchovich dated october 22 2001 filed exhibit 1013 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 109 first amendment employment agreement foster wheeler ltd raymond j milchovich dated september 13 2002 filed exhibit 101 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1010 stock option agreement raymond j milchovich dated september 24 2002 filed exhibit 102 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1011 amendment employment agreement foster wheeler ltd raymond j milchovich dated january 23 2003 1012 employment agreement joseph doyle dated july 15 2002 filed exhibit 103 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1013 change control employment agreement foster wheeler inc joseph doyle dated july 15 2002 filed exhibit 107 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1014 stock option agreement joseph doyle dated july 15 2002 filed exhibit 103 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference exhibit exhibits 1015 employment agreement foster wheeler ltd bernard h cherry dated september 23 2002 filed exhibit 104 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1016 change control employment agreement foster wheeler inc bernard h cherry dated november 4 2002 filed exhibit 105 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1017 employment agreement foster wheeler ltd thomas r o’brien dated september 10 2002 filed exhibit 106 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1018 separation agreement henry e bartoli dated april 17 2002 filed exhibit 101 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1019 separation agreement gilles renaud dated may 23 2002 filed exhibit 102 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1020 separation agreement james e schessler dated august 23 2002 filed exhibit 102 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1021 settlement agreement dated january 31 2002 among robbins resource recovery partners lp rrrp robbins inc rrrp illinois llc undersigned holders 1999 bonds issued pursuant indenture representing number holders 1999 bonds reflected signature lines foster wheeler llc affiliates related persons sun trust bank formerly known successor sun trust bank central florida national association capacity trustee indenture litigation proceeds trustee filed exhibit 106 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1022 supplement settlement agreement dated january 31 2002 among robbins resource recovery partners lp rrrp robbins inc rrrp illinois llc undersigned holders 1999 bonds issued pursuant indenture representing number holders 1999 bonds reflected signature lines foster wheeler llc affiliates related persons sun trust bank formerly known successor sun trust bank central florida national association capacity trustee indenture litigation proceeds trustee made 31st day january 2002 filed exhibit 107 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1023 settlement agreement dated may 8 2002 among foster wheeler llc village robbins sun trust bank formerly known successor sun trust bank central florida national association capacity trustee second amended restated mortgage security agreement indenture trust dated october 15 1999 “litigation proceeds trustee” certain litigation proceeds trust agreement dated october 15 1999 robbins resource recovery partners lp rrrp robbins inc rrrp illinois llc filed exhibit 108 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1024 foster wheeler annual incentive plan 2002 subsequent years filed exhibit 1011 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1025 third amended restated term loan revolving credit agreement dated august 16 2002 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc foster wheeler energy corporation guarantors thereto bank america na filed exhibit 1012 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference exhibit exhibits 1026 amendment 1 dated november 8 2002 third amended restated term loan revolving credit agreement dated august 2 2002 among foster wheeler llc borrowing subsidiaries guarantors lenders bank america na administrative agent collateral agent banc america securities llc lead arranger book manager filed exhibit 108 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1027 security agreement dated august 16 2002 made foster wheeler llc grantors thereto bank america na filed exhibit 1013 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1028 guaranty suretyship agreement dated august 16 2002 made foster wheeler llc foster wheeler ltd foster wheeler inc foster wheeler international holdings inc energy nj qrs 1510 inc filed exhibit 1014 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1029 lease agreement dated august 16 2002 among energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 1015 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1030 amendment lease agreement dated august 16 2002 energy nj qrs 1510 inc foster wheeler realty services inc 1031 loan security agreement dated august 15 2002 among foster wheeler funding llc lenders signatories thereto foothill capital corporation filed exhibit 1016 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1032 performance guaranty dated august 15 2002 foster wheeler favor foothill capital corporation filed exhibit 1017 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1033 servicing agreement dated august 15 2002 among foster wheeler funding llc foothill capital corporation foster wheeler capital finance corporation filed exhibit 1018 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1034 purchase sale contribution agreement dated august 15 2002 among foster wheeler capital finance corporation foster wheeler constructors inc foster wheeler energy corporation foster wheeler usa corporation foster wheeler power group inc foster wheeler zack inc foster wheeler energy services inc foster wheeler funding llc filed exhibit 1019 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1035 amendment 2 dated march 24 2003 third amended restated term loan revolving credit agreement dated august 2 2002 amended amendment 1 dated november 8 2002 among foster wheeler llc borrowing subsidiaries guarantors lenders bank america na administrative agent collateral agent banc america securities llc lead arranger book manager 121 statement computation consolidated ratio earnings fixed charges preferred shares dividend requirements 210 subsidiaries registrant 230 consent independent accountants 991 certification raymond j milchovich 992 certification joseph doyle b reports form 8k report date description december 4 foster wheeler announced intention close dansville new york manufacturing facility items 5 7 march 10 foster wheeler announced sale operating business wholly owned subsidiary foster wheeler environmental corporation tetra tech inc march 7 2003 items 5 7 9 purposes complying amendments rules governing form s8 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrant’s statements form s8 registration 333101524 filed november 27 2002 registration 33388912 filed may 23 2002 registration number 33325945 filed june 27 2001 registration 00291384 filed june 27 2001 insofar indemnification liabilities arising securities act 1933 may permitted directors officers controlling persons registrant pursuant foregoing provisions otherwise registrant advised opinion securities exchange commission indemnification public policy expressed securities act 1933 therefore unenforceable event claim indemnification liabilities payment registrant expenses incurred paid director officer controlling person registrant successful defense action suit proceeding asserted director officer controlling person connection securities registered registrant unless opinion counsel matter settled controlling precedent submit court appropriate jurisdiction quest ion whether indemnification public policy expressed securities act 1933 governed final adjudication issue signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ltdregistrant date march 25 2003 lisa fries gardner lisa fries gardner vice president secretary pursuant requirements securities exchange act 1934 report signed march 25 2003 following persons behalf registrant capacities indicated signature title raymond j milchovich raymond j milchovich principal executive officer director chairman board president chief executive officer joseph doyle joseph doyle principal financial officer principal accounting officer senior vice president chief financial officer brian k ferraioli brian k ferraioli vice president controller eugene atkinson eugene atkinson director john p clancey john p clancey director david j farris david j farris director signature title martha clark goss martha clark goss director victor hebert victor hebert director constance j horner constance j horner director joseph j melone joseph j melone director john e stuart john e stuart director james woods james woods director certifications raymond j milchovich certify 1 reviewed annual report form 10k foster wheeler ltd 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officer disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 25 2003 raymond j milchovich raymond j milchovich chairman president chief executive officer certifications joseph doyle certify 1 reviewed annual report form 10k foster wheeler ltd 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officer disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 25 2003 joseph doyle joseph doyle senior vice president chief financial officer report independent accountants financial statement schedule board directors foster wheeler ltd audits consolidated financial statements referred report dated march 25 2003 appearing annual report form 10k report contains explanatory paragraph regarding company’s ability continue going concern also included audit financial statement schedules listed item 15 2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp florham park new jersey march 25 2003 foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance 2 primarily due additional recoveries insurers foster wheeler ltd shareholder information stock listing new york stock exchange ticker symbol fwc telephone inquiries call mellon investor services llc 18008519677 800 700 pm eastern time monday friday help account inquiries requests assistance including stock transfers hearing speech impaired please call 12013298354 foreign shareholders call 2013298660 transfer agent registrar dividend disbursing agent general inquiries changes address transfer instructions foster wheeler ltd co mellon investor services llc p box 3315 south hackensack nj 07606 requests transactions involving stock certificates foster wheeler ltd co mellon investor services llc securities transfer services p box 3312 south hackensack nj 076061912 shareholder services internet view shareholder information perform certain transactions visiting wwwmelloninvestorcom company information internet information foster wheeler ltd available internet visit home web site httpwwwfwccom requests financial information foster wheeler’s form 10k quarterly reports financial documents also available home page world wide web httpwwwfwccom request paper copies reports filed securities exchange commission write office secretary foster wheeler ltd perryville corporate park clinton nj 088094000 annual shareholders meeting april 29 2003 930 foster wheeler ltd perryville corporate park clinton nj 088094000item 15 exhibits financial statement schedules reports form 8k documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits exhibit exhibits 20 agreement plan merger dated may 25 2001 among foster wheeler corporation foster wheeler llc foster wheeler ltd filed exhibit 20 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 31 memorandum association foster wheeler ltd filed annex ii foster wheeler ltd’s form s4a file 33352468 filed march 9 2001 incorporated herein reference 32 byelaws foster wheeler ltd amended may 22 2002 filed exhibit 32 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 40 foster wheeler ltd hereby agrees furnish copies instruments defining rights holders longterm debt foster wheeler ltd consolidated subsidiaries commission upon request 41 rights agreement dated may 21 2001 foster wheeler ltd mellon investor services llc filed annex foster wheeler ltd’s form 8k file 33352468 dated may 25 2001 incorporated herein reference 42 amended restated first supplemental indenture dated august 10 2001 indenture dated november 15 1995 among foster wheeler llc foster wheeler usa corporation foster wheeler power group inc formerly known foster wheeler energy international inc foster wheeler energy corporation foster wheeler inc foster wheeler international holdings inc bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 43 second supplemental indenture relating indenture dated november 15 1995 dated august 16 2002 foster wheeler llc guarantors thereto bny midwest trust company filed exhibit 41 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 44 registration rights agreement dated may 31 2001 among foster wheeler ltd foster wheeler llc lehman brothers inc banc america securities llc first union securities inc filed exhibit 46 foster wheeler ltd’s form s3 registration 33364090 filed june 28 2001 incorporated herein reference 45 form specimen share certificate foster wheeler ltd’s common shares filed annex ii foster wheeler ltd’s form 8k file 33352468 filed may 25 2001 incorporated herein reference 46 first supplemental indenture dated february 20 2002 foster wheeler ltd bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 46 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 47 amendment guarantee agreement dated march 15 2003 made foster wheeler ltd favor fw preferred trust filed exhibit 41 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 48 guaranty dated august 16 2002 guarantors party thereto favor holders foster wheeler llc’s 675 notes due november 15 2005 bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 49 second supplemental indenture dated march 15 2003 among foster wheeler ltd fw preferred capital trust byn midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference exhibit exhibits 410 indenture dated may 31 2001 among foster wheeler ltd foster wheeler llc bny midwest trust company filed exhibit 44 foster wheeler ltd’s form s3 registration 33364090 filed june 28 2001 incorporated herein reference 101 retirement consulting agreement richard j swift dated april 2 2001 filed exhibit 101 foster wheeler corporation’s current report form 8k file 00100286 dated april 5 2001 incorporated herein reference 102 form change control agreement dated may 25 2001 entered company executive officers filed exhibit 105 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 103 foster wheeler inc directors’ stock option plan filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 registration 33325945 dated june 27 2001 incorporated herein reference 104 1995 stock option plan foster wheeler inc amended restated september 24 2002 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 105 1984 stock option plan foster wheeler inc filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 file 33352468 dated june 27 2001 incorporated herein reference 106 master guarantee agreement dated may 25 2001 among foster wheeler llc foster wheeler international holdings inc foster wheeler ltd filed exhibit 109 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 107 employment agreement foster wheeler ltd raymond j milchovich dated october 22 2001 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 28 2001 incorporated herein reference 108 stock option agreement raymond j milchovich dated october 22 2001 filed exhibit 1013 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 109 first amendment employment agreement foster wheeler ltd raymond j milchovich dated september 13 2002 filed exhibit 101 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1010 stock option agreement raymond j milchovich dated september 24 2002 filed exhibit 102 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1011 amendment employment agreement foster wheeler ltd raymond j milchovich dated january 23 2003 filed exhibit 1011 foster wheeler ltd’s form 10k fiscal year ended december 27 2002 filed march 25 2003 incorporated herein reference 1012 employment agreement foster wheeler ltd joseph doyle july 15 2002 filed exhibit 103 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1013 separation letter joseph doyle foster wheeler ltd dated april 4 2003 filed exhibit 104 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1014 employment agreement foster wheeler ltd bernard h cherry dated september 23 2002 filed exhibit 104 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1015 change control employment agreement foster wheeler inc bernard h cherry dated november 4 2002 filed exhibit 105 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference 1016 stock option agreement bernard h cherry dated november 4 2002 filed exhibit 1016 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1017 stock option agreement bernard h cherry dated december 23 2003 filed exhibit 1017 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1018 employment agreement foster wheeler ltd thomas r o’brien dated september 10 2002 filed exhibit 106 foster wheeler’s form 10q quarter ended september 27 2002 incorporated herein reference exhibit exhibits 1042 loan security agreement dated august 15 2002 among foster wheeler funding llc lenders signatories thereto foothill capital corporation filed exhibit 1016 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1043 amendment 1 dated january 22 2003 loan security agreement dated august 15 2002 among lenders party thereto “lenders” foothill capital corporation california corporation arranger administrative agent lenders foster wheeler funding llc delaware limited liability company filed exhibit 1043 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1044 amendment 2 dated february 24 2003 loan security agreement dated august 15 2002 amended amendment 1 loan security agreement dated january 22 2003 among lenders party thereto “lenders” foothill capital corporation california corporation arranger administrative agent lenders foster wheeler funding llc delaware limited liability company filed exhibit 1044 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1045 amendment 3 dated july 31 2003 loan security agreement dated august 15 2002 amended amendment 1 loan security agreement dated january 22 2003 amendment 2 loan security agreement dated february 24 2003 among one hand lenders party thereto wells fargo foothill inc arranger administrative agent lenders hand foster wheeler funding ii llc successor assignment foster wheeler funding llc filed exhibit 102 foster wheeler ltd’s form 10q quarter ended september 26 2003 filed november 10 2003 incorporated herein reference 1046 amendment 4 dated december 17 2003 loan security agreement dated august 15 2002 amended amendment 1 loan security agreement dated january 22 2003 amendment 2 loan security agreement dated february 24 2003 amendment 3 loan security agreement dated july 31 2003 among lenders party thereto “lenders” wells fargo foothill inc california corporation fka foothill capital corporation arranger administrative agent lenders foster wheeler funding ii llc delaware limited liability company filed exhibit 1046 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1047 performance guaranty dated august 15 2002 foster wheeler favor foothill capital corporation filed exhibit 1017 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1048 servicing agreement dated august 15 2002 among foster wheeler funding llc foothill capital corporation foster wheeler capital finance corporation filed exhibit 1018 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1049 purchase sale contribution agreement dated august 15 2002 among foster wheeler capital finance corporation foster wheeler constructors inc foster wheeler energy corporation foster wheeler usa corporation foster wheeler power group inc foster wheeler zack inc foster wheeler energy services inc foster wheeler funding llc filed exhibit 1019 foster wheeler’s form 10q quarter ended june 28 2002 incorporated herein reference 1050 amendment 1 dated july 31 purchase sale contribution agreement dated august 15 2002 amended restated supplemented otherwise modified time among parties identified signature pages originators foster wheeler funding ii llc successor assignment foster wheeler funding llc foster wheeler inc successor original servicer filed exhibit 105 foster wheeler ltd’s form 10q quarter ended september 26 2003 filed november 10 2003 incorporated herein reference 1051 asset purchase agreement dated february 17 2003 among tetra tech inc tetra tech fw inc foster wheeler ltd foster wheeler llc foster wheeler usa corporation foster wheeler environmental corporation hartman consulting corporation filed exhibit 101 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference purposes complying amendments rules governing form s8 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrant’s statements form s8 registration 333101524 filed november 27 2002 registration 33388912 filed may 23 2002 registration number 33325945 filed june 27 2001 registration 00291384 filed june 27 2001 insofar indemnification liabilities arising securities act 1933 may permitted directors officers controlling persons registrant pursuant foregoing provisions otherwise registrant advised opinion securities exchange commission indemnification public policy expressed securities act 1933 therefore unenforceable event claim indemnification liabilities payment registrant expenses incurred paid director officer controlling person registrant successful defense action suit proceeding asserted director officer controlling person connection securities registered registrant unless opinion counsel matter settled controlling precedent submit court appropriate jurisdiction question whether indemnification public policy expressed securities act 1933 governed final adjudication issue b reports form 8k report date description july 15 2003 company filed form 8ka replaced entirety information included incorporated current report form 8k filed july 15 2003 item 5 november 6 2003 company announced appointment law firm heller ehrman general counsel items 5 7 november 7 2003 company announced received notification new york stock exchange trading company’s common stock 900 fw preferred capital trust securities suspended effective market open november 14 2003 would eligible quotation overthecounter bulletin board items 5 7 november 10 2003 company announced third quarter results items 7 9 12 december 19 2003 company filed unaudited interim financial statements connection proposed exchange offer related registration form s4 333107054 item 5 december 19 2003 connection amendment 2 registration statement form s4 333107054 company filed current risk factors item 5 january 26 2004 certain subsidiaries company executed financing security agreements items 5 7 report date description january 28 2004 company announced appointment principal financial positions including acting chief financial officer vice president treasurer items 5 7 february 5 2004 company announced commitment provide 120 million new financing institutional investors discontinuance plan divest european assets items 5 7 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed march 12 2004 following persons behalf registrant capacities indicated signature title raymond j milchovich director chairman board president chief executive officer raymond j milchovich principal exeuctive officer brian k ferraioli acting chief financial officer vice president controller brian k ferraioli principal financial officer principal accounting officer eugene atkinson director eugene atkinson john p clancey director john p clancey martha clark goss director martha clark goss joseph j melone director joseph j melone john e stuart director john e stuart director james woods report independent auditors financial statement schedule board directors foster wheeler ltd audits consolidated financial statements referred report dated march 10 2004 appearing annual report form 10k report contains explanatory paragraph regarding company’s ability continue going concern also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp florham park new jersey march 10 2004 foster wheeler ltd schedule ii valuation qualifying accounts amounts thousands 1 provisions nonpayments customer balances normally addressed within overall profit calculation contracts specifically covered allowances doubtful accounts result amount considered receivable qualifying account allowance doubtful accounts represent full allowance 2 primarily due additional recoveries insurers 3 2002 provisions nonpayments customer balances reclassified allowance doubtful accounts conform current period presentation foster wheeler ltd shareholder information stock quotation overthecounter bulletin board ticker symbol fwlrf telephone inquiries call mellon investor services llc 18008519677 800 700 pm eastern time monday friday help account inquiries requests assistance including stock transfers hearing speech impaired please call 12013298354 foreign shareholders call 2013298660 transfer agent registrar dividend disbursing agent general inquiries changes address transfer instructions foster wheeler ltd co mellon investor services llc p box 3315 south hackensack nj 07606 requests transactions involving stock certificates foster wheeler ltd co mellon investor services llc securities transfer services p box 3312 south hackensack nj 076061912 shareholder services internet view shareholder information perform certain transactions visiting wwwmelloninvestorcom company information internet information foster wheeler ltd available internet visit home web site httpwwwfwccom requests financial information foster wheeler’s form 10k quarterly reports financial documents also available home page world wide web httpwwwfwccom request paper copies reports filed securities exchange commission write office secretary foster wheeler ltd perryville corporate park clinton nj 088094000item 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits exhibit exhibits 31 memorandum association foster wheeler ltd filed annex ii foster wheeler ltd’s form s4a file 33352468 filed march 9 2001 incorporated herein reference 32 memoranda reduction share capital memorandum increase share capital dated december 1 2004 filed exhibit 992 foster wheeler ltd’s form 8k filed december 2 2004 incorporated herein reference 33 certificate designation relating foster wheeler ltd’s series b convertible preferred shares adopted september 24 2004 filed exhibit 31 foster wheeler ltd’s form 10q quarter ended september 24 2004 incorporated herein reference 34 byelaws foster wheeler ltd amended november 30 2004 filed exhibit 993 foster wheeler ltd’s form 8k dated november 29 2004 filed december 2 2004 incorporated herein reference 40 foster wheeler ltd hereby agrees furnish copies instruments defining rights holders longterm debt foster wheeler ltd consolidated subsidiaries commission upon request 101 form indenture dated november 15 1995 among foster wheeler ltd formerly known foster wheeler corporation bny midwest trust company formerly known harris trust savings bank relating foster wheeler llc’s 675 senior secured notes due 2005 filed exhibit 4 foster wheeler ltd’s form 8k filed november 17 1995 incorporated reference 102 amended restated first supplemental indenture dated august 10 2001 indenture dated november 15 1995 among foster wheeler llc foster wheeler usa corporation foster wheeler north america corp formerly known foster wheeler power group inc foster wheeler energy corporation foster wheeler inc foster wheeler international holdings inc bny midwest trust company relating foster wheeler llc’s 675 senior secured notes due 2005 filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 103 second supplemental indenture relating indenture dated november 15 1995 dated august 16 2002 foster wheeler llc guarantors thereto bny midwest trust company relating foster wheeler llc’s 675 senior secured notes due 2005 filed exhibit 41 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference exhibit exhibits 104 third supplemental indenture dated september 24 2004 among foster wheeler llc guarantors named therein bny midwest trust company trustee relating foster wheeler llc’s 675 senior secured notes due 2005 filed exhibit 44 foster wheeler ltd’s form 10q quarter ended september 24 2004 incorporated herein reference 105 guaranty dated august 16 2002 guarantors party thereto favor holders foster wheeler llc’s 675 notes due november 15 2005 bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 106 indenture dated may 31 2001 among foster wheeler ltd foster wheeler llc bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 44 foster wheeler ltd’s registration statement form s3 registration 33364090 filed june 28 2001 incorporated herein reference 107 first supplemental indenture dated february 20 2002 foster wheeler ltd bny midwest trust company regarding 650 convertible subordinated notes due 2007 filed exhibit 46 foster wheeler ltd’s form 10k fiscal year ended december 28 2001 incorporated herein reference 108 supplemental indenture dated september 24 2004 among foster wheeler ltd foster wheeler llc bny midwest trust company trustee relating foster wheeler ltd’s 650 convertible subordinated notes due 2007 filed exhibit 45 foster wheeler ltd’s form 10q quarter ended september 24 2004 incorporated herein reference 109 amendment guarantee agreement dated march 15 2003 made foster wheeler ltd favor fw preferred capital trust filed exhibit 41 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1010 second supplemental indenture dated march 15 2003 among foster wheeler ltd fw preferred capital trust bny midwest trust company filed exhibit 42 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1011 third supplemental indenture dated september 24 2004 foster wheeler llc bny midwest trust company trustee relating 900 preferred securities series liquidation amount 25 per preferred security issued fw preferred capital trust filed exhibit 43 foster wheeler ltd’s form 10q quarter ended september 24 2004 incorporated herein reference 1012 loan agreement guaranty dated march 24 2005 among foster wheeler llc foster wheeler usa corporation foster wheeler north america corp foster wheeler energy corporation foster wheeler inc borrowers guarantors party thereto lenders party thereto morgan stanley co incorporated collateral agent morgan stanley senior funding inc administrative agent documentation agent syndication agent sole lead arranger sole lead bookrunner filed exhibit 992 foster wheeler ltd’s form 8k dated march 24 2005 filed march 29 2005 incorporated herein reference 1013 pledge security agreement dated march 24 2005 among grantors named therein morgan stanley co incorporated collateral agent filed exhibit 993 foster wheeler ltd’s form 8k dated march 24 2005 filed march 29 2005 incorporated herein reference exhibit exhibits 1014 intercreditor agreement dated march 24 2005 among morgan stanley co incorporated collateral agent wells fargo bank national association trustee foster wheeler llc affiliates party thereto filed exhibit 994 foster wheeler ltd’s form 8k dated march 24 2005 filed march 29 2005 incorporated herein reference 1015 lease agreement dated august 16 2002 among energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 1015 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1016 amendment lease agreement dated august 16 2002 energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 1030 foster wheeler ltd’s form 10k fiscal year ended december 27 2002 filed march 25 2003 incorporated herein reference 1017 amendment 2 dated april 21 2003 lease agreement energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 107 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1018 amendment 3 dated july 14 2003 lease agreement dated august 16 2002 energy nj qrs 1510 inc foster wheeler realty services inc filed exhibit 106 foster wheeler ltd’s form 10q quarter ended june 27 2003 filed august 8 2003 incorporated herein reference 1019 guaranty suretyship agreement dated august 16 2002 made foster wheeler llc foster wheeler ltd foster wheeler inc foster wheeler international holdings inc energy nj qrs 1510 inc filed exhibit 1014 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1020 deed foster wheeler llc foster wheeler realty services inc cit group inc nj dated march 31 2003 filed exhibit 103 foster wheeler ltd’s form 10q quarter ended march 28 2003 filed may 12 2003 incorporated herein reference 1021 indenture dated september 24 2004 among foster wheeler llc guarantors named therein wells fargo bank national association trustee relating 10359 notes due 2011 filed exhibit 42 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1022 registration rights agreement dated september 24 2004 among foster wheeler llc guarantors listed therein purchasers signatory thereto filed exhibit 45 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1023 security agreement dated september 24 2004 among foster wheeler llc grantors listed therein wells fargo bank national association filed exhibit 46 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein 1024 intercreditor agreement dated september 24 2004 among bank america na administrative agent collateral agent wells fargo bank na trustee foster wheeler llc subsidiaries parties thereto filed exhibit 47 foster wheeler ltd’s registration statement form s4 file 119841 filed october 20 2004 incorporated reference herein exhibit exhibits 1025 1984 stock option plan foster wheeler inc filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 file 33352468 dated june 27 2001 incorporated herein reference 1026 foster wheeler inc directors’ stock option plan filed exhibit 991 foster wheeler ltd’s post effective amendment form s8 registration 33325945 dated june 27 2001 incorporated herein reference 1027 1995 stock option plan foster wheeler inc amended restated september 24 2002 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1028 foster wheeler annual incentive plan 2002 subsequent years filed exhibit 1011 foster wheeler ltd’s form 10q quarter ended june 28 2002 incorporated herein reference 1029 foster wheeler ltd management restricted stock plan filed exhibit 101 foster wheeler ltd’s form 8k dated september 29 2004 filed october 1 2004 incorporated herein reference 1030 foster wheeler ltd 2004 stock option plan filed exhibit 102 foster wheeler ltd’s form 8k dated september 29 2004 filed october 1 2004 incorporated herein reference 1031 warrant agreement foster wheeler ltd mellon investor services llc including forms warrant certificates filed exhibit 410 foster wheeler ltd’s registration statement form s3 file 333120076 filed october 29 2004 incorporated reference herein 1032 master guarantee agreement dated may 25 2001 among foster wheeler llc foster wheeler international holdings inc foster wheeler ltd filed exhibit 109 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 1033 form change control agreement dated may 25 2001 entered company executive officers filed exhibit 105 foster wheeler ltd’s form 10q quarter ended june 29 2001 incorporated herein reference 1034 form indemnification agreement directors officers company foster wheeler inc dated november 3 2004 filed exhibit 991 foster wheeler ltd’s form 8k dated november 3 2004 filed november 8 2004 incorporated herein reference 1035 irrevocable letter credit issued lisa fries gardner dated april 18 2003 filed exhibit 103 foster wheeler ltd’s form 10q quarter ended june 27 2003 filed august 8 2003 incorporated herein reference 1036 employment agreement foster wheeler ltd raymond j milchovich dated october 22 2001 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended september 28 2001 incorporated herein reference 1037 stock option agreement raymond j milchovich dated october 22 2001 filed exhibit 1013 foster wheeler ltd’s form 10 k fiscal year ended december 28 2001 incorporated herein reference exhibit exhibits 1038 first amendment employment agreement foster wheeler ltd raymond j milchovich dated september 13 2002 filed exhibit 101 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1039 stock option agreement raymond j milchovich dated september 24 2002 filed exhibit 102 foster wheeler ltd’s form 8k filed september 25 2002 incorporated herein reference 1040 amendment employment agreement foster wheeler ltd raymond j milchovich dated january 23 2003 filed exhibit 1011 foster wheeler ltd’s form 10k fiscal year ended december 27 2002 filed march 25 2003 incorporated herein reference 1041 form third amendment employment agreement foster wheeler ltd raymond j milchovich filed exhibit 991 foster wheeler ltd’s form 8k filed july 23 2004 incorporated herein reference 1042 employment agreement foster wheeler ltd bernard h cherry dated september 23 2002 filed exhibit 104 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1043 change control employment agreement foster wheeler inc bernard h cherry dated november 4 2002 filed exhibit 105 foster wheeler ltd’s form 10q quarter ended september 27 2002 incorporated herein reference 1044 stock option agreement bernard h cherry dated november 4 2002 filed exhibit 1016 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1045 stock option agreement bernard h cherry dated december 23 2003 filed exhibit 1017 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1046 employment agreement foster wheeler ltd john la duc dated april 14 2004 filed exhibit 992 foster wheeler ltd’s form 8k filed april 15 2004 incorporated herein reference 1047 change control employment agreement foster wheeler inc john la duc dated april 14 2004 filed exhibit 993 foster wheeler ltd’s form 8k filed april 15 2004 incorporated herein reference 1048 employment agreement foster wheeler ltd brian k ferraioli dated april 27 2004 effective december 1 2003 filed exhibit 108 foster wheeler ltd’s form 10q quarter ended march 26 2004 filed may 5 2004 incorporated herein reference 1049 change control agreement foster wheeler inc brian k ferraioli effective december 1 2003 filed exhibit 109 foster wheeler ltd’s form 10q quarter ended march 26 2004 filed may 5 2004 incorporated herein reference 1050 employment agreement foster wheeler ltd steven weinstein dated september 10 2002 filed exhibit 1021 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference exhibit exhibits 1051 change control employment agreement foster wheeler inc steven weinstein dated september 10 2002 filed exhibit 1022 foster wheeler ltd’s form 10k fiscal year ended december 26 2003 filed march 12 2004 incorporated herein reference 1052 irrevocable letter credit issued steven weinstein dated april 18 2003 filed exhibit 101 foster wheeler ltd’s form 10q quarter ended june 27 2003 filed august 8 2003 incorporated herein reference 1053 waiver release agreement dated november 5 2004 steven weinstein filed exhibit 991 foster wheeler ltd’s form 8k dated november 5 2004 filed november 8 2004 incorporated herein reference 121 statement computation consolidated ratio earnings fixed charges preferred shares dividend requirements 140 revised code business conduct ethics filed exhibit 991 foster wheeler ltd’s form 8k dated november 29 2004 filed december 2 2004 incorporated herein reference 210 subsidiaries registrant 230 consent independent registered public accounting firm 311 section 302 certification raymond j milchovich 312 section 302 certification john la duc 321 section 906 certification raymond j milchovich 322 section 906 certification john la duc purposes complying amendments rules governing form s3 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrant’s registration statements form s3 registration 3361809 registration 33364090 registration 33352369 registration 3335236901 registration 3335236902 registration 333120076 purposes complying amendments rules governing form s8 securities act 1933 undersigned registrant hereby undertakes follows undertaking shall incorporated reference registrant’s registration statements form s8 registration 3340878 registration 33352468 registration 3332594599 registration 0029138499 registration 0035973999 registration 33388912 registration no333101524 registration 333119308 insofar indemnification liabilities arising securities act 1933 may permitted directors officers controlling persons registrant pursuant foregoing provisions otherwise registrant advised opinion securities exchange commission indemnification public policy expressed securities act 1933 therefore unenforceable event claim indemnification liabilities payment registrant expenses incurred paid director officer controlling person registrant successful defense action suit proceeding asserted director officer controlling person connection securities registered registrant unless opinion counsel matter settled controlling precedent submit court appropriate jurisdiction question whether indemnification public policy expressed securities act 1933 governed final adjudication issue signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed march 31 2005 following persons behalf registrant capacities indicated signature title raymond j milchovich raymond j milchovich principal executive officer director chairman board president chief executive officer john la duc john la duc principal financial officer executive vice president chief financial officer brian k ferraioli brian k ferraioli principal accounting officer vice president controller eugene atkinson eugene atkinson director diane c creel diane c creel director stephanie hanburybrown stephanie hanburybrown director roger l heffernan roger l heffernan director joseph j melone joseph j melone director david sloan david sloan director james woods james woods director foster wheeler ltd shareholder information common share quotation overthecounter bulletin board ticker symbol fwhlfob telephone inquiries call mellon investor services llc’s interactive voice response system 18003582314 available 24 hours day 7 days week help account inquiries requests assistance including stock transfers hearing speech impaired please call 12013298354 foreign shareholders call 2013298660 transfer agent registrar warrant agent dividend disbursing agent general inquiries changes address transfer instructions foster wheeler ltd co mellon investor services llc p box 3315 south hackensack nj 07606 requests transactions involving stock certificates foster wheeler ltd co mellon investor services llc securities transfer services p box 3312 south hackensack nj 076061912 shareholder services internet view shareholder information perform certain transactions visiting “wwwmelloninvestorcomisd” company information internet view information foster wheeler ltd visiting website “wwwfwccom” requests financial information foster wheeler’s annual reports quarterly reports financial documents available website “wwwfwccom” request paper copies reports filed securities exchange commission write office secretary foster wheeler ltd perryville corporate park clinton nj 088094000item 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ltd registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 26 2008 pursuant requirements securities exchange act 1934 report signed february 26 2008 following persons behalf registrant capacities indicateditem 15 exhibits financial statement schedules documents filed part report 1 financial statements financial statements see item 8 report 2 financial statement schedules schedule ii valuation qualifying accounts see item 8 report schedules financial statements indicated omitted absence conditions requiring required information shown financial statements notes thereto 3 exhibits management contract compensation plan arrangement required filed exhibit form pursuant item 15b report signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized foster wheeler ag registrant franco baseotto franco baseotto executive vice president chief financial officer treasurer date february 23 2012 pursuant requirements securities exchange act 1934 report signed february 23 2012 following persons behalf registrant capacities indicated signature title j kent masters director chief executive officer j kent masters principal executive officer franco baseotto franco baseotto executive vice president chief financial officer treasurer principal financial officer lisa z wood vice president controller lisa z wood principal accounting officer clayton c daley jr director clayton c daley jr umberto della sala director umberto della sala steven j demetriou director chairman board steven j demetriou edward g galante director edward g galante john malcolm director john malcolm stephanie newby director stephanie newby roberto quarta director roberto quarta henri philippe reichstul director henri philippe reichstul maureen b tartbezer director maureen b tartbezer