UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2000
----------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -----------------------
Commission File Number: 0-22992
------------------------------------------------
The Shaw Group Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-1106167
--------------------------------- ----------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
8545 United Plaza Boulevard, Baton Rouge, Louisiana 70809
---------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(225) 932-2500
---------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
----- -----
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date, is as follows:
Common stock, no par value, 15,356,709 shares outstanding as of July 5, 2000.
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. - Financial Statements
Condensed Consolidated Balance Sheets - May 31, 2000
and August 31, 1999 3 - 4
Condensed Consolidated Statements of Income - For the Three
Months and Nine Months Ended May 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows - For the Nine
Months Ended May 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 10
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
Item 3. - Quantitative and Qualitative Disclosures About
Market Risk 16
Part II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 17
Item 6. - Exhibits and Reports on Form 8-K 17
Signature Page 18
Exhibit Index 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
----------------- --------------
--------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,240 $ 6,901
Accounts receivable, net 183,035 122,053
Receivables from unconsolidated entity, net 4,382 4,310
Inventories 84,361 78,464
Cost and estimated earnings in excess of billings
on uncompleted contracts 31,522 24,277
Prepaid expenses 8,074 4,131
Other current assets 9,906 11,934
----------------- --------------
Total current assets 327,520 252,070
Investment in unconsolidated entity 5,625 4,646
Investment in securities available for sale 14,922 13,830
Property and equipment, less accumulated depreciation
of $42,086 at May 31, 2000 and $35,252 at
August 31, 1999, respectively 96,610 95,508
Goodwill, net of accumulated amortization of $4,200
at May 31, 2000 and $3,276 at August 31, 1999 30,152 32,134
Other assets 10,637 8,874
----------------- --------------
$ 485,466 $ 407,062
================= ==============
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
3
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
----------------- ----------------
<S> <C> <C>
Current liabilities:
Outstanding checks in excess of bank balance $ 6,230 $ 6,633
Accounts payable 41,531 37,714
Accrued liabilities 23,806 28,407
Current maturities of long-term debt 8,101 8,056
Revolving lines of credit 38,516 43,562
Deferred revenue - prebilled 7,570 3,576
Advanced billings and billings in excess of cost and estimated
earnings on uncompleted contracts 15,336 10,147
----------------- ----------------
Total current liabilities 141,090 138,095
Long-term debt, less current maturities 76,341 87,841
Deferred income taxes 6,891 6,887
Commitments and contingencies -- --
Shareholders' equity:
Common stock, no par value,
15,356,709 and 11,736,046 shares outstanding, respectively 189,276 119,353
Retained earnings 96,979 77,071
Accumulated other comprehensive income (loss) (4,510) (1,535)
Unearned restricted stock compensation (76) (125)
Treasury stock, 8,224,236 shares (20,525) (20,525)
----------------- ----------------
Total shareholders' equity 261,144 174,239
----------------- ----------------
$ 485,466 $ 407,062
================= ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income:
Sales $ 175,046 $ 125,211 $ 498,817 $ 353,903
Cost of sales 147,390 101,110 416,796 286,700
------------ ------------ ------------ -----------
Gross profit 27,656 24,101 82,021 67,203
General and administrative expenses 15,934 14,723 49,094 42,998
------------ ------------ ------------ -----------
Operating income 11,722 9,378 32,927 24,205
Interest expense (1,490) (2,270) (4,933) (6,973)
Other income, net 211 433 584 657
------------ ------------ ------------ -----------
(1,279) (1,837) (4,349) (6,316)
Income before income taxes, earnings from unconsolidated
entity and cumulative effect of change in accounting principle 10,443 7,541 28,578 17,889
Provision for income taxes 3,407 2,579 9,329 5,926
------------ ------------ ------------ -----------
Income before earnings from unconsolidated entity and
cumulative effect of change in accounting principle 7,036 4,962 19,249 11,963
Earnings from unconsolidated entity 348 263 979 408
------------ ------------ ------------ -----------
Income before cumulative effect of change in accounting principle 7,384 5,225 20,228 12,371
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (320) --
------------ ------------ ------------ -----------
Net income $ 7,384 $ 5,225 $ 19,908 $ 12,371
============ ============ ============ ===========
Basic income per common share:
Weighted average number of shares 15,328 11,734 14,361 12,001
Income before cumulative effect of change in
accounting principle $ .48 $ .45 $ 1.41 $ 1.03
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (.02) --
------------ -----------
------------ ------------
Net income per common share $ .48 $ .45 $ 1.39 $ 1.03
============ ============ ============ ===========
Diluted income per common share:
Weighted average number of shares 16,151 12,214 15,148 12,329
Income before cumulative effect of change in
accounting principle $ .46 $ .43 $ 1.33 $ 1.00
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (.02) --
------------ -----------
------------ ------------
Net income per common share $ .46 $ .43 $ 1.31 $ 1.00
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,908 $ 12,371
Depreciation and amortization 10,247 9,767
Other (2,615) (1,306)
Changes in assets and liabilities (excluding cash and
those relating to investing and financing activities) (68,451) (9,180)
-------------- --------------
Net cash provided by (used in) operating activities (40,911) 11,652
Cash flows from investing activities:
Investment in securities available for sale -- (12,500)
Purchases of property and equipment (12,057) (15,931)
Proceeds from sale of property and equipment 1,437 1,252
-------------- --------------
Net cash used in investing activities (10,620) (27,179)
Cash flows from financing activities:
Net increase (decrease) in outstanding checks
in excess of bank balance (357) 6,566
Net proceeds (repayments) on revolving credit agreements (4,779) 26,644
Proceeds from issuance of debt 914 5,555
Repayment of debt and leases (13,375) (9,044)
Purchases of treasury stock -- (13,697)
Issuance of common stock 68,706 23
-------------- --------------
Net cash provided by financing activities 51,109 16,047
Effect of exchange rate changes on cash (239) (429)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (661) 91
Cash and cash equivalents - beginning of period 6,901 3,743
-------------- --------------
Cash and cash equivalents - end of period $ 6,240 $ 3,834
============== ==============
Supplemental disclosure:
Noncash investing and financing activities:
Property and equipment acquired through issuance of debt $ 1,006 $ --
============== ==============
Sale of assets financed through issuance of note receivable $ 3,960 $ --
============== ==============
Investment in securities available for sale acquired in
lieu of interest payment $ 1,092 $ 686
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Financial Information
The financial information of The Shaw Group Inc. and its wholly-owned
subsidiaries (collectively, "the Company" or "Shaw") for the three-month and
nine-month periods ended May 31, 2000 and 1999 and as of May 31, 2000 and August
31, 1999 included herein is unaudited; however, such information reflects, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) that are necessary to present fairly the results of
operations for such periods. Results of operations for the interim periods are
not necessarily indicative of results of operations that will be realized for
the fiscal year ending August 31, 2000.
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current reporting practices.
Note 2 - Inventories
The major components of inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
May 31, 2000 August 31, 1999
-------------------------------------------- ---------------------------------------------
Weighted Weighted
Average FIFO Total Average FIFO Total
------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Finished Goods $ 35,302 $ -- $ 35,302 $ 29,244 $ 642 $ 29,886
Raw Materials 2,219 39,099 41,318 3,686 32,869 36,555
Work in Process 1,292 6,449 7,741 1,306 10,717 12,023
------------- ------------- ------------ ------------ ------------- -------------
$ 38,813 $ 45,548 $ 84,361 $ 34,236 $ 44,228 $ 78,464
============= ============= ============ ============ ============= =============
</TABLE>
Note 3 - Public Offering of Common Stock
On November 10, 1999, the Company closed the sale of 3,000,000 shares
of its common stock, no par value (the "Common Stock"), in an underwritten
public offering at a price of $21 per share, less underwriting discounts and
commissions. On November 16, 1999, the underwriters for such offering exercised
an option to purchase an additional 450,000 shares of Common Stock from the
Company pursuant to the foregoing terms to cover over-allotments. The net
proceeds to the Company, less underwriting discounts and commissions and other
expenses of the offering, totaled approximately $67,500,000 and were used to pay
down amounts outstanding under the Company's primary revolving line of credit
facility and certain other long-term debt. The Company's primary revolving line
of credit facility has been used to provide working capital, as well as to fund
fixed asset purchases and subsidiary acquisitions.
Note 4 - Earnings Per Common Share
Basic earnings per common share were computed by dividing net income by
the weighted average number of shares of Common Stock outstanding during the
period. Diluted earnings per common share were determined based on the
assumptions that all dilutive stock options were exercised and shares of Common
Stock was repurchased using the treasury stock method, at the average price for
each period.
7
<PAGE>
At May 31, 2000 and 1999, the Company had outstanding dilutive stock
options of 1,082,587 and 1,138,500, respectively, which were assumed exercised
using the treasury stock method. The resulting dilutive common equivalent shares
were used in the calculation of diluted income per common share for each period
presented. Additionally, the Company had 12,000 and 65,371 of stock options
outstanding at May 31, 2000 and 1999, respectively, which were excluded from the
calculation of diluted income per share because they were antidilutive.
The weighted average common shares outstanding for the three-month
periods ended May 31, 2000 and 1999 were 15,327,923 and 11,734,204,
respectively. Dilutive common equivalent shares for the three-month periods
ended May 31, 2000 and 1999 were 822,946 and 479,422, respectively, all
attributable to stock options.
The weighted average common shares outstanding for the nine months
ended May 31, 2000 and 1999 were 14,360,857 and 12,000,775, respectively.
Dilutive common equivalent shares for the nine months ended May 31, 2000 and
1999 were 787,425 and 328,135, respectively, all attributable to stock options.
Note 5 - Investment in Unconsolidated Entities
During the nine months ended May 31, 2000, the Company recognized
earnings of $979,000 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain
joint venture ("Shaw-Nass"). In addition, as of May 31, 2000 and August 31,
1999, the Company had outstanding receivables from Shaw-Nass totaling $4,382,000
and $4,310,000, respectively. These receivables relate primarily to inventory
and equipment that the Company sold to Shaw-Nass.
Note 6 - Investment in Securities Available for Sale
In connection with its erection services, the Company embarked on its
first significant project financing participation in December 1998, and, as a
result, holds an investment in secured notes from a customer. Since the
financing arrangement is related to erection services, the interest income from
the notes is included in sales for all periods, and the interest cost associated
with carrying these notes is included in cost of sales in the statements of
income for all periods. Interest income related to these notes was $314,000 and
$378,000 for the three months ended May 31, 2000 and 1999, respectively, and
$1,092,000 and $686,000 for the nine months ended May 31, 2000 and 1999,
respectively. Interest expense associated with carrying these notes was $268,000
and $221,000 for the three months ended May 31, 2000 and 1999, respectively, and
$787,000 and $400,000 for the nine months ended May 31, 2000 and 1999,
respectively. The interest cost was calculated at the Company's effective
borrowing rate for each period, which approximated 7.3% and 6.7% for the three
months ended May 31, 2000 and 1999, respectively, and 7.3% and 6.5% for the nine
months ended May 31, 2000 and 1999, respectively.
Note 7 - Comprehensive Income
SFAS No. 130 -- "Reporting Comprehensive Income," which was adopted by
the Company in the first quarter of fiscal 1999, establishes standards for the
reporting and display of comprehensive income as part of a full set of financial
statements. Comprehensive income for a period encompasses net income and all
other changes in a company's equity other than from transactions with the
company's owners. Comprehensive income was comprised of the following (in
thousands):
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Income $ 7,384 $ 5,225 $ 19,908 $ 12,371
Foreign currency translation adjustments (1,941) (325) (2,975) (998)
------------ ------------ ------------ ------------
Total comprehensive income $ 5,443 $ 4,900 $ 16,933 $ 11,373
============ ============ ============ ============
</TABLE>
The foreign currency translation adjustments relate to the varying
strength of the U.S. dollar in relation to the British pound, Australian dollar
and Dutch guilder.
Note 8 - Business Segments
The Company has aggregated its business activities into two operating
segments: pipe services and manufacturing. The following table presents
information about segment profits and assets (in thousands):
<TABLE>
<CAPTION>
Pipe
Services Manufacturing Corporate Total
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Three months ended May 31, 2000:
--------------------------------
Sales to external customers $ 159,072 $ 15,974 $ -- $ 175,046
Intersegment sales -- 3,328 -- 3,328
Net income 6,487 754 143 7,384
Total assets 374,595 65,611 45,260 485,466
Three months ended May 31, 1999:
--------------------------------
Sales to external customers $ 113,620 $ 11,591 $ -- $ 125,211
Intersegment sales -- 5,276 -- 5,276
Net income 5,907 (190) (492) 5,225
Total assets 303,987 53,202 40,965 398,154
Nine months ended May 31, 2000:
-------------------------------
Sales to external customers $ 455,286 $ 43,531 $ -- $ 498,817
Intersegment sales -- 12,117 -- 12,117
Net income 18,017 1,443 448 19,908
Nine months ended May 31, 1999:
-------------------------------
Sales to external customers $ 317,945 $ 35,958 $ -- $ 353,903
Intersegment sales -- 14,801 -- 14,801
Net income 13,043 107 (779) 12,371
</TABLE>
Note 9 - Change in Accounting Principle
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP"). The SOP is effective for fiscal years beginning after
December 15, 1998 and requires costs of start-up activities to be expensed as
incurred. During the nine-month period ended May 31, 2000, the Company changed
its accounting for start-up costs and expensed previously unamortized deferred
start-up costs of approximately $320,000, net of taxes. The unamortized costs
are reflected as a cumulative effect of a change in accounting principle.
9
<PAGE>
Note 10 - Subsequent Events
On June 2, 2000, the Company and Entergy Corporation ("Entergy"), the
third largest U.S. generator of electricity and a leader in global energy
development, announced plans to create a new company, Entergy-Shaw, that will
provide management, engineering, procurement, construction and commissioning
services to build electric power plants. Entergy-Shaw will provide services for
Entergy Wholesale Operations' ("EWO") power development plans in North America
and Europe associated with Entergy's turbine rollout program. EWO is the power
development, marketing and trading business of Entergy. In addition, the new
company expects to provide similar services for other power development
customers in the future. Entergy-Shaw is developing a model plant design that is
expected to reduce power plant capital costs significantly, while also reducing
construction, commissioning and operating risks. Entergy and Shaw will each own
a 50% interest in the new company. Shaw will provide the power piping
engineering and fabrication, design and construction work in building these
plants. One of the keys to the success of Entergy-Shaw will be the execution of
EWO's previously announced gas turbine rollout program. The Company's initial
investment in this company is expected to be approximately $2 million.
On July 7, 2000, the Company announced that it was the successful
bidder in the auction for substantially all of the business of Stone & Webster,
Incorporated ("S&W"), a 110 year old engineering and construction company, in a
proceeding under Chapter 11 of the U.S. Bankruptcy Code. On July 13, 2000, an
order was issued by the Bankruptcy Court approving the sale. In the transaction,
Shaw will acquire substantially all of the assets and assume certain liabilities
(which liabilities are expected to be in excess of $400 million) of S&W, for
approximately $140 million (including acquisition costs), consisting of cash and
Shaw Common Stock, which amount is subject to a final closing audit.
10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion summarizes the financial position of The Shaw
Group Inc. and its subsidiaries (hereinafter referred to collectively, unless
the context otherwise requires, as "the Company" or "Shaw") at May 31, 2000, and
the results of their operations for the three-month and nine-month periods then
ended and should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Quarterly Report on Form 10-Q.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The statements contained in this
Quarterly Report on Form 10-Q (including the preceding financial statements and
notes) that are not historical facts (including without limitation, statements
to the effect that the Company "believes," "anticipates," "plans," or other
similar expressions) are forward-looking statements based on the Company's
current expectations and beliefs concerning future developments and their
potential effects on the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by the Company.
Actual results may differ from those projected in the forward-looking
statements. The forward-looking statements include significant risks and
uncertainties (some of which are beyond the control of the Company) and are
subject to change based upon various factors, including but not limited to the
following risks and uncertainties: changes in the demand for and market
acceptance of the Company's products and services; in general, economic
conditions and, specifically, economic conditions prevailing in international
markets; the presence of competitors with greater financial resources and the
impact of competitive products, services and pricing; the effect of the
Company's policies, including without limitation the amount and rate of growth
of Company expenses; the continued availability to the Company of adequate
funding sources and changes in interest rates; delays or difficulties in the
production, delivery or installation of products and the provision of services;
Y2K or Year 2000 risks; and various legal, regulatory and litigation risks. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
11
<PAGE>
Results of Operations
---------------------
The following table sets forth, for the periods indicated, the
percentages of the Company's net sales that certain income and expense items
represent:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
2000 1999 2000 1999
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Income:
Sales 100.0 % 100.0% 100.0 % 100.0 %
Cost of sales 84.2 80.8 83.6 81.0
-------- ------- -------- ---------
Gross profit 15.8 19.2 16.4 19.0
General and administrative expenses 9.1 11.7 9.8 12.2
-------- ------- -------- ---------
Operating income 6.7 7.5 6.6 6.8
Interest expense (.8) (1.8) (1.0) (1.9)
Other income, net .1 .3 .1 .2
-------- ------- -------- ---------
(.7) (1.5) (.9) (1.7)
Income before income taxes, earnings from unconsolidated
entity and cumulative effect of change in accounting
principle 6.0 6.0 5.7 5.1
Provision for income taxes 2.0 2.0 1.8 1.7
-------- ------- -------- ---------
Income before earnings from unconsolidated entity and
cumulative effect of change in accounting principle 4.0 4.0 3.9 3.4
Earnings from unconsolidated entity .2 .2 .2 .1
-------- ------- -------- ---------
Income before cumulative effect of change in accounting principle 4.2 4.2 4.1 3.5
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (.1) --
-------- ------- -------- ---------
Net income 4.2 % 4.2% 4.0 % 3.5 %
======== ======= ======== =========
</TABLE>
Sales increased approximately 40% to $175.0 million for the three
months ended May 31, 2000, as compared to $125.2 million for the same period in
the prior year.
The Company's sales to customers in the following geographic regions
approximated the following:
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
--------------------------- --------------------------
Geographic Region (in millions) % (in millions) %
-----------------
-------------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
U.S.A. $ 134.7 77% $ 90.8 72%
Far East/Pacific Rim 7.7 4 12.8 10
Middle East 1.6 1 1.2 1
South America 6.5 4 5.0 4
Europe 17.8 10 14.7 12
Other 6.7 4 .7 1
-------------- ---------- --------------- ---------
$ 175.0 100% $ 125.2 100%
============== ========== =============== =========
</TABLE>
12
<PAGE>
Sales for domestic projects increased $43.9 million, or 48%, to $134.7
million for the three months ended May 31, 2000 from $90.8 million for the three
months ended May 31, 1999. Sales to all domestic industry sectors increased,
with the primary increases being to the power generation and chemical and
petrochemical sectors. Sales for international projects increased $5.9 million,
or 17%, to $40.3 million for the three months ended May 31, 2000 from $34.4
million for the same period of the prior year. Sales remain sluggish in the Far
East/Pacific Rim region, but inquiry activity is starting to pickup. Middle East
region sales are slightly up from the previous year. Even though sales in the
South American region for the three months ended May 31, 2000 show some
improvements and inquiries are active, the Company's short-term outlook is
uncertain in this region due to general economic conditions and particularly,
with respect to Venezuela, political conditions. For the quarter ended May 31,
2000, virtually all European sector sales were to the United Kingdom. European
inquiries remain strong, particularly in Spain. The Company continues to believe
that the Far East/Pacific Rim, Middle East, South American and European markets
present significant long-term opportunities for the Company.
The Company's sales to customers in the following industry sectors
approximated the following:
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
--------------------------- --------------------------
Industry Sector (in millions) % (in millions) %
--------------- -------------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Power Generation $ 60.6 35% $ 41.6 33%
Chemical and Petrochemical Processing 55.2 31 41.3 33
Crude Oil Refining 39.9 23 26.4 21
Oil and Gas Exploration and Production 6.7 4 6.3 5
Other 12.6 7 9.6 8
-------------- ---------- --------------- ---------
$ 175.0 100% $ 125.2 100%
============== ========== =============== =========
</TABLE>
The power generation sector and chemical and petrochemical processing
sector both had increases in domestic projects, which were offset by small
decreases in international projects. Due to the relatively minor amounts of
petrochemical processing sales, sales to this industry (which in past periods
have been reported separately) have been combined with chemical processing
sales. Sales related to domestic power generation projects increased due to new
power generation projects, including the previously announced $300 million,
five-year contract with General Electric. Crude oil refining industry sales had
increases in both the domestic and international markets. Oil and gas
exploration and production sales, which are almost exclusively domestic, remain
sluggish.
The gross profit margin for the three-month period ended May 31, 2000,
decreased to 15.8% from 19.2% for the same period the prior year. The Company is
involved in numerous projects, all of which affect gross profit in various ways,
such as product mix, pricing strategies, foreign versus domestic work (profit
margins differ, sometimes substantially, depending on where the work is
performed), and constant monitoring of percentage of completion calculations.
Gross profit margin was negatively impacted by the Company's revenues related to
erection and maintenance services, which generally carry lower margins than
fabrication work.
General and administrative expenses increased to $15.9 million for the
quarter ended May 31, 2000 from $14.7 million for the quarter ended May 31,
1999. This increase resulted primarily from increases in expenses related to
increased sales and other normal business expenses. As a percentage of sales,
however, general and administrative expenses decreased to 9.1% for the three
months ended May 31, 2000 from 11.7% for the three months ended May 31, 1999.
13
<PAGE>
Interest expense for the quarter ended May 31, 2000 was $1.5 million,
compared to $2.3 million for the same period of the prior fiscal year. Interest
expense varies from period to period due to several factors, including the level
of borrowings and interest rate fluctuations on variable rate loans. Even though
interest rates increased on the Company's primary revolving line of credit
facility over the prior year's rates, interest expense on that line of credit
facility decreased $646,000 due to lower borrowings, resulting from paydowns
utilizing the proceeds from the Company's public stock offering (see Note 3 of
Notes to Condensed Consolidated Financial Statements).
The Company's effective tax rates for the quarters ended May 31, 2000
and 1999 were 32.6% and 34.2%, respectively. The tax rates for each quarter
relate primarily to the projected mix of foreign (including foreign export
sales) versus domestic work and the constant review of year-end estimates for
each fiscal year.
Total backlog increased to approximately $878 million at May 31, 2000,
compared to $781 million reported at May 31, 1999 and $818 million reported at
August 31, 1999. Approximately 78% of the backlog relates to domestic projects,
and roughly 47% of the backlog relates to work currently anticipated to be
completed during the 12 months following May 31, 2000. Backlog is not a measure
defined in generally accepted accounting principles and the Company's backlog
may not be comparable to backlog of other companies. The backlog is largely a
reflection of the broader economic trends being experienced by the Company's
customers and while Shaw believes backlog information may be helpful in
understanding its business, it is not necessarily indicative of future sales.
Backlog at May 31, 2000 by industry sector is as follows (in millions):
Power Generation $ 558.3
Chemical and Petrochemical Processing 215.2
Crude Oil Refining 67.8
Oil and Gas Exploration and Production 26.6
Other 9.9
------------
$ 877.8
============
In December 1999, the Company joined with other manufacturers in filing
an Anti-Dumping Duty Petition against foreign producers of certain stainless
pipe fittings. The suit alleges that these foreign producers were dumping
products in the United States in violation of U.S. unfair trade laws and
international trade rules established by the World Trade Organization. In
February 2000, the U.S. International Trade Commission ("ITC") unanimously
reached a preliminary determination that there is a reasonable indication that
these imports are causing material injury to the U.S. industry. A preliminary
ruling from the U.S. Department of Commerce ("DOC") has been moved to late July
2000. The final ruling from the DOC is scheduled for October 2000, subject to
certain possible extensions and delays. The final ruling from the ITC is
scheduled for January 2001. While the Company cannot provide any assurances with
respect to the ultimate outcome of such Petition, management of the Company
believes that a favorable decision in such matter would enhance the long-term
profitability in its manufacturing segment.
In addition, in February 2000, with respect to actions previously
filed, the DOC and ITC extended antidumping duties for imports of certain
stainless pipe fittings from Japan, Taiwan and Korea for another five years.
14
<PAGE>
Liquidity and Capital Resources
-------------------------------
Net cash used in operations was $40.9 million for the nine months ended
May 31, 2000, compared to $11.7 million provided by operations for the same
period of the previous fiscal year. For the nine months ended May 31, 2000, cash
from operating activities was favorably impacted by net income of $19.9 million
and depreciation and amortization of $10.2 million. Offsetting these positive
factors were changes in certain assets and liabilities of $68.5 million and
other non-cash items of $2.6 million. Increases in accounts receivables and cost
and estimated earnings in excess of billings on uncompleted contracts of
approximately $71.3 million were offset by other net changes of approximately
$2.8 million, resulting in the $68.5 million change in certain assets and
liabilities.
Net cash used in investing activities was $10.6 million for the nine
months ended May 31, 2000, compared to $27.2 million for the same period of the
last fiscal year. During the nine months ended May 31, 2000, the Company
purchased approximately $12.1 million of property and equipment compared to
$15.9 million for the nine months ended May 31, 1999. During the nine months
ended May 31, 2000, the Company also received $1.4 million from the sale of
property and equipment.
Net cash provided by financing activities was $51.1 million for the
nine-month period ended May 31, 2000, compared to $16.0 million provided for the
nine months ended May 31, 1999. The primary source of cash for the nine months
ended May 31, 2000 was the sale of 3,450,000 shares of the Company's common
stock (see Note 3 of the Notes to Condensed Consolidated Financial Statements).
The net proceeds of $67.5 million were used to pay down amounts outstanding
under the Company's primary revolving line of credit facility and certain other
long-term debt. The Company's primary revolving line of credit facility has been
used by the Company to provide working capital, as well as to fund fixed asset
purchases and subsidiary acquisitions. The Company also received $1.2 million
from the exercise of stock options during the nine months ended May 31, 2000.
As of May 31, 2000, the Company had approximately $62 million available
under its principal revolving line of credit facility. In connection with the
Stone & Webster Incorporated ("S&W") acquisition (see Note 10 of the Notes to
Condensed Consolidated Financial Statements) and to accommodate other
anticipated growth, the Company has negotiated a new principle line of credit
facility to replace its existing facility, which will increase its availability
from $100 million to $400 million. The interest rate on the new credit facility
will vary depending on a leverage ratio from either 1.5% to 2.75% above the
London Interbank Offering Rate (LIBOR) or 0% to 1.25% above the prime rate, at
the Company's option. The Company plans to use the new credit facility to
finance the S&W acquisition and to pay off certain long-term debt. The Company
believes that this arrangement will be sufficient to support its operations for
the next twelve months.
Financial Accounting Standards Board Statements
-----------------------------------------------
In 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP"). The SOP is effective for fiscal years beginning after
December 15, 1998 and requires costs of start-up activities to be expensed as
incurred. During the nine-month period ended May 31, 2000, the Company changed
its accounting for start-up costs and expensed previously unamortized deferred
start-up costs of approximately $320,000, net of taxes. The unamortized costs
are reflected as a cumulative effect of a change in accounting principle.
15
<PAGE>
In fiscal 1999, the Financial Accounting Standards Board (the FASB)
issued Statement of Financial Accounting Standards No. 133 -- "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. Changes in a derivative's fair value are to be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company will be required to adopt SFAS No. 133, as amended by SFAS No. 137 which
defers the effective date for the Company to September 1, 2000. The Company has
not yet quantified the impact on its financial statements that may result from
adoption of SFAS No. 133; however, the Company does not use derivative
instruments or hedging activities extensively in its business.
Subsequent Events
-----------------
On June 2, 2000, the Company and Entergy Corporation ("Entergy"), the
third largest U.S. generator of electricity and a leader in global energy
development, announced plans to create a new company, Entergy-Shaw, that will
provide management, engineering, procurement, construction and commissioning
services to build electric power plants. Entergy-Shaw will provide services for
Entergy Wholesale Operations' ("EWO") power development plans in North America
and Europe associated with Entergy's turbine rollout program. EWO is the power
development, marketing and trading business of Entergy. In addition, the new
company expects to provide similar services for other power development
customers in the future. Entergy-Shaw is developing a model plant design that is
expected to reduce power plant capital costs significantly, while also reducing
construction, commissioning and operating risks. Entergy and Shaw will each own
a 50% interest in the new company. Shaw will provide the power piping
engineering and fabrication, design and construction work in building these
plants. One of the keys to the success of Entergy-Shaw will be the execution of
EWO's previously announced gas turbine rollout program. The Company's initial
investment in this company is expected to be approximately $2 million.
On July 7, 2000, the Company announced that it was the successful
bidder in the auction for substantially all of the business of Stone & Webster,
Incorporated ("S&W"), a 110 year old engineering and construction company, in a
proceeding under Chapter 11 of the U.S. Bankruptcy Code. On July 13, 2000, an
order was issued by the Bankruptcy Court approving the sale. In the transaction,
Shaw will acquire substantially all of the assets and assume certain liabilities
(which liabilities are expected to be in excess of $400 million) of S&W, for
approximately $140 million (including acquisition costs), consisting of cash and
Shaw Common Stock, which amount is subject to a final closing audit.
With the acquisition of S&W, it is anticipated that the Company's sales
and backlog will increase significantly. In addition, because of the type of
work performed by S&W, it is expected that the Company's gross margins will be
lower than those previously recognized by the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Foreign Currency Risk
---------------------------------------
The Company is exposed to interest rate risk and foreign currency risk.
Since August 31, 1999, there have been no material changes in the Company's
exposure to these risks.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended May 31, 2000, there were no
matters submitted by the Company to a vote of security holders.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Number Description
-------------- -----------
+27 Financial Data Schedule
----------
+ Filed herewith
B. Form 8-K
During the fiscal quarter ended May 31, 2000, the Company did
not file a Form 8-K.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SHAW GROUP INC.
Dated: July 14, 2000 /S/ Robert L. Belk
---------------------
Chief Financial Officer
(Duly Authorized Officer)
18
<PAGE>
THE SHAW GROUP INC.
EXHIBIT INDEX
Form 10-Q Quarterly Report for the Quarterly Period ended May 31, 2000.
Exhibit Number Description
-------------- -----------
+27 Financial Data Schedule
----------
+ Filed herewith
19
