Petrofac Regulatory News (PFC)

10 Mar 2008 07:01

Petrofac Limited10 March 2008 CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 2007 2006 Notes US$'000 US$'000 Revenue 4a 2,440,251 1,863,906 Cost of sales 4b (2,029,772) (1,593,588) ------------------------------Gross profit 410,479 270,318 Selling, general and administration 4e (165,308) (104,513)expensesOther income 4c 3,951 4,870Other expenses 4d (621) (1,133) ------------------------------Profit from operations before taxand finance income/(costs) 248,501 169,542 Finance costs 5 (8,527) (7,168)Finance income 5 18,259 9,298 ------------------------------ Profit before tax 258,233 171,672 Income tax expense - UK (7,376) (13,886)- Overseas (62,141) (37,454) ------------------------------ 6 (69,517) (51,340) ------------------------------ Profit for the year 188,716 120,332 ============================== Attributable to:Petrofac Limited shareholders 188,716 120,332 ============================== Earnings per share (US cents) 7 - Basic 54.63 34.98- Diluted 54.14 34.87 The attached notes 1 to 32 form part of these consolidated financial statements. CONSOLIDATED BALANCE SHEETAt 31 December 2007 2007 2006 Notes US$'000 US$'000ASSETSNon-current assetsProperty, plant and equipment 9 256,237 143,176Goodwill 11 71,743 56,732Intangible assets 12 9,010 17,959Available-for-sale financial assets 14 1,586 1,726Derivative financial instruments 15 1,775 1,925Other financial assets 15 23 22Deferred income tax assets 6c 11,472 2,902 --------------------------- 351,846 224,442 --------------------------- Current assetsInventories 16 2,256 1,943Work in progress 17 270,181 367,869Trade and other receivables 18 509,025 330,515Due from related parties 30 3,147 7,725Derivative financial instruments 15 27,298 7,483Other financial assets 15 2,702 2,650Cash and short-term deposits 19 581,552 457,848 ------------------------- 1,396,161 1,176,033 ------------------------- Asset classified as held for sale - 1,372 ------------------------- TOTAL ASSETS 1,748,007 1,401,847 ========================= EQUITY AND LIABILITIESEquity attributable to Petrofac LimitedshareholdersShare capital 20 8,636 8,629Share premium 68,203 66,210Capital redemption reserve 10,881 10,881Treasury shares 21 (29,842) (8,144)Other reserves 23 50,467 19,611Retained earnings 377,450 227,508 ------------------------- 485,795 324,695Minority interests 209 209 ------------------------- TOTAL EQUITY 486,004 324,904 ------------------------- Non-current liabilitiesInterest-bearing loans and borrowings 24 81,640 90,705Provisions 25 19,046 12,498Other financial liabilities 26 13,870 7,373Deferred income tax liabilities 6c 34,137 25,754 ------------------------ 148,693 136,330 ------------------------ Current liabilitiesTrade and other payables 27 408,017 346,706Due to related parties 30 744 182Interest-bearing loans and borrowings 24 28,455 26,475Other financial liabilities 26 864 172Income tax payable 47,577 10,085Billings in excess of cost and 17 208,105 124,990estimated earningsAccrued contract expenses 28 419,548 432,003 ------------------------ 1,113,310 940,613 ------------------------ TOTAL LIABILITIES 1,262,003 1,076,943 ------------------------ TOTAL EQUITY AND LIABILITIES 1,748,007 1,401,847 ======================== The financial statements on pages 24 to 73 were approved by the Board ofDirectors on 7 March 2008 and signed on its behalf by Keith Roberts - ChiefFinancial Officer___________. The attached notes 1 to 32 form part of these consolidated financial statements. CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 2007 2006 Notes US$'000 US$'000 OPERATING ACTIVITIESProfit before tax 258,233 171,672Adjustments for:Depreciation, amortisation and impairment 52,758 28,807Share-based payments 4f 5,412 1,281Difference between other long termemployment benefitspaid and amounts recognised in the income statement 5,852 3,082Net finance (income) (9,732) (2,130)Gain on disposal of investments 4c - (1,671)Gain on disposal of property, plant and equipment 4b,4c (8,834) (11,681)Gain on disposal of held for sale assets 4c (243) -Other non-cash items, net 1,756 1,203 --------------------------- Operating profit before working 305,202 190,563capital changesTrade and other receivables (171,360) (2,355)Work in progress 97,688 (132,822)Due from related parties 4,578 20,677Inventories (313) (787)Current financial assets (395) 983Trade and other payables 64,044 129,896Billings in excess of cost and estimated earnings 83,115 55,214Accrued contract expenses (12,455) 68,533Due to related parties 562 (1,153) --------------------------- 370,666 328,749Other non-current items, net 133 (139) --------------------------- Cash generated from operations 370,799 328,610Interest paid (7,004) (7,848)Income taxes paid, net (32,417) (19,087) --------------------------- Net cash flows from operating activities 331,378 301,675 --------------------------- INVESTING ACTIVITIESPurchase of property, plant and equipment (117,157) (58,332)Acquisition of subsidiaries, net of cash acquired 10 (4,902) (3,865)Payment of deferred consideration on acquisition 10 (64) -Purchase of intangible oil & gas assets 12 (48,604) (6,187)Purchase of available-for-sale financial assets - (501)Proceeds from disposal of property, plant and equipment 12,166 22,823Proceeds from disposal of available-for-sale financial assets - 2,250Net foreign exchange differences 829 1,366Interest received 18,562 7,929 ---------------------------- Net cash flows used in investing activities (139,170) (34,517) ---------------------------- 2007 2006 Notes US$'000 US$'000 FINANCING ACTIVITIESProceeds from interest-bearing loans and borrowings - 766Repayment of interest-bearing loans and borrowings (2,767) (10,361)Shareholders loan note transactions, net 216 198Treasury shares purchased 21 (21,698) (8,127)Equity dividends paid (39,479) (15,069) ------------------------- Net cash flows used in financing activities (63,728) (32,593) ------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 128,480 234,565 Cash and cash equivalents at 1 January 437,406 202,841 ------------------------ CASH AND CASH EQUIVALENTS AT 31 DECEMBER 19 565,886 437,406 ======================== The attached notes 1 to 32 form part of these consolidated financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2007 Attributable to Shareholders of Petrofac Limited Issued Capital share Share redemption Treasury Other Retained Minority Total capital premium reserve shares reserves earnings Total interests equity US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 (note 23) Balance at 1 January 2007 8,629 66,210 10,881 (8,144) 19,611 227,508 324,695 209 324,904 --------------------------------------------------------------------------------- Foreign currency translation - - - - (72) - (72) - (72) Net gain onmaturity of cashflowhedges recognisedinincome statement - - - - (22,183) - (22,183) - (22,183) Net changes infair value ofderivatives - - - - 41,734 - 41,734 - 41,734 Realised gains onthe sale ofavailable-for-salefinancial assetsrecognised in income statement - - - - - - - - - Net changes in thefair valueofavailable-for-salefinancial assets - - - - (140) - (140) - (140) ------------------------------------------------------------------------------- Total income andexpensesfor the yearrecognisedin equity - - - - 19,339 - 19,339 - 19,339 Net profit for the year - - - - - 188,716 188,716 - 188,716 ------------------------------------------------------------------------------ Total income andexpensesfor the year - - - - 19,339 188,716 208,055 - 208,055 Share-based payments charge(note 22) - - - - 5,412 - 5,412 - 5,412 Shares issued on acquisition (note20) 7 1,993 - - - - 2,000 - 2,000 Treasury shares (note 21) - - - (21,698) - - (21,698) - (21,698) Transfer toreserve forshare-based payments (note 22) - - - - 6,105 - 6,105 - 6,105 Dividends (note 8) - - - - - (38,774) (38,774) - (38,774) ------------------------------------------------------------------------------- Balance at 31 December 2007 8,636 68,203 10,881 (29,842) 50,467 377,450 485,795 209 486,004 =============================================================================== Attributable to Shareholders of Petrofac Limited Issued Capital share Share redemption Treasury Other Retained Minority Total capital premium reserve shares reserves earnings Total interests equity US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 (note 23) Balance at 1 January 2006 8,629 66,210 10,881 (17) (12,426) 121,850 195,127 - 195,127 ---------------------------------------------------------------------------------- Foreign currency translation - - - - 7,449 - 7,449 - 7,449 Net gain onmaturity of cashflowhedges recognisedinincome statement - - - - (2,378) - (2,378) - (2,378) Net changes infair value ofderivatives - - - - 22,931 - 22,931 - 22,931 Realised gains onthe sale ofavailable-for-salefinancial assetsrecognised in income statement - - - - (1,671) - (1,671) - (1,671) Net changes in thefair valueofavailable-for-salefinancial assets - - - - 1,062 - 1,062 - 1,062 -------------------------------------------------------------------------------- Total income andexpensesfor the yearrecognisedin equity - - - - 27,393 - 27,393 - 27,393 Net profit for the year - - - - - 120,332 120,332 - 120,332 -------------------------------------------------------------------------------- Total income andexpensesfor the year - - - - 27,393 120,332 147,725 - 147,725 Share-based payments charge(note 22) - - - - 1,281 - 1,281 - 1,281 Treasury shares (note 21) - - - (8,127) - - (8,127) - (8,127) Transfer toreserve forshare-based payments (note 22) - - - - 3,363 - 3,363 - 3,363 Dividends (note 8) - - - - - (14,674) (14,674) - (14,674) Minority interests acquired - - - - - - - 209 209 -------------------------------------------------------------------------------- Balance at 31 December 2006 8,629 66,210 10,881 (8,144) 19,611 227,508 324,695 209 324,904 ================================================================================= The attached notes 1 to 32 form part of these consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAt 31 December 2007 1 CORPORATE INFORMATION The consolidated financial statements of Petrofac Limited (the Company) for theyear ended 31 December 2007 were authorised for issue in accordance with aresolution of the directors on 7 March 2008. Petrofac Limited is a limited liability company registered in Jersey under theCompanies (Jersey) Law 1991 and is the holding company for the internationalgroup of Petrofac subsidiaries (together "the group"). The group's principalactivity is the provision of facilities solutions to the oil & gas productionand processing industry. A full listing of all group companies, including joint venture companies, iscontained in note 32 to these consolidated financial statements. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared on a historical costbasis, except for derivative financial instruments and available-for-salefinancial assets that have been measured at fair value. The presentationcurrency of the consolidated financial statements is United States dollars andall values in the financial statements are rounded to the nearest thousand(US$'000) except where otherwise stated. Statement of compliance The consolidated financial statements of Petrofac Limited and its subsidiarieshave been prepared in accordance with International Financial ReportingStandards (IFRS) and applicable requirements of Jersey law. Basis of consolidation The consolidated financial statements comprise the financial statements ofPetrofac Limited and its subsidiaries. The financial statements of subsidiariesare prepared for the same reporting year as the Company and where necessary,adjustments are made to the financial statements of the group's subsidiaries tobring their accounting policies into line with those of the group. Subsidiaries are consolidated from the date on which control is transferred tothe group and cease to be consolidated from the date on which control istransferred out of the group. Control is achieved where the Company has thepower to govern the financial and operating policies of an investee entity so asto obtain benefits from its activities. All intra-group balances andtransactions, including unrealised profits, have been eliminated onconsolidation. Minority interests in subsidiaries consolidated by the group are disclosedseparately from the group's equity and income statement. Losses attributable tominority interests in excess of the minority's interest in the net assets of thesubsidiary are adjusted against the interest of the group unless there is abinding obligation on the part of the minority to contribute additionalinvestment in the subsidiary. Comparative information relating to discontinued operations in the consolidatedincome statement and related notes to the financial statements has not beenseparately disclosed, as the remaining assets and liabilities associated withthe prior year discontinued operations no longer meet the criteria of IFRS 5'Non-current Assets Held for Sale and Discontinued Operations' as they are notbeing discontinued via a sale transaction, but are being wound down. New Standards and Interpretations The group has adopted new and revised Standards and Interpretations issued bythe International Accounting Standards Board (IASB) and the InternationalFinancial Reporting Interpretations Committee (IFRIC) of the IASB that arerelevant to its operations and effective for accounting periods beginning on orafter 1 January 2007. The principal effects of the adoption of these new andamended standards and interpretations are discussed below: IAS 1 'Presentation of financial statements' This amendment requires new disclosure regarding the group's objectives,policies and processes for managing its capital. These new disclosures are shownin note 31. IFRS 7 'Financial instruments: Disclosures' This standard requires the disclosure of the group's financial instruments andqualitative and quantitative disclosures around the associated risks arisingfrom those financial instruments. The new disclosures are included throughoutthe financial statements. IFRIC 8 'Scope of IFRS 2' This interpretation requires the application of 'IFRS 2 Share-based payment' tobe applied to any arrangements where equity instruments are issued forconsideration which appears to be less than fair value. The group mainly entersinto share- based payment transactions as part of an employee share scheme andas a result this interpretation has no impact on the financial position of thegroup. IFRIC 9 'Reassessment of Embedded Derivatives' This interpretation prescribes that the existence of an embedded derivative isdetermined at the date an entity first becomes a party to a contract and isreassessed only when there has been a change to the contract that significantlymodifies the cash flows. The adoption of this interpretation does not have anysignificant impact on the financial position of the group. IFRIC 10 'Interim Financial Reporting and Impairment' This interpretation lays out guidelines for the treatment of impairment lossesduring an interim period, namely that the entity must not reverse an impairmentloss recognised in a previous interim period in respect of goodwill or aninvestment in either an equity instrument or a financial asset carried at cost.The adoption of this interpretation did not affect the group's operating resultsor financial position. Certain new standards, amendments to and interpretations of existing standardshave been published and are mandatory for the group's accounting periodsbeginning on or after 1 January 2008 or later periods but which the group hasnot early adopted. Those that are applicable to the group are as follows: i) IAS 1 'Presentation of Financial Statements (Revised)'effective forannual periods beginning on or after 1 January 2009 has been revised to enhancethe usefulness of information presented in the financial statements. Managementis considering the approach to meeting this requirement. ii) IFRS 2 'Amendments to IFRS 2 - Vesting Conditions and Cancellations'is required to be applied to periods beginning on or after 1 January 2009. Thisamendment clarifies the definition of non-vesting conditions and prescribesaccounting treatment of an award that is cancelled because a non-vestingcondition is not satisfied. This will have no significant impact on the group'sfinancial statements. iii) IFRS 3 'Business Combinations (Revised)' and the amended version ofIAS 27 'Consolidated and Separate Financial Statements', effective for annualperiods beginning on or after 1 July 2009, have been enhanced to, amongst otherreasons, specify the accounting treatments for acquisition costs, contingentconsideration, pre-existing relationships and reacquired rights. The revisedstandards include detailed guidance in respect of step acquisitions and partialdisposals of subsidiaries and associates as well as in respect of allocation ofincome to non-controlling interests. Further, an option has been added to IFRS 3to permit an entity to recognise 100 per cent of the goodwill of an acquiredentity, not just the acquiring entity's portion of the goodwill. The impact ofthis standard on the group is not expected to be significant. iv) IFRS 8 'Operating Segments' introduces the management approach tosegment reporting. IFRS 8, which becomes mandatory for the group's 2009financial information, will require the disclosure of segment information basedon the internal reports regularly reviewed by the group's Chief OperatingDecision Maker in order to assess each segment's performance and allocateresources to them. Management is analysing the approach to be used in thesegment information under IFRS 8. v) IFRIC 14-IAS 19 'The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction' clarifies when refunds or reductions infuture contributions in relation to defined benefit assets should be regarded asavailable and provides guidance on the impact of minimum funding requirements(MFR) on such assets. It also addresses when an MFR might give rise to aliability. IFRIC 14 will become mandatory for the group's 2008 financialinformation, with retrospective application required. This will have nosignificant impact on the group's financial statements. vi) Revisions to IAS 23 'Borrowing costs' have removed the option ofimmediately recognising as an expense borrowing costs that relate to assets thattake a substantial period of time to get ready for use or sale. An entity is,therefore, required to capitalise borrowing costs as part of the cost of suchassets. The revised standard applies to borrowing costs relating to qualifyingassets for which the commencement date for capitalisation is on or after 1January 2009. This will have no significant impact on the group. vii) IFRIC 11, IFRS 2 'Group and Treasury Share Transactions' effective forannual periods beginning on or after 1 March 2007 provides specific guidance onapplying IFRS 2. It addresses share-based payments involving an entity choosingor being required to buy its own equity instruments (treasury shares) to settlea share-based payment obligation and the situation when the parent grants rightsto its equity instruments to employees of its subsidiaries (both of which shouldbe treated as equity-settled). In addition it addresses the situation when asubsidiary grants rights to equity instruments of its parent to its employees(which should be treated as cash settled). The Directors anticipate that theinitial adoption of this standard will have no significant impact on the group. Other interpretations that have been issued but that are not yet effective butthat are not applicable to the group are IFRIC 12 'Service ConcessionArrangements' and IFRIC 13 'Customer Loyalty Programmes'. Significant accounting judgements and estimates Judgements In the process of applying the group's accounting policies, management has madethe following judgements, apart from those involving estimations, which have themost significant effect on the amounts recognised in the financial statements: • Revenue recognition on fixed price engineering, procurement and construction contracts: the group recognises revenue on fixed price engineering, procurement and construction contracts using the percentage-of-completion method, based on surveys of work performed. The group has determined this basis of revenue recognition is the best available measure of progress on such contracts. Estimation uncertainty The key assumptions concerning the future and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below: • Project cost to complete estimates: at each balance sheet date the group is required to estimate costs to complete on fixed price contracts. Estimating costs to complete on such contracts requires the group to make estimates of future costs to be incurred, based on work to be performed beyond the balance sheet date. • Impairment of goodwill: the group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the group to make an estimate of the expected future cash flows from each cash-generating unit and also to determine a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2007 was US$71,743,000 (2006: US$56,732,000). • Deferred tax assets: the group recognises deferred tax assets on unused tax losses where it is probable that future taxable profits will be available for utilisation. This requires management to make judgements and assumptions regarding the amount of deferred tax that can be recognised as well as the likelihood of future taxable profits. The carrying amount of recognised tax losses at 31 December 2007 was US$8,512,000 (2006: US$1,851,000). • Income tax: The company and its subsidiaries are subject to routine tax audits and also a process whereby tax computations are discussed and agreed with the appropriate authorities. Whilst the ultimate outcome of such tax audits and discussions cannot be determined with certainty, management estimates the level of provisions required for both current and deferred tax on the basis of professional advice and the nature of current discussions with the tax authority concerned. • Recoverable value of intangible oil & gas assets: the group determines at each balance sheet date whether there is any evidence of impairment in the carrying value of its intangible oil & gas assets. This requires management to estimate the recoverable value of its intangible oil & gas assets by reference to quoted market values, similar arms length transactions involving these assets etc. Interests in joint ventures The group has a number of contractual arrangements with other parties whichrepresent joint ventures. These take the form of agreements to share controlover other entities ('jointly controlled entities') and commercialcollaborations ('jointly controlled operations'). The group's interests injointly controlled entities are accounted for by proportionate consolidation,which involves recognising its proportionate share of the joint venture'sassets, liabilities, income and expenses with similar items in the consolidatedfinancial statements on a line-by-line basis. Where the group collaborates withother entities in jointly controlled operations, the expenses the group incursand its share of the revenue earned is recognised in the income statement.Assets controlled by the group and liabilities incurred by it are recognised inthe balance sheet. Where necessary, adjustments are made to the financialstatements of the group's jointly controlled entities and operations to bringtheir accounting policies into line with those of the group. Foreign currency translation The Company's functional and presentational currency is United States dollars.In the accounts of individual group companies, transactions in currencies otherthan a company's functional currency are recorded at the prevailing rate ofexchange at the date of the transaction. At the year end, monetary assets andliabilities denominated in foreign currencies are retranslated at the rates ofexchange prevailing at the balance sheet date. Non-monetary assets andliabilities that are measured in terms of historical cost in a foreign currencyare translated using the rate of exchange as at the dates of the initialtransactions. Non-monetary assets and liabilities measured at fair value in aforeign currency are translated using the rate of exchange at the date the fairvalue was determined. All foreign exchange gains and losses are taken to theincome statement with the exception of exchange differences arising on monetaryassets and liabilities that form part of the group's net investment insubsidiaries. These are taken directly to equity until the disposal of the netinvestment at which time they are recognised in the income statement. The balance sheets of overseas subsidiaries and joint ventures are translated into US dollars using the closing rate method, whereby assets and liabilities aretranslated at the rates of exchange prevailing at the balance sheet date. Theincome statements of overseas subsidiaries and joint ventures are translated ataverage exchange rates for the year. Exchange differences arising on theretranslation of net assets are taken directly to a separate component ofequity. On the disposal of a foreign entity, accumulated exchange differences arerecognised in the income statement as a component of the gain or loss ondisposal. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Cost comprises the purchase price or constructioncost and any costs directly attributable to making that asset capable ofoperating as intended. The purchase price or construction cost is the aggregateamount paid and the fair value of any other consideration given to acquire theasset. Depreciation is provided on a straight-line basis other than on oil & gasassets at the following rates. Oil & gas facilities 10% - 12.5%Plant and equipment 4% - 33%Buildings and leasehold improvements 5% - 33% (or shorter of the lease term)Office furniture and equipment 25% - 100%Vehicles 20% - 33% Tangible oil & gas assets are depreciated, on a field-by-field basis, using theunit-of-production method based on entitlement to proven and probable reserves,taking account of estimated future development expenditure relating to thosereserves. Each asset's estimated useful life, residual value and method of depreciationare reviewed and adjusted if appropriate at each financial year end. No depreciation is charged on land or assets under construction. The carrying amount of an item of property, plant and equipment shall bederecognised on disposal or when no future economic benefits are expected fromits use or disposal. The gain or loss arising from the derecognition of an itemof property, plant and equipment shall be included in profit or loss when theitem is derecognised. Gains shall not be classified as revenue. Non-current assets Non-current assets or disposal groups are classified as held for sale when it isexpected that the carrying amount of an asset will be recovered principallythrough sale rather than continuing use. Assets are not depreciated whenclassified as held for sale. Borrowing costs Borrowing costs directly attributable to the construction of qualifying assets,which are assets that necessarily take a substantial period of time to preparefor their intended use, are added to the cost of those assets, until such timeas the assets are substantially ready for their intended use. All otherborrowing costs are recognised as interest payable in the income statement inthe period in which they are incurred. Goodwill Goodwill acquired in a business combination is initially measured at cost, beingthe excess of the cost of the business combination over the net fair value ofthe identifiable assets, liabilities and contingent liabilities of the entity atthe date of acquisition. Following initial recognition, goodwill is measured atcost less any accumulated impairment losses. Goodwill is reviewed for impairmentannually, or more frequently if events or changes in circumstances indicate thatsuch carrying value may be impaired. For the purpose of impairment testing, goodwill acquired is allocated to thecash-generating units that are expected to benefit from the synergies of thecombination. Each unit or units to which goodwill is allocated represents thelowest level within the group at which the goodwill is monitored for internalmanagement purposes and is not larger than a segment based on either the group'sprimary or the group's secondary reporting format determined in accordance withIAS14 'Segment Reporting'. Impairment is determined by assessing the recoverable amount of thecash-generating units to which the goodwill relates. Where the recoverableamount of the cash-generating units is less than the carrying amount of theunits and related goodwill, an impairment loss is recognised. Where goodwill has been allocated to cash-generating units and part of theoperation within those units is disposed of, the goodwill associated with theoperation disposed of is included in the carrying amount of the operation whendetermining the gain or loss on disposal of the operation. Goodwill disposed ofin this circumstance is measured based on the relative values of the operationdisposed of and the portion of the cash-generating units retained. Intangible assets - non oil & gas assets Intangible assets acquired in a business combination are initially measured atcost being their fair values at the date of acquisition and are recognisedseparately from goodwill as the asset is separable or arises from a contractualor other legal right and its fair value can be measured reliably. After initialrecognition, intangible assets are carried at cost less accumulated amortisationand any accumulated impairment losses. Intangible assets with a finite life areamortised over their useful economic life using a straight line method unless abetter method reflecting the pattern in which the asset's future economicbenefits are expected to be consumed can be determined. The amortisation chargein respect of intangible assets is included in the selling, general andadministration expenses line of the income statement. The expected useful livesof assets are reviewed on an annual basis. Any change in the useful life orpattern of consumption of the intangible asset is treated as a change inaccounting estimate and is accounted for prospectively by changing theamortisation period or method. Intangible assets are tested for impairmentwhenever there is an indication that the asset may be impaired. Customer contracts Customer contracts arising from acquisition are amortised over the remainingyears of the contracts on a straight line basis. Oil & gas assets Capitalised costs The group's activities in relation to oil & gas assets are limited to assets inthe evaluation, development and production phases and the group has adopted IFRS6 'Exploration for and Evaluation of Mineral Resources' for the purposes ofaccounting for oil & gas assets in its financial statements. Oil & gas evaluation and development expenditure is accounted for using thesuccessful efforts method of accounting. Evaluation expenditures Expenditure directly associated with evaluation (or appraisal) activities iscapitalised as an intangible asset. Such costs include the costs of acquiring aninterest, appraisal well drilling costs, payments to contractors and anappropriate share of directly attributable overheads incurred during theevaluation phase. For such appraisal activity, which may require drilling offurther wells, costs continue to be carried as an asset whilst relatedhydrocarbons are considered capable of commercial development. Such costs aresubject to technical, commercial and management review to confirm the continuedintent to develop, or otherwise extract value. When this is no longer the case,the costs are written off in the income statement. When such assets are declaredpart of a commercial development, related costs are transferred to tangible oil& gas assets. All intangible oil & gas assets are assessed for any impairmentprior to transfer and any impairment loss is recognised in the income statement. Development expenditures Expenditure relating to development of assets which include the construction,installation and completion of infrastructure facilities such as platforms,pipelines and development wells, is capitalised within property, plant andequipment. Changes in unit-of-production factors Changes in factors which affect unit-of-production calculations are dealt withprospectively, not by immediate adjustment of prior years' amounts. Decommissioning Provision for future decommissioning costs is made in full when the group has anobligation to dismantle and remove a facility or an item of plant and to restorethe site on which it is located, and when a reasonable estimate of thatliability can be made. The amount recognised is the present value of theestimated future expenditure. An amount equivalent to the initial provision fordecommissioning costs is capitalised and amortised over the life of theunderlying asset on a unit-of-production basis over proven and probablereserves. Any change in the present value of the estimated expenditure isreflected as an adjustment to the provision and the oil & gas asset. The unwinding of the discount applied to future decommissioning provisions isincluded under finance costs in the income statement. Available-for-sale financial assets Investments classified as available-for-sale are initially stated at fair value,including acquisition charges associated with the investment. After initial recognition, available-for-sale financial assets are measured attheir fair value using quoted market rates. Gains and losses are recognised as aseparate component of equity until the investment is sold or impaired, at whichtime the cumulative gain or loss previously reported in equity is included inthe income statement. Impairment of assets (excluding goodwill) At each balance sheet date, the group reviews the carrying amounts of itstangible and intangible assets to assess whether there is an indication thatthose assets may be impaired. If any such indication exists, the group makes anestimate of the asset's recoverable amount. An asset's recoverable amount is thehigher of an asset's fair value less costs to sell and its value in use. Inassessing value in use, the estimated future cash flows attributable to theasset are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset. If the recoverable amount of an asset is estimated to be less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.An impairment loss is recognised immediately in the income statement, unless therelevant asset is carried at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the assetis increased to the revised estimate of its recoverable amount, but so that theincreased carrying amount does not exceed the carrying amount that would havebeen determined had no impairment loss been recognised for the asset in prioryears. A reversal of an impairment loss is recognised immediately in the incomestatement, unless the relevant asset is carried at a revalued amount, in whichcase the reversal of the impairment is treated as a revaluation increase. Inventories Inventories are valued at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Cost comprises purchase price, cost of production,transportation and other directly allocable expenses. Costs of inventories,other than raw materials, are determined using the first-in-first-out method.Costs of raw materials are determined using the weighted average method. Work in progress and billings in excess of cost and estimated earnings Fixed price lump sum engineering, procurement and construction contracts arepresented in the balance sheet as follows: For each contract, the accumulated cost incurred, as well as the estimatedearnings recognised at the contract's percentage of completion less provisionfor any anticipated losses, after deducting the progress payments received orreceivable to the customers, are shown in current assets in the balance sheetunder the "Work in progress". Where the payments received or receivable for any contract exceed the cost andestimated earnings less provision for any anticipated losses, the excess isshown as "Billings in excess of cost and estimated earnings" within currentliabilities. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less anallowance for any amounts estimated to be uncollectable. An estimate fordoubtful debts is made when there is objective evidence that the collection ofthe full amount is no longer probable under the terms of the original invoice.Impaired debts are derecognised when they are assessed as uncollectable. Cash and cash equivalents Cash and cash equivalents consist of cash at bank and in hand and short-termdeposits with an original maturity of three months or less. For the purpose ofthe cash flow statement, cash and cash equivalents consists of cash and cashequivalents as defined above, net of outstanding bank overdrafts. Interest-bearing loans and borrowings All interest-bearing loans and borrowings are initially recognised at the fairvalue of the consideration received net of issue costs directly attributable tothe borrowing. After initial recognition, interest-bearing loans and borrowings aresubsequently measured at amortised cost using the effective interest ratemethod. Amortised cost is calculated by taking into account any issue costs, andany discount or premium on settlement. Provisions Provisions are recognised when the group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources will be required to settle the obligation and a reliable estimate canbe made of the amount of the obligation. If the time value of money is material,provisions are discounted using a current pre-tax rate that reflects, whereappropriate, the risks specific to the liability. Where discounting is used, theincrease in the provision due to the passage of time is recognised in the incomestatement as a finance cost. Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset) isderecognised where: • the rights to receive cash flows from the asset have expired; • the group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or • the group has transferred its rights to receive cash flows from the asset and either a) has transferred substantially all the risks and rewards of the asset, or b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Financial liabilities A financial liability is derecognised when the obligation under the liability isdischarged or cancelled or expires. If an existing financial liability is replaced by another from the same lender,on substantially different terms, or the terms of an existing liability aresubstantially modified, such an exchange or modification is treated as aderecognition of the original liability and the recognition of a new liabilitysuch that the difference in the respective carrying amounts together with anycosts or fees incurred are recognised in the income statement. Pensions and other long term employment benefits The group has various defined contribution pension schemes in accordance withthe local conditions and practices in the countries in which it operates. Theamount charged to the income statement in respect of pension costs reflects thecontributions payable in the year. Differences between contributions payableduring the year and contributions actually paid are shown as either accruedliabilities or prepaid assets in the balance sheet. The group's other long term employment benefits are provided in accordance withthe labour laws of the countries in which the group operates, further details ofwhich are given in note 25. Share-based payment transactions Employees (including directors) of the group receive remuneration in the form ofshare-based payment transactions, whereby employees render services in exchangefor shares or rights over shares ('equity-settled transactions'). Equity-settled transactions The cost of equity-settled transactions with employees is measured by referenceto the fair value at the date on which they are granted. In valuingequity-settled transactions, no account is taken of any performance conditions,other than conditions linked to the price of the shares of Petrofac Limited('market conditions'), if applicable. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the relevantemployees become fully entitled to the award (the 'vesting period'). Thecumulative expense recognised for equity-settled transactions at each reportingdate until the vesting date reflects the extent to which the vesting period hasexpired and the group's best estimate of the number of equity instruments thatwill ultimately vest. The income statement charge or credit for a periodrepresents the movement in cumulative expense recognised as at the beginning andend of that period. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. Equity awardscancelled are treated as vesting immediately on the date of cancellation, andany expense not recognised for the award at that date is recognised in theincome statement. The group has taken advantage of the transitional provisions of IFRS 2'Share-based payment' in respect of equity-settled awards and has applied IFRS 2'Share-based payment' only to equity-settled awards granted after 7 November2002 that had not vested before 1 January 2005. Petrofac Employee Benefit Trust The Petrofac Employee Benefit Trust was established on 7 March 2006 to warehouseordinary shares purchased to satisfy various new share scheme awards made to theemployees of the Company, which will be transferred to the members of the schemeon their respective vesting dates subject to satisfying the performanceconditions of each scheme. The trust has been consolidated in the financialstatements in accordance with SIC 12 'Special Purpose Entities'. The cost ofshares temporarily held by Petrofac Employee Benefit Trust are reflected astreasury shares and deducted from equity. Leases The determination of whether an arrangement is, or contains a lease is based onthe substance of the arrangement at inception date of whether the fulfilment ofthe arrangement is dependent on the use of a specific asset or assets or thearrangement conveys the right to use the asset. The group has entered into various operating leases the payments for which arerecognised as an expense in the income statement on a straight-line basis overthe lease terms. Revenue recognition Revenue is recognised to the extent that it is probable economic benefits willflow to the group and the revenue can be reliably measured. The followingspecific recognition criteria also apply: Engineering, procurement and construction services (Engineering & Construction) Revenues from fixed-price lump-sum contracts are recognised on thepercentage-of-completion method, based on surveys of work performed once theoutcome of a contract can be estimated reliably. In the early stages of contractcompletion, when the outcome of a contract cannot be estimated reliably,contract revenues are recognised only to the extent of costs incurred that areexpected to be recoverable. Revenues from cost-plus-fee contracts are recognised on the basis of costsincurred during the year plus the fee earned measured by the cost-to-costmethod. Provision is made for all losses expected to arise on completion of contractsentered into at the balance sheet date, whether or not work has commenced onthese contracts. Incentive payments are included in revenue when the contract is sufficientlyadvanced that it is probable that the specified performance standards will bemet or exceeded and the amount of the incentive payments can be measuredreliably. Claims are only included in revenue when negotiations have reached anadvanced stage such that it is probable the claim will be accepted and can bemeasured reliably. Facilities management, engineering and training services (Operations Services) Revenues from reimbursable contracts are recognised in the period in which theservices are provided based on the agreed contract schedule of rates. Revenues from fixed-price contracts are recognised on thepercentage-of-completion method, measured by milestones completed or earnedvalue once the outcome of a contract can be estimated reliably. In the earlystages of contract completion, when the outcome of a contract cannot beestimated reliably, contract revenues are recognised only to the extent of costsincurred that are expected to be recoverable. Incentive payments are included in revenue when the contract is sufficientlyadvanced that it is probable that the specified performance standards will bemet or exceeded and the amount of the incentive payments can be measuredreliably. Claims are only included in revenue when negotiations have reached anadvanced stage such that it is probable the claim will be accepted and can bemeasured reliably. Oil & gas activities (Energy Developments) Oil & gas revenues comprise the group's share of sales from the processing orsale of hydrocarbons on an entitlement basis, when the significant risks andrewards of ownership have been passed to the buyer. Income taxes Income tax expense represents the sum of current income tax and deferred tax. Current income tax assets and liabilities for the current and prior periods aremeasured at the amount expected to be recovered from, or paid to the taxationauthorities. Taxable profit differs from profit as reported in the incomestatement because it excludes items of income or expense that are taxable ordeductible in other years and it further excludes items that are never taxableor deductible. The group's liability for current tax is calculated using taxrates that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised on all temporary differences at the balancesheet date between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax bases used in the computation oftaxable profit, with the following exceptions: • where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; • in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and • deferred income tax assets are recognised only to the extent that it is probable that a taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredincome tax assets to be utilised. Unrecognised deferred income tax assets arereassessed at each balance sheet date and are recognised to the extent that ithas become probable that future taxable profit will allow the deferred tax assetto be recovered. Deferred income tax assets and liabilities are measured on an undiscounted basisat the tax rates that are expected to apply when the asset is realised or theliability is settled, based on tax rates and tax laws enacted or substantivelyenacted at the balance sheet date. Current and deferred income tax is charged or credited directly to equity if itrelates to items that are credited or charged to equity. Otherwise, income taxis recognised in the income statement. For presentation purposes certain 2006 comparative tax figures have beenrestated to conform to the current year's presentation. Derivative financial instruments and hedging The group uses derivative financial instruments such as forward currencycontracts, interest rate collars and swaps and oil price collars to hedge itsrisks associated with foreign currency, interest rate and oil pricefluctuations. Such derivative financial instruments are initially recognised atfair value on the date on which a derivative contract is entered into and aresubsequently remeasured at fair value. Derivatives are carried as assets whenthe fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives thatdo not qualify for hedge accounting are taken to the income statement. The fair value of forward currency contracts is calculated by reference tocurrent forward exchange rates for contracts with similar maturity profiles. Thefair value of interest rate cap, swap and oil price collar contracts isdetermined by reference to market values for similar instruments. For the purposes of hedge accounting, hedges are classified as: •fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability; or •cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction. The group formally designates and documents the relationship between the hedginginstrument and the hedged item at the inception of the transaction, as well asits risk management objectives and strategy for undertaking various hedgetransactions. The documentation also includes identification of the hedginginstrument, the hedged item or transaction, the nature of risk being hedged andhow the group will assess the hedging instrument's effectiveness in offsettingthe exposure to changes in the hedged item's fair value or cash flowsattributable to the hedged risk. The group also documents its assessment, bothat hedge inception and on an ongoing basis, of whether the derivatives that areused in the hedging transactions are highly effective in offsetting changes infair values or cash flows of the hedged items. The treatment of gains and losses arising from revaluing derivatives designatedas hedging instruments depends on the nature of the hedging relationship, asfollows: Fair value hedges For fair value hedges, the carrying amount of the hedged item is adjusted forgains and losses attributable to the risk being hedged; the derivative isremeasured at fair value and gains and losses from both are taken to the incomestatement. For hedged items carried at amortised cost, the adjustment isamortised through the income statement such that it is fully amortised bymaturity. The group discontinues fair value hedge accounting if the hedging instrumentexpires or is sold, terminated or exercised, the hedge no longer meets thecriteria for hedge accounting or the group revokes the designation. Cash flow hedges For cash flow hedges, the effective portion of the gain or loss on the hedginginstrument is recognised directly in equity, while the ineffective portion isrecognised in the income statement. Amounts taken to equity are transferred tothe income statement when the hedged transaction affects the income statement. If the hedging instrument expires or is sold, terminated or exercised withoutreplacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss existing in equity at that timeremains in equity and is recognised when the forecast transaction is ultimatelyrecognised in the income statement. When a forecast transaction is no longerexpected to occur, the cumulative gain or loss that was reported in equity isimmediately transferred to the income statement. Embedded derivatives Contracts are assessed for the existence of embedded derivatives at the datethat the group first becomes party to the contract, with reassessment only ifthere is a change to the contract that significantly modifies the cash flows.Embedded derivatives which are not clearly and closely related to the underlyingasset, liability or transaction are separated and accounted for as stand alonederivatives. 3 SEGMENT INFORMATION The group's primary operations are organised on a worldwide basis into threebusiness segments: Engineering & Construction, Operations Services and EnergyDevelopments. The accounting policies of the segments are the same as thosedescribed in note 2 above. The group accounts for inter-segment sales as if thesales were to third parties, that is, at current market prices. The groupevaluates the performance of its segments and allocates resources to them basedon this evaluation. The group's secondary segment reporting format is geographical. Geographicalsegments are based on the location of the group's assets. Sales to externalcustomers disclosed in geographical segments are based on the geographicallocation of its customers. Business segments The following tables present revenue and profit information and certain assetand liability information relating to the group's business segments for theyears ended 31 December 2007 and 2006. Included within the corporate,consolidation and eliminations columns are certain balances, which due to theirnature, are not allocated to segments. Year ended 31 December 2007 Engineering Consolidation & Operations Energy Corporate adjustments & Construction Services Developments & others eliminations Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 RevenueExternal sales 1,409,817 897,602 132,832 - - 2,440,251 Inter-segment sales 5,131 13,372 - - (18,503) - ---------------------------------------------------------------------- Total revenue 1,414,948 910,974 132,832 - (18,503) 2,440,251 ====================================================================== Segment results 158,197 44,891 51,637 (236) 51 254,540 Unallocated corporatecosts - - - (6,039) - (6,039) ---------------------------------------------------------------------- Profit / (loss) before tax andfinance income / (costs) 158,197 44,891 51,637 (6,275) 51 248,501 Finance costs (662) (4,384) (205) (8,572) 5,296 (8,527) Finance income 18,013 1,247 331 3,857 (5,189) 18,259 ---------------------------------------------------------------------- Profit / (loss) beforeincome tax 175,548 41,754 51,763 (10,990) 158 258,233 Income tax (expense)/income (38,454) (12,857) (18,375) 169 - (69,517) ---------------------------------------------------------------------- Profit / (loss) for the year 137,094 28,897 33,388 (10,821) 158 188,716 ====================================================================== Year ended 31 December 2006 Consolidation Engineering & Operations Energy Corporate adjustments & Construction Services Developments & others eliminations Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 RevenueExternal sales 1,079,236 722,850 62,125 33 (338) 1,863,906 Inter-segment sales 2,043 6,390 - - (8,433) - ------------------------------------------------------------------------- Total revenue 1,081,279 729,240 62,125 33 (8,771) 1,863,906 ========================================================================= Segment results 117,209 29,100 25,065 (1,577) 707 170,504 Unallocated corporatecosts - - - (962) - (962) ------------------------------------------------------------------------ Profit / (loss) before tax andfinance income / (costs) 117,209 29,100 25,065 (2,539) 707 169,542 Finance costs (347) (2,754) (470) (8,042) 4,445 (7,168) Finance income 10,040 438 236 3,029 (4,445) 9,298 ------------------------------------------------------------------------- Profit / (loss) beforeincome tax 126,902 26,784 24,831 (7,552) 707 171,672 Income tax (expense)/income (31,522) (8,681) (10,466) (707) 36 (51,340) ------------------------------------------------------------------------- Profit / (loss) for the year 95,380 18,103 14,365 (8,259) 743 120,332 ========================================================================= Year ended 31 December 2007 Consolidation Engineering & Operations Energy Corporate adjustments & Construction Services Developments & others eliminations Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000Assets and liabilitiesSegment assets 1,222,444 339,682 244,500 - (86,438) 1,720,188 Inter-segment assets (82,050) (4,388) - - 86,438 - Investments - - 1,586 - - 1,586 --------------------------------------------------------------------------- 1,140,394 335,294 246,086 - - 1,721,774 Unallocated assets - - - 14,761 - 14,761 Income tax assets 2,895 1,000 13,650 618 (6,691) 11,472 --------------------------------------------------------------------------- Total assets 1,143,289 336,294 259,736 15,379 (6,691) 1,748,007 =========================================================================== Segment liabilities 861,132 219,248 173,303 - (178,559) 1,075,124 Inter-segment liabilities (9,621) (43,731) (125,207) - 178,559 - --------------------------------------------------------------------------- 851,511 175,517 48,096 - - 1,075,124 Unallocated liabilities - - - 105,165 - 105,165 Income tax liabilities 53,175 10,147 23,767 1,316 (6,691) 81,714 --------------------------------------------------------------------------- Total liabilities 904,686 185,664 71,863 106,481 (6,691) 1,262,003 =========================================================================== Other segment informationCapital expenditures:Property, plant and equipment 44,683 6,447 66,484 130 (587) 117,157 Intangible oil & gas assets - - 49,700 - - 49,700 Other intangible assets - 2,369 - - - 2,369 Goodwill - 14,233 - - - 14,233 ============================================================================ Charges:Depreciation 15,654 4,567 22,476 449 (845) 42,301 Amortisation - 1,771 - - - 1,771 Impairment - - 8,686 - - 8,686 Other long term employment benefits 5,075 1,492 7 31 - 6,605 Share-based payments 2,667 1,382 589 774 - 5,412 ============================================================================ Year ended 31 December 2006 Consolidation Engineering & Operations Energy Corporate & adjustments & Construction Services Developments others eliminations Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Assets and liabilitiesSegment assets 1,017,978 284,308 136,080 2,885 (66,824) 1,374,427 Inter-segment assets (63,221) (3,418) - (185) 66,824 - Investments - - 1,726 - - 1,726 ---------------------------------------------------------------------------- 954,757 280,890 137,806 2,700 - 1,376,153 Unallocated assets - - - 22,792 - 22,792 ---------------------------------------------------------------------------- Income tax assets 3,849 628 3,679 995 (6,249) 2,902 ---------------------------------------------------------------------------- Total assets 958,606 281,518 141,485 26,487 (6,249) 1,401,847 ============================================================================ Segment liabilities 774,632 185,164 109,182 26,934 (155,622) 940,290 Inter-segment liabilities (10,898) (32,398) (86,787) (25,539) 155,622 - ---------------------------------------------------------------------------- 763,734 152,766 22,395 1,395 - 940,290 Unallocated liabilities - - - 100,814 - 100,814 Income tax liabilities 30,181 8,289 2,118 500 (5,249) 35,839 ---------------------------------------------------------------------------- Total liabilities 793,915 161,055 24,513 102,709 (5,249) 1,076,943 ============================================================================ Other segment informationCapital expenditures:Property, plant and equipment 35,411 4,702 17,888 1,446 - 59,447 Intangible oil & gas assets - - 12,926 - - 12 Other intangible assets - 1,561 - - - 1,561 Goodwill - 668 - - - 668 ============================================================================ Charges:Depreciation 10,049 3,433 15,042 402 (804) 28,122 Amortisation - 390 - - - 390 Impairment losses - - - 295 - 295 Other long term employment benefits 3,814 430 67 (7) - 4,304 Share-based payments 358 287 65 571 - 1,281 ============================================================================ Geographical segments The following tables present revenue, assets and capital expenditure bygeographical segments for the years ended 31 December 2007 and 2006. Year ended 31 December 2007 Middle East CIS / & Africa Asia Pacific Europe Americas Consolidated US$'000 US$'000 US$'000 US$'000 US$'000 Segment revenue 1,104,569 513,083 815,707 6,892 2,440,251 ======================================================= Carrying amount of segment assets 1,131,287 247,972 360,140 8,608 1,748,007 ======================================================= Capital expenditure:Property, plant and equipment 85,169 17,640 14,261 87 117,157Intangible oil & gas assets - 15,927 33,773 - 49,700Other intangible assets 2,369 - - - 2,369Goodwill 14,233 - - - 14,233 ======================================================= Year ended 31 December 2006 Middle East CIS / & Africa Asia Pacific Europe Americas Consolidated US$'000 US$'000 US$'000 US$'000 US$'000 Segment revenue 886,359 271,082 700,757 5,708 1,863,906 ======================================================= Carrying amount of segment assets 945,062 147,541 302,749 6,495 1,401,847 ======================================================= Capital expenditure:Property, plant and equipment 19,501 27,314 12,514 118 59,447Intangible oil & gas assets - - 12,926 - 12,926Other intangible assets - 1,561 - - 1,561Goodwill - 668 - - 668 ======================================================= 4 REVENUES AND EXPENSES a. Revenue 2007 2006 US$'000 US$'000 Rendering of services 2,346,431 1,840,552Sale of crude oil 85,592 15,656Sale of processed hydrocarbons 8,228 7,698 -------------------------- 2,440,251 1,863,906 ========================== Included in revenues from rendering of services are Operations Services revenuesof a 'pass-through' nature with zero or low margins amounting to US$227,048,000(2006: US$221,790,000). b. Cost of sales Included in cost of sales for the year ended 31 December 2007 is US$8,590,000(2006: US$11,635,000) gain on disposal of property, plant and equipment used toundertake various engineering and construction contracts. In additiondepreciation charged on property, plant and equipment of US$37,759,000 during2007 (2006: US$24,810,000) is included in cost of sales (note 9). c. Other income 2007 2006 US$'000 US$'000 Gain on sale of investments - 1,671Foreign exchange gains 3,003 2,201Gain on sale of property, plant and equipment 244 46Gain on sale of asset held for sale 243 -Other income 461 952 --------------------- 3,951 4,870 ===================== d. Other expenses 2007 2006 US$'000 US$'000 Foreign exchange losses 441 931Other expenses 180 202 ---------------------- 621 1,133 ====================== e. Selling, general and administration expenses 2007 2006 US$'000 US$'000 Staff costs 93,915 57,721Depreciation 4,542 3,312Amortisation 1,771 390Impairment (note 12) 8,686 295Other operating expenses 56,394 42,795 ----------------------- 165,308 104,513 ======================= f. Staff costs 2007 2006 US$'000 US$'000 Total staff costs:Wages and salaries 603,324 443,585Social security costs 29,544 25,127Defined contribution pension costs 11,927 9,160Other long term employee benefit costs (note 25) 6,605 4,304Expense of share-based payments (note 22) 5,412 1,281 ---------------------- 656,812 483,457 ====================== Of the US$656,812,000 of staff costs shown above, US$562,897,000 (2006:US$425,736,000) are included in cost of sales, the remainder in selling, generaland administration expenses. The average number of persons employed by the group during the year was 9,027(2006: 7,482). g. Auditors' remuneration (including out-of-pocket expenses) 2007 2006 US$'000 US$'000 Audit fees 1,142 914Fees for other services:Tax services 89 78Other 95 180 --------------------- 1,326 1,172 ===================== 5 FINANCE COSTS / (INCOME) 2007 2006 US$'000 US$'000 Interest payable:Long-term borrowings 4,921 5,166Other interest, including short-term loans and overdrafts 2,092 1,595Unwinding of discount on deferred consideration and decommissioning provisions 1,514 407 ----------------------Total finance cost 8,527 7,168 ====================== Interest receivable:Bank interest receivable (18,255) (9,051)Other interest receivable (4) (247) ----------------------Total finance income (18,259) (9,298) ====================== Other interest receivable Other interest receivable includes shareholder loan interest receivable on loansadvanced to employees for the purchase of participatory interests in ordinaryshares of the Company (note 15). The offer to purchase participatory interestsin ordinary shares was extended through the Petrofac Limited Executive ShareScheme (ESS), which is administered by Petrofac ESOP. The rules of the ESS,unless varied by the Trustee, require a down-payment on acquisition ofparticipatory interests with the balance structured as an interest bearingshareholder loan note, payable over three years. Shareholder loan notes bearinterest at rates between 3.5% and 3.8% (2006: between 3.5% and 3.8%) dependenton the year of issue. 6 INCOME TAX a. Tax on ordinary activities The major components of income tax expense are as follows: 2007 2006 US$'000 US$'000 Current income taxCurrent income tax charge 69,436 26,552Adjustments in respect of current income tax of previous years (228) (364) Deferred income taxRelating to origination and reversal of temporary differences 688 24,923Adjustments in respect of deferred income tax of previous years (379) 229 ---------------------Income tax expense reported in the income statement 69,517 51,340 ===================== b. Reconciliation of total tax charge Under Article 123A of the Income Tax (Jersey) law 1961, as amended, the companyhas obtained Jersey exempt company status and is therefore exempt from Jerseyincome tax on non Jersey source income and bank interest (by concession). Anannual exempt company fee is payable by the Company. A reconciliation between the income tax expense and the product of accountingprofit multiplied by the Company's domestic tax rate is as follows: 2007 2006 US$'000 US$'000 Accounting profit before tax 258,233 171,672 ======================= At Jersey's domestic income tax rate of 20% (2006: 20%) 51,647 34,334Profits exempt from Jersey income tax (51,647) (34,334)Higher income tax rates of other countries, including withholding taxes 89,884 55,083Overhead allowances - high rate jurisdiction (14,456) (8,248)Expenditure not allowable for income tax purposes - high rate jurisdiction 3,256 2,586Adjustments in respect of previous periods (615) (135)Tax effect of utilisation of tax losses not previously recognised (183) (83)Unrecognised tax losses 86 1,797Losses recognised in the period (8,455) -Tax recognised on un-remitted overseas dividends - 340 -----------------------At the effective income tax rate of 26.9% (2006: 29.9%) 69,517 51,340 ======================= The reduction in the effective tax rate for the year ended 31 December 2007compared to 2006 is principally due to a combination of lower taxed income inthe Engineering & Construction division and the recognition of UK ring fencedtax losses and net Australian branch losses amounting to US$11,263,000 in theEnergy Developments division.. c. Deferred income tax Deferred income tax relates to the following: Consolidated Consolidated Balance Sheet Income Statement 2007 2006 2007 2006 US$'000 US$'000 US$'000 US$'000 Deferred income tax liabilitiesUn-remitted overseas dividends - - - (366)Fair value adjustment on acquisitions 1,940 2,393 (453) 39Accelerated depreciation 903 401 502 (117)Other temporary differences 31,294 22,960 8,334 22,960 --------------------Gross deferred income tax liabilities 34,137 25,754 ==================== Deferred income tax assetsLosses available for offset 8,512 1,851 (6,661) 2,384Tax assets utilised - - - 33 -------------------- 8,512 1,851Decelerated depreciation for tax purposes 1,558 407 (655) 401Share scheme 716 - (716) -Other temporary differences 686 644 (42) (182) --------------------Gross deferred income tax assets 11,472 2,902 ==================== ---------------------Deferred income tax charge 309 25,152 ===================== d. Unrecognised tax losses The group has unrecognised tax assets including net operating losses (at 35%) inthe US of US$11,972,000 (2006: US$12,137,000) that are potentially available foroffset against future taxable profits of the companies in which the lossesarose. These losses have an expiration date of 20 years and will expire noearlier than 2022. A further US$5,100,000 (2006: US$603,000) of project relatedtax losses in various jurisdictions are not recognised as they are ring fencedto specific projects and these losses have no expiration date. A furtherUS$2,600,000 of project losses are ring fenced to the project and will cease tobe available on completion of the contract or within three years of beingincurred with the earliest expiry date being 2008. This information is provided by RNS The company news service from the London Stock Exchange