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 February 29, 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, 15,298,921 shares outstanding as of April 3, 2000.
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. - Financial Statements
Condensed Consolidated Balance Sheets - February 29, 2000
and August 31, 1999 3 - 4
Condensed Consolidated Statements of Income - For the Three
Months and Six Months Ended February 29, 2000 and
February 28,1999 5
Condensed Consolidated Statements of Cash Flows - For the Six
Months Ended February 29, 2000 and February 28, 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 9
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 14
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 14
Part II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 15
Item 6. - Exhibits and Reports on Form 8-K 15
Signature Page 16
Exhibit Index 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
February 29, August 31,
2000 1999
----------- ----------
Current assets:
Cash and cash equivalents $ 7,134 $ 6,901
Accounts receivable, net 140,645 122,053
Receivables from unconsolidated entity, net 4,280 4,310
Inventories 79,673 78,464
Cost and estimated earnings in excess of
billings on uncompleted contracts 37,400 24,277
Prepaid expenses 8,699 4,131
Deferred income taxes 1,264 992
Other current assets 9,622 10,942
--------- ---------
Total current assets 288,717 252,070
Investment in unconsolidated entity 5,277 4,646
Investment in securities available for sale 14,608 13,830
Property and equipment, less accumulated
depreciation of $39,840 at February 29, 2000
and $35,252 at August 31, 1999, respectively 94,637 95,508
Goodwill, net of accumulated amortization
of $3,846 at February 29, 2000 and $3,276 at
August 31, 1999 31,048 32,134
Other assets 11,401 8,874
--------- ---------
$ 445,688 $ 407,062
========= =========
(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
February 29, August 31,
2000 1999
----------- ----------
Current liabilities:
Outstanding checks in excess of bank balance $ 8,084 $ 6,633
Accounts payable 33,568 37,714
Accrued liabilities 25,789 28,407
Current maturities of long-term debt 7,895 8,056
Revolving lines of credit 10,171 43,562
Deferred revenue - prebilled 6,423 3,576
Advanced billings and billings in excess of
cost and estimated earnings on uncompleted contracts 13,385 10,147
--------- ---------
Total current liabilities 105,315 138,095
Long-term debt, less current maturities 79,779 87,841
Deferred income taxes 6,555 6,887
Commitments and contingencies -- --
Shareholders' equity:
Common stock, no par value,
15,298,921 and 11,736,046 shares outstanding,
respectively 187,630 119,353
Retained earnings 89,595 77,071
Accumulated other comprehensive income (loss) (2,569) (1,535)
Unearned restricted stock compensation (92) (125)
Treasury stock, 8,224,236 shares (20,525) (20,525)
---------- --------
Total shareholders' equity 254,039 174,239
---------- --------
$ 445,688 $407,062
========== ========
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
2000 1999 2000 1999
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income:
Sales $ 172,963 $ 112,660 $ 323,771 $ 228,692
Cost of sales 144,676 90,275 269,406 185,590
--------- --------- --------- ---------
Gross profit 28,287 22,385 54,365 43,102
General and administrative expenses 17,248 14,000 33,160 28,275
--------- --------- --------- ---------
Operating income 11,039 8,385 21,205 14,827
Interest expense (1,475) (2,261) (3,443) (4,703)
Other income, net 200 144 373 224
--------- --------- --------- ---------
(1,275) (2,117) (3,070) (4,479)
Income before income taxes, earnings from unconsolidated
entity and cumulative effect of change in accounting principle 9,764 6,268 18,135 10,348
Provision for income taxes 3,135 2,142 5,922 3,347
--------- --------- --------- --------
Income before earnings from unconsolidated entity and
cumulative effect of change in accounting principle 6,629 4,126 12,213 7,001
Earnings from unconsolidated entity 395 198 631 145
--------- --------- --------- --------
Income before cumulative effect of change in accounting principle 7,024 4,324 12,844 7,146
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (320) --
--------- --------- --------- --------
Net income $ 7,024 $ 4,324 $ 12,524 $ 7,146
========= ========= ========= ========
Basic income per common share:
Number of shares 15,233 11,775 13,872 12,120
Income before cumulative effect of change in accounting principle $ .46 $ .37 $ .92 $ .59
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (.02) --
--------- --------- --------- --------
Net income per common share $ .46 $ .37 $ .90 $ .59
========= ========= ========= ========
Diluted income per common share:
Number of shares 15,990 12,126 14,617 12,356
Income before cumulative effect of change in accounting principle $ .44 $ 0.36 $ .88 $ .58
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- -- (.02) --
--------- -------- --------- --------
$ .44 $ 0.36 $ .86 $ .58
Net income per common share ========= ======== ========= ========
</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)
Six Months Ended
February 29 and 28,
2000 1999
---------- ---------
Cash flows from operating activities:
Net income $ 12,524 $ 7,146
Depreciation and amortization 6,669 6,410
Other (2,040) (899)
Changes in assets and liabilities
(excluding cash and those relating
to investing and financing activities) (38,755) (21,841)
--------- ---------
Net cash provided by (used in) operating activiteis (21,602) (9,184)
Cash flows from investing activities:
Investment in securities available for sale -- (12,500)
Purchases of property and equipment (7,350) (14,038)
Proceeds from sale of property and equipment 1,476 49
--------- ---------
Net cash used in investing activities (5,874) (26,489)
Cash flows from financing activities:
Net increase in outstanding checks
in excess of bank balance 1,470 4,166
Net proceeds (repayments) on revolving
credit agreements (33,363) 47,028
Proceeds from issuance of debt 708 5,374
Repayment of debt and leases (9,154) (3,624)
Purchases of treasury stock -- (12,999)
Issuance of common stock 68,277 7
--------- ---------
Net cash provided by financing activities 27,938 39,952
Effect of exchange rate changes on cash (229) (202)
--------- ---------
Net increase in cash and cash equivalents 233 4,077
Cash and cash equivalents - beginning of period 6,901 3,743
--------- ---------
Cash and cash equivalents - end of period $ 7,134 $ 7,820
========== =========
Supplemental disclosure:
Noncash investing and financing activities:
Property and equipment acquired through
issuance of debt $ 223 $ --
========== =========
Sale of assets financed through
issuance of note receivable $ 3,960 $ --
========== =========
Investment in securities available for
sale acquired in lieu of interest payment $ 778 $ 303
========== =========
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
six-month periods ended February 29, 2000 and February 28, 1999 and as of
February 29, 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):
February 29, 2000 August 31, 1999
-------------------------- ---------------------------
Weighted Weighted
Average FIFO Total Average FIFO Total
------- -------- ------- ------- -------- --------
Finished Goods $ 33,743 $ -- $33,743 $ 29,244 $ 642 $ 29,886
Raw Materials 4,205 33,617 37,822 3,686 32,869 36,555
Work in Process 1,413 6,695 8,108 1,306 10,717 12,023
-------- -------- ------- -------- -------- --------
$ 39,361 $ 40,312 $79,673 $ 34,236 $ 44,228 $ 78,464
======== ======== ======= ======== ======== ========
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 such terms to cover over-allotments. The net proceeds to the
Company, less underwriting discounts and commissions and other expenses of the
offering, totaled approximately $67,494,000 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 stock was
repurchased using the treasury stock method, at the average price for each
period.
At February 29, 2000 and February 28, 1999, the Company had outstanding
dilutive stock options of 1,140,375 and 1,218,500, 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 57,871
of stock options at February 29, 2000 and February 28, 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 quarters ended
February 29, 2000 and February 28, 1999 were 15,233,330 and 11,774,927,
respectively. Dilutive common equivalent shares for the quarters ended February
29, 2000 and February 28, 1999 were 756,797 and 351,199, respectively, all
attributable to stock options.
The weighted average common shares outstanding for the six months ended
February 29, 2000 and February 28, 1999 were 13,872,010 and 12,119,557,
respectively. Dilutive common equivalent shares for the six months ended
February 29, 2000 and February 28, 1999 were 745,046 and 236,693, respectively,
all attributable to stock options.
7
Note 5 - Investment in Unconsolidated Entities
During the six months ended February 29, 2000, the Company recognized
earnings of $631,000 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain
joint venture ("Shaw-Nass"). In addition, as of February 29, 2000 and August 31,
1999, the Company had outstanding receivables from Shaw-Nass totaling $4,280,000
and $4,310,000, respectively. These receivables relate primarily to inventory
and equipment 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 $313,000 and
$308,000 for the three months ended February 29, 2000 and February 28, 1999,
respectively, and $778,000 and $308,000 for the six months ended February 29,
2000 and February 28, 1999, respectively. Interest expense associated with
carrying these notes was $261,000 and $180,000 for the three months ended
February 29, 2000 and February 28, 1999, respectively, and $519,000 and $180,000
for the six months ended February 29, 2000 and February 28, 1999, respectively.
The interest cost was calculated at the Company's effective borrowing rate for
each period, which approximated 7.2% and 6.3% for the three months ended
February 29, 2000 and February 28, 1999, respectively, and 7.3% and 6.3% for the
six months ended February 29, 2000 and February 28, 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):
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
2000 1999 2000 1999
------- ------- ------- -------
Net Income $ 7,024 $ 4,324 $ 12,524 $ 7,146
Foreign currency translation
adjustments (608) (1,120) (1,034) (673)
------- ------- --------- -------
Total comprehensive income $ 6,416 $ 3,204 $ 11,490 $ 6,473
======= ======= ======== =======
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.
8
<PAGE>
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):
Pipe
Services Manufacturing Corporate Total
-------- ------------- --------- ---------
Quarter ended February 29, 2000:
- --------------------------------
Sales to external customers $ 158,020 $ 14,943 $ -- $ 172,963
Intersegment sales -- 3,915 -- 3,915
Net income 6,467 340 217 7,024
Total assets 329,770 62,520 53,398 445,688
Quarter ended February 28, 1999:
- --------------------------------
Sales to external customers $ 101,124 $ 11,536 $ -- $ 112,660
Intersegment sales -- 4,869 -- 4,869
Net income 4,609 (88) (197) 4,324
Total assets 327,184 55,376 32,722 415,282
Six months ended February 29, 2000:
- -----------------------------------
Sales to external customers $ 296,214 $ 27,557 $ -- $ 323,771
Intersegment sales -- 8,789 -- 8,789
Net income 11,530 689 305 12,524
Six months ended February 28, 1999:
- -----------------------------------
Sales to external customers $ 204,325 $ 24,367 $ -- $ 228,692
Intersegment sales -- 9,525 -- 9,525
Net income 7,136 297 (287) 7,146
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 six-month period ended February 29, 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>
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 February 29,
2000, and the results of their operations for the three-month and six-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 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.
10
<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>
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
<CAPTION>
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income:
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.6 80.1 83.2 81.1
----- ----- ----- -----
Gross profit 16.4 19.9 16.8 18.9
General and administrative expenses 10.0 12.5 10.2 12.4
----- ----- ----- -----
Operating income 6.4 7.4 6.6 6.5
Interest expense (.8) (2.0) (1.1) (2.1)
Other income, net .1 .1 .1 .1
----- ----- ----- -----
(.7) (1.9) (1.0) (2.0)
Income before income taxes, earnings from
unconsolidated entity and cumulative
effect of change in accounting principle 5.7 5.5 5.6 4.5
Provision for income taxes 1.8 1.9 1.8 1.5
----- ----- ----- -----
Income before earnings from unconsolidated
entity and cumulative effect of change
in accounting principle 3.9 3.6 3.8 3.0
Earnings from unconsolidated entity .2 .2 .2 .1
----- ----- ----- -----
Income before cumulative effect of change
in accounting principle 4.1 3.8 4.0 3.1
Cumulative effect on prior years of
change in accounting for
start-up costs, net of taxes -- -- (.1) --
----- ----- ----- -----
Net income 4.1% 3.8% 3.9% 3.1 %
===== ===== ===== ======
</TABLE>
Sales increased 53.5% to $173.0 million for the six months ended February
29, 2000, as compared to $112.7 million for the same period in the prior year.
The Company's sales to customers in the following geographic regions
approximated the following:
Three Months Ended February 29 and 28,
2000 1999
----------------- -----------------
Geographic Region (in millions) % (in millions) %
- ----------------- ----------------- -----------------
U.S.A. $ 139.7 81% $ 85.1 75%
Far East/Pacific Rim 7.7 4 10.3 9
Middle East .5 -- 1.9 2
South America 6.2 4 3.1 3
Europe 14.8 9 9.9 9
Other 4.1 2 2.4 2
-------- ---- -------- ----
$ 173.0 100% $ 112.7 100%
======== ==== ========= ====
Sales for domestic projects increased $54.6 million, or 64%, to $139.7
million for the three months ended February 29, 2000 from $85.1 million for the
three months ended February 28, 1999. The increase in domestic sales primarily
resulted from increases in sales to the power generation and crude oil refining
industries, partially offset by decreases in sales to the chemical and
petrochemical processing industries. Sales for international projects increased
$5.7 million, or 21%, to $33.3 million for the three months ended February 29,
2000 from $27.6 million for the same period of the prior year, but international
sales for the quarter ended February 29, 2000 were approximately $.4 million
11
less than those for the quarter ended November 30, 1999, indicating that the
international market continues to be weak. The Company is, however, encouraged
by the bidding activity in international markets. Sales remain sluggish in the
Far East/Pacific Rim region, but the bidding activity is strong, particularly in
China, Malaysia and Taiwan. Middle East region sales are down from the previous
year, partially due to more fabrication work being completed by the Company's
joint venture, Shaw-Nass Middle East, W.L.L. ("Shaw Nass"); some of this work
was previously completed by the Company's wholly-owned fabrication facilities.
Since Shaw-Nass is a joint venture, its sales are not reflected in the Company's
consolidated sales. Even though sales in the South American region for the three
months ended February 29, 2000 had increased over the previous year's sales for
the same period, these sales were less than those recorded in the quarter ended
November 30, 1999. As a result, the Company's short-term outlook is uncertain in
this region due to general economic conditions and, particularly with respect to
Venezuela, political conditions, although the Company is encouraged by the
Petroleos de Venezuela, S.A. ("PDVSA") recently announced years' 2000-2009
business plan and the related investment schedule. PDVSA is Venezuela's
state-owned energy company and is the world's second largest energy company and
one of the leading foreign suppliers of crude oil and refined petroleum products
to the United States. The Company continues to believe that the Far East/Pacific
Rim, Middle East and South American markets present significant long-term
opportunities for the Company. For the quarter ended February 29, 2000,
virtually all European sector sales were to the United Kingdom. European
inquiries are increasing, with the majority of activity initiating in Spain.
The Company's sales to customers in the following industry sectors
approximated the following:
Three Months Ended February 29 and 28,
2000 1999
----------------- ----------------
Industry Sector (in millions) % (in milions) %
- --------------- ----------------- ----------------
Power Generation $ 77.9 45% $ 32.1 28%
Chemical Processing 28.4 17 33.6 30
Crude Oil Refining 44.6 26 23.7 21
Petrochemical Processing 2.2 1 8.3 7
Oil and Gas Exploration 5.7 3 6.5 6
and Production
Other 14.2 8 8.5 8
------- ---- -------- ----
$ 173.0 100% $ 112.7 100%
======= ==== ========= ====
Approximately 92% of the increases in sales to the power generation and
crude oil refining industries resulted from domestic projects. 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 were positively
impacted by a large construction project for a refinery in Norco, Louisiana, and
increased activity in Venezuela. The decrease in sales in the chemical and
petrochemical processing industry sectors resulted primarily from reduced
domestic activity.
The gross profit margin for the three-month period ended February 29,
2000, decreased to 16.4% from 19.9% 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 work 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 improvements in the manufacturing
segment of the Company's business were offset by an increase in the Company's
revenues being related to erection and maintenance services (which carry lower
margins than fabrication work).
General and administrative expenses increased to $17.2 million for the
quarter ended February 29, 2000 from $14.0 million for the quarter ended
February 28, 1999. Approximately $1.0 million of this increase relates to
increases in erection expenses and the remainder relates to variable expenses
related to increased sales. As a percentage of sales, however, general and
administrative expenses decreased to 10.0% for the three months ended February
29, 2000 from 12.5% for the three months ended February 28, 1999.
Interest expense for the quarter ended February 29, 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 $823,000 due to lower borrowings, resulting from paydowns
from the proceeds of the public stock offering (see Note 3 of Notes to Condensed
Consolidated Financial Statements).
12
<PAGE>
The Company's effective tax rates for the quarters ended February 29, 2000
and February 28, 1999 were 32.1% and 34.2%, respectively. The tax rates for each
quarter relate primarily to the projected mix of foreign versus domestic work
and the constant review of year-end estimates for each fiscal year.
Total backlog increased to approximately $873 million at February 29,
2000, compared to $776 million reported at February 28, 1999 and $818 million
reported at August 31, 1999. Approximately 79% of the backlog relates to
domestic projects, and roughly 45% of the backlog relates to work currently
anticipated to be completed during the 12 months following February 29, 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 February 29, 2000 by industry sector is as follows (in
millions):
Power Generation $ 497.0
Chemical Processing 235.2
Crude Oil Refining 102.9
Oil and Gas Exploration and Production 27.6
Petrochemical Processing 1.0
Other 9.5
========
$ 873.2
========
In December 1999, the Company joined with other manufacturers in filing an
Anti-Dumping Duty Petition against importers of certain stainless pipe fittings.
The suit alleges that these importers 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")
is scheduled for June 2000, subject to certain possible extensions and delays.
The final rulings from the DOC and the ITC are scheduled for August and October
2000, respectively, subject to certain possible extensions and delays. 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 extended antidumping duties for imports of certain stainless pipe
fittings from Japan, Taiwan and Korea for another five years.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operations was $21.6 million for the six months ended
February 29, 2000, compared to $9.2 million for the same period of the previous
fiscal year. For the six months ended February 29, 2000, cash from operating
activities was favorably impacted by net income of $12.5 million and
depreciation and amortization of $6.7 million. Offsetting these positive factors
were changes in certain assets and liabilities of $38.8 million and other
non-cash items of $2.0 million. Increases in accounts receivables and cost and
estimated earnings in excess of billings on uncompleted contracts accounted for
approximately $32.4 million of the $38.8 million change in assets and
liabilities.
Net cash used in investing activities was $5.9 million for the six months
ended February 29, 2000, compared to $26.5 million for the same period of the
last fiscal year. During the three months ended February 29, 2000, the Company
purchased approximately $7.4 million of property and equipment compared to $14.0
million for the three months ended February 28, 1999. During the quarter ended
February 29, 2000, the Company received $1.5 million from the sale of property
and equipment.
13
<PAGE>
Net cash provided by financing activities was $27.9 million for the
six-month period ended February 29, 2000, compared to $40.0 million provided for
the three months ended February 28, 1999. The primary source of cash for the
three months ended February 29, 2000 was the sale of 3,450,000 shares of the
Company's common stock (see Note 3 of 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 $.8 million from the exercise of stock options during the six months
ended February 29, 2000.
As of February 29, 2000, the Company had approximately $87 million
available under its principal revolving line of credit facility. In September
1999, the maturity date of such line of credit facility was extended to May 31,
2002. The amendment also modified the interest rate spread to not exceed, at the
Company's election, 2.5% over the London Interbank Offering Rate or 1.75% over
the Prime Rate. The Company believes its current borrowing arrangements are
sufficient to support its operations for the next twelve months.
Year 2000 Compliance
- --------------------
The year 2000 or Y2K issue was the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four. It was considered that date-sensitive systems might fail, or produce
erroneous results, because the year 2000 might be interpreted as the year 1900.
During 1998, the Company began implementation of a program to identify, evaluate
and address its Y2K risks to ensure that its information technology systems and
non-information technology systems were able to process dates from and after
January 1, 2000 without critical systems failures. In addition to evaluating its
own systems, the Company assessed the Y2K risks associated with its significant
customers and suppliers.
Through April 6, 2000, the Company has not experienced any material impact
on its operations as a result of the year 2000 date change. All critical systems
have continued to function normally, no material problems have been identified
with respect to products and facilities and no disruptions have been experienced
due to materials and services provided by third parties. The total cost of Y2K
testing and remediation during the life cycle of the project to outside sources
was approximately $.9 million (including the costs to replace non-compliant
hardware). The Company cannot be assured, however, that such costs will not
escalate and materially and negatively impact it. The Company incurred no
outside costs in fiscal 1998 related to Y2K issues.
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 six-month period ended February 29, 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.
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.
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.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended February 29, 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 February 29, 2000, the Company did
not file a Form 8-K.
15
<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: April 14, 2000 /S/ Robert L. Belk
---------------------------------------
Chief Financial Officer
(Duly Authorized Officer)
16
<PAGE>
THE SHAW GROUP INC.
EXHIBIT INDEX
Form 10-Q Quarterly Report for the Quarterly Period ended February 29,
2000.
Exhibit Number Description
-------------- -----------
+27 Financial Data Schedule
________
+ Filed herewith
17
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