Note 12 - Contingencies and Commitments
 3 Months Ended
Nov. 30, 2012
Commitments and Contingencies Disclosure [Text Block]
Note 12 — Contingencies and Commitments

Legal Proceedings

In the normal course of business, we are involved in a variety of legal proceedings, liability claims or contract disputes in many jurisdictions around the world. Some of these legal proceedings are associated with the performance of our services. At times, the nature of our business leads to disputes with clients, subcontractors and vendors relating to our entitlement to additional revenue and/or reduced costs. Occasionally, these disputes lead to our clients, subcontractors and vendors presenting claims against us for recovery of cost they incurred in excess of what they expected to incur, or for which they believe they are not contractually liable. In such matters, we evaluate both our claims against the client as well as any disputes and/or counterclaims asserted against us by the client or opposing party pursuant to ASC 450, and we record the probable outcome based upon this analysis. For an additional discussion of our claims on major projects, see Note 20 – Accounting for Claims, Unapproved Change Orders and Incentives on Long-Term Construction Contracts. The actual outcomes may differ materially from our analysis.

On November 12, 2010, the jury returned a split verdict in a dispute between our subsidiary, Stone & Webster, Inc. (S&W), and Xcel Energy (d/b/a Public Service of Colorado) related to Xcel Energy’s coal-fired power plant project in Pueblo, Colorado. As a result of this verdict, our Power segment recorded a reduction in gross profit of $63.4 million in the period ended November 30, 2010. During the first quarter of fiscal year 2012, we collected in excess of $40 million in outstanding receivables from Xcel Energy, which effectively closed this matter.

In connection with an approximate $28.1 million contract executed by our F&M segment to supply fabricated pipe spools to a manufacturing facility in the U.S., our client filed a lawsuit in the U.S. District Court for the Eastern District of Washington alleging that shop-welding on the pipe spools we supplied were deficient and that the deliveries for some of the pipe spools were untimely. We reached a settlement with our client on this matter in October 2011 and recorded a $16.8 million charge to cost of revenue in fiscal year 2011 and are currently seeking recovery from our insurers. We paid the amounts due to our client in the first quarter of fiscal year 2012, which effectively closed this matter with our client. However, we continue to seek partial recovery from our insurers.

For additional information related to our claims on major projects, see Note 16 – Accounting for Claims, Unapproved Change Orders and Incentives on Long-Term Construction Contracts.

Following our announcement of the signed Transaction Agreement, several shareholders filed purported class action lawsuits against Shaw, its directors, CB&I, and in some cases, against CB&I’s acquisition subsidiary. On October 17, 2012, the actions were consolidated and on November 3, 2012, plaintiffs filed their Consolidated Amended Class Action Complaint. The plaintiffs generally allege breach of fiduciary duties to Shaw shareholders because of, among other claims, inadequate consideration to be paid by CB&I for Shaw common stock and an allegedly flawed negotiation process. On November 27, 2012, Shaw and its directors filed peremptory exceptions seeking dismissal of the action and on November 30, 2012 CB&I likewise filed peremptory exceptions seeking dismissal.  Also on November 27, 2012, the plaintiffs filed a motion for temporary injunction to enjoin the shareholder vote on the transaction. The court set both the exceptions and the motion for temporary injunction for hearing on December 19, 2012. On December 13, 2012, the parties entered into a Memorandum of Understanding (MOU) reflecting an agreement in principle to settle all claims against all defendants in the lawsuit. Under the terms of the MOU, the plaintiff class will release all claims against all defendants. In exchange, Shaw will make certain additional disclosures in a supplement to its definitive proxy statement filed with the Securities and Exchange Commission and voluntarily waive or modify certain requirements under Louisiana law with respect to shareholders’ dissenting rights, including waiving the requirement that dissenters rights are only available if the transaction is approved by less than eighty percent of Shaw’s total voting power. The defendants have also agreed to pay plaintiffs’ attorneys’ fees and costs associated with pursuing their claims. The settlement is subject to submission of final settlement documents and court approval.

Liabilities Related to Contracts

Our contracts often contain provisions relating to the following matters:

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Warranties, requiring achievement of acceptance and performance testing levels;

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liquidated damages, if the project does not meet predetermined completion dates; and

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penalties or liquidated damages for failure to meet other cost or project performance measures.

We attempt to limit our exposure through the use of the penalty or liquidated damage provisions and attempt to pass certain cost exposure for craft labor and/or commodity-pricing risk to clients. We also have claims and disputes with clients as well as vendors, subcontractors and others that are subject to negotiation or the contractual dispute resolution processes defined in the contracts. See Note 5 – Accounts Receivable, Concentrations of Credit Risk and Inventories, Note 16 — Accounting for Claims, Unapproved Change Orders and Incentives on Long-Term Construction Contracts and Legal Proceedings above for further discussion on these matters.

Other Guarantees

Our Facility lenders issue letters of credit on our behalf to clients or sureties in connection with our contract performance and, in limited circumstances, on certain other obligations of third parties. We are required to reimburse the issuers of these letters of credit for any payments that they make pursuant to these letters of credit. The aggregate amount of outstanding financial and performance letters of credit (including foreign and domestic, secured and unsecured and cash collateralized) was approximately $314.6 million and $329.6 million at November 30, 2012 and August 31, 2012, respectively. Of the amount of outstanding letters of credit at November 30, 2012, $180.9 million are performance letters of credit issued to our clients. Of the $180.9 million, five clients held $166.0 million or 91.8% of the outstanding letters of credit. The largest letter of credit issued to a single client on a single project is $49.7 million.

In the ordinary course of business, we enter into various agreements providing financial or performance assurances to clients which may cover certain unconsolidated partnerships, joint ventures or other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments and are generally a guaranty of our own performance. These assurances have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed under engineering and construction contracts. Amounts that may be required to be paid in excess of our estimated cost to complete contracts in progress are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For fixed price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where cost exceeds the remaining amounts payable under the contract, we may have recourse to third parties such as owners, co-venturers, subcontractors or vendors.

At November 30, 2012 and August 31, 2012, we maintained a liability of $8.9 million associated with certain lease obligations in connection with the deconsolidation of our Toronto-based operations.

Environmental Liabilities

The LandBank Group, Inc. (LandBank), a subsidiary of our Environmental and Infrastructure (E&I) segment, remediates previously acquired environmentally impaired real estate. The real estate was recorded at cost, typically reflecting some degree of discount due to environmental issues related to the real estate. As remediation efforts are expended, the book value of the real estate is increased to reflect improvements made to the asset. Additionally, LandBank records a liability for estimated remediation costs for real estate that is sold, but for which the environmental obligation is retained. We also record an environmental liability for properties held by LandBank if funds are received from transactions separate from the original purchase to pay for environmental remediation costs. There are no recent additions to the LandBank portfolio of properties, and at this time we are not pursuing additional opportunities. Accordingly, we are not incurring incremental environmental liability beyond the portfolio that currently exists. Existing liabilities are reviewed quarterly, or more frequently as additional information becomes available. We also have insurance coverage that helps mitigate our liability exposure. At November 30, 2012 and August 31, 2012, our E&I segment had approximately $1.1 million and $1.2 million, respectively, of environmental liabilities recorded in other liabilities in the accompanying balance sheets. LandBank environmental liability exposure beyond that which is recorded and covered by insurance, if any, is estimated to be immaterial.

Employment Contracts

We have entered into employment agreements with each of our senior corporate executives and certain other key employees. In the event of termination, these individuals may be entitled to receive their base salaries, management incentive payments, and certain other benefits for the remaining term of their agreement and all options and similar awards may become fully vested. Additionally, for certain executives, in the event of death, their estates are entitled to certain payments and benefits.