<PAGE> 1
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 November 30, 2000
----------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-22992
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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, 40,554,922 shares outstanding
as of January 11, 2001.
<PAGE> 2
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. - Financial Statements
Condensed Consolidated Balance Sheets - November 30, 2000
and August 31, 2000 3 - 4
Condensed Consolidated Statements of Income - For the Three
Months Ended November 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows - For the Three
Months Ended November 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7 - 13
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 21
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 21
Part II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 22
Item 6. - Exhibits and Reports on Form 8-K 22
Signature Page 23
Exhibit Index 24
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,082 $ 21,768
Accounts receivable, including retainage, net 298,482 311,285
Receivables from unconsolidated entity, net 5,984 5,871
Inventories 130,070 131,083
Cost and estimated earnings in excess of billings
on uncompleted contracts 117,413 108,450
Prepaid expenses 14,795 13,555
Deferred income taxes 47,420 63,858
Assets held for sale 116,501 116,501
Other current assets 11,702 18,335
------------ ------------
Total current assets 765,449 790,706
Investment in unconsolidated entity, joint ventures
and limited partnerships 17,975 14,490
Investment in securities available for sale 15,548 15,236
Property and equipment, less accumulated depreciation
of $51,306 at November 30, 2000 and $46,087 at
August 31, 2000, respectively 143,173 144,547
Goodwill, net of accumulated amortization of $10,211
at November 30, 2000 and $6,375 at August 31, 2000 286,413 282,238
Other assets 84,549 87,866
------------ ------------
$ 1,313,107 $ 1,335,083
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, August 31,
2000 2000
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 173,636 $ 225,230
Accrued liabilities 131,414 147,887
Current maturities of long-term debt 28,080 27,358
Short-term revolving lines of credit 4,335 2,893
Deferred revenue - prebilled 7,867 6,045
Advanced billings and billings in excess of cost and estimated
earnings on uncompleted contracts 205,992 166,147
Accrued contract losses and reserves 73,189 106,489
------------ ------------
Total current liabilities 624,513 682,049
Long-term revolving line of credit 108,332 235,187
Long-term debt, less current maturities 20,551 19,778
Deferred income taxes 6,098 6,098
Other liabilities 14,469 14,696
Commitments and contingencies
Shareholders' equity:
Common stock, no par value,
40,452,422 and 35,402,408 shares outstanding, respectively 427,730 298,005
Retained earnings 118,742 106,581
Accumulated other comprehensive income (loss) (7,285) (5,209)
Unearned restricted stock compensation (43) (59)
Treasury stock, 16,399,916 shares at August 31, 2000 -- (22,043)
------------ ------------
Total shareholders' equity 539,144 377,275
------------ ------------
$ 1,313,107 $ 1,335,083
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
------------ ------------
<S> <C> <C>
Income:
Sales $ 418,757 $ 150,808
Cost of sales 354,689 124,730
------------ ------------
Gross profit 64,068 26,078
General and administrative expenses 38,038 15,912
------------ ------------
Operating income 26,030 10,166
Interest expense (6,632) (1,968)
Other income, net 650 173
------------ ------------
(5,982) (1,795)
------------ ------------
Income before income taxes, earnings (losses) from unconsolidated
entities and cumulative effect of change in accounting principle 20,048 8,371
Provision for income taxes 7,801 2,787
------------ ------------
Income before earnings (losses) from unconsolidated entities and
cumulative effect of change in accounting principle 12,247 5,584
Earnings (losses) from unconsolidated entities, net of taxes (86) 236
------------ ------------
Income before cumulative effect of change in accounting principle 12,161 5,820
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- (320)
------------ ------------
Net income $ 12,161 $ 5,500
============ ============
Basic income per common share:
Number of shares 37,980 25,020
Income before cumulative effect of change in accounting principle $ .32 $ 0.23
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- (0.01)
------------ ------------
Net income per common share $ .32 $ 0.22
============ ============
Diluted income per common share:
Number of shares 39,804 26,482
Income before cumulative effect of change in accounting principle $ .31 $ 0.22
Cumulative effect on prior years of change in accounting for
start-up costs, net of taxes -- (0.01)
------------ ------------
Net income per common share $ .31 $ 0.21
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,161 $ 5,500
Depreciation and amortization 9,405 3,367
Other (1,907) (390)
Changes in assets and liabilities (excluding cash and
those relating to investing and financing activities) (33,850) (34,039)
------------ ------------
Net cash used in operating activities (14,191) (25,562)
Cash flows from investing activities:
Investment in joint venture (2,000) --
Purchases of property and equipment (2,557) (2,712)
Proceeds from sale of property and equipment 536 1,031
------------ ------------
Net cash used in investing activities (4,021) (1,681)
Cash flows from financing activities:
Net increase (decrease) in outstanding checks
in excess of bank balance -- (1,755)
Net repayments on revolving credit agreements (125,607) (33,528)
Proceeds from issuance of debt 1,407 708
Repayment of debt and leases (2,333) (4,663)
Issuance of common stock 146,074 67,617
------------ ------------
Net cash provided by financing activities 19,541 28,379
Effect of exchange rate changes on cash (15) (100)
------------ ------------
Net increase in cash and cash equivalents 1,314 1,036
Cash and cash equivalents - beginning of period 21,768 6,901
------------ ------------
Cash and cash equivalents - end of period $ 23,082 $ 7,937
============ ============
Supplemental disclosure:
Noncash investing and financing activities:
Investment in securities available for sale acquired in
lieu of interest payment $ 312 $ 465
============ ============
Property and equipment acquired through
issuance of debt $ 2,421 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
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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 periods
ended November 30, 2000 and 1999 and as of November 30, 2000 and August 31, 2000
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 period are not necessarily
indicative of results of operations that will be realized for the fiscal year
ending August 31, 2001.
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current year's presentation.
Note 2 - Common Stock
In November 2000, the Company declared a two-for-one stock split of
its no par value per share Common Stock ("Common Stock"), effective on December
15, 2000 for all Common Stock shareholders of record as of December 1, 2000.
Unless otherwise indicated, all references to number of shares and to per share
information in the financial statements and notes have been adjusted to reflect
the stock split on a retroactive basis.
In October 2000, the Company completed the sale of 4,837,338 shares
(including 1,200,000 shares for over-allotments) of its Common Stock in an
underwritten public offering at a price of $31.75 per share, less underwriting
discounts and commissions. The net proceeds to the Company, less underwriting
discounts and commissions and other offering expenses, totaled approximately
$144,800,000 and were used to pay amounts outstanding under the Company's
primary revolving line of credit facility. The Company's primary revolving line
of credit facility has been used to provide working capital, and to fund fixed
asset purchases and subsidiary acquisitions including the recently completed
Stone & Webster Incorporated ("Stone & Webster") acquisition (see Note 3 of
Notes to Condensed Consolidated Financial Statements).
On November 10, 1999, the Company closed the sale of 6,000,000 shares
of its Common Stock in an underwritten public offering at a price of $10.50 per
share, less underwriting discounts and commissions. On November 16, 1999, the
underwriters for such offering exercised an option to purchase an additional
900,000 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
$67,617,000 and were used to pay down amounts outstanding under the Company's
primary revolving line of credit facility and certain other long-term debt.
During the three months ended November 30, 2000, the Company retired
16,399,916 shares of treasury stock recorded at $22,043,000.
7
<PAGE> 8
Note 3 - Acquisition
On July 14, 2000, the Company purchased substantially all of the
operating assets of Stone & Webster for $37,600,000 in cash, 4,463,546 shares of
Common Stock (valued at approximately $105,000,000 at closing) and the
assumption of approximately $693,000,000 of liabilities, subject to adjustment
pending the resolution of certain claims arising from the Stone & Webster
bankruptcy proceedings. The Company incurred approximately $6,000,000 of
acquisition costs. Stone & Webster is a global provider of engineering,
procurement, construction, consulting and environmental services to the power,
process, environmental and infrastructure markets. The Company believes that,
pursuant to the terms of the acquisition agreement, it assumed only certain
specified liabilities. The Company believes that it did not assume, among other
liabilities, liabilities associated with certain contracts in progress,
completed contracts, claims or litigation that relate to acts or events
occurring prior to the acquisition date, and certain employee benefit
obligations, including Stone & Webster's U.S. defined benefit plan
(collectively, the excluded items). The Company can, however, provide no
assurance that it will have no exposure with respect to such excluded
liabilities.
The acquisition agreement contains an adjustment provision that
requires the consideration paid by the Company to be increased or decreased by
the amount of the net assets or liabilities, as determined by the agreement, of
the excluded items. In addition, $25,000,000 of the acquisition proceeds was
placed in escrow by the sellers to secure certain indemnification obligations of
the sellers in the agreement. On December 27, 2000, the parties entered into an
agreement that resulted in the return by the sellers of approximately
$22,750,000 of the escrow funds to the Company and the waiver by the sellers of
the purchase price adjustment provision in exchange for the Company's assumption
of three previously excluded items. In addition, the Company and the sellers
agreed to designate four contracts as completed contracts and, therefore, not
assumed by the Company. This agreement has been approved by the bankruptcy court
and will result in a net reduction in the Company's purchase price and goodwill
which will be recorded by the Company in the quarter ended February 28, 2001.
The Company acquired a large number of contracts with either inherent
losses or lower than market remaining margins primarily due to the effect that
the financial difficulties experienced by Stone & Webster had on negotiating and
executing the contracts. These contracts were adjusted to their fair value at
acquisition date by establishing a liability of approximately $83,700,000 which
will adjust the gross margins recognized on the contracts as the work is
performed. The amount of the accrued losses on assumed contracts was
approximately $36,300,000. These adjustments will result in a net reduction of
contract costs incurred in future periods. During the quarter ended November 30,
2000, cost of sales was reduced by $41,114,000 as these reserves were reduced.
During the quarter ended November 30, 2000, the Company provided additional
contract reserves of approximately $7,800,000 as adjustments to the fair value
of the contracts acquired in the acquisition.
The acquisition was concluded as part of a proceeding under Chapter 11
of the U. S. Bankruptcy Code. The bankruptcy court has not finalized its
validation of claims filed with the court. As a result, the final amount of
assumed liabilities may change, although the Company believes, based on its
review of claims filed, that any adjustment to the assumed liabilities will not
be material.
The Company also assumed certain liabilities pursuant to severance and
change in control agreements of former executives. The Company has contested the
validity of at least one significant agreement, and is evaluating others.
However, the Company recorded a liability of approximately $22,400,000 related
to these executives who were not retained. No significant amounts related to
this liability were paid during the three months ended November 30, 2000.
The Company acquired a cold storage and frozen-food handling operation
as part of this acquisition. Stone & Webster had previously reported this
operation as a discontinued operation, and on October 18, 2000, the Company
entered into an agreement to sell the assets (other than cash) of this operation
for $70,000,000, subject to certain working capital and other adjustments.
Accordingly, this operation has been reported as an
8
<PAGE> 9
asset held for sale in the accompanying balance sheet. The Company recorded the
assets held for sale at the expected sales price pursuant to the agreement.
During the three months ended November 30, 2000, losses of approximately
$862,000 from this operation's results, which includes allocated interest
expense of approximately $1,365,000, have been excluded from the Company's
statement of income. The difference between the final disposition proceeds
related to this operation and the estimated proceeds of $70,000,000 will be
reflected as an adjustment to the purchase price during the quarter ended
February 28, 2001. In connection with the transaction, the Company acquired an
approximately 19.5% equity interest in the purchaser of the assets for an
investment of $1,930,000. In addition, the Company completed the sale of the
office building in Houston, Texas, in December 2000. This sale, after paying off
the mortgage of approximately $19,100,000, resulted in net proceeds of
approximately $21,100,000. The net proceeds from these asset disposals were used
to pay down the Company's revolving credit facility.
The Company also acquired various licenses, patents, technology and
related processes pertaining to the design and construction of plants which
produce ethelyne. The associated intangible asset has been estimated in the
purchase price allocation at $50,000,000. The Company is in the process of
obtaining an appraisal of this asset, which it expects to complete during the
quarter ending February 28, 2001. The final amount allocated to this asset will
result in an adjustment to the purchase price allocation to the extent the
appraisal is different than the estimated fair value assigned to it by the
Company.
Note 4 - Inventories
The major components of inventories consist of the following (in
thousands) as of the dates indicated:
<TABLE>
<CAPTION>
November 30, 2000 August 31, 2000
----------------------------------------- -----------------------------------------
Weighted Weighted
Average FIFO TOTAL Average FIFO TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Finished Goods $ 36,353 $ -- $ 36,353 $ 36,158 $ -- $ 36,158
Raw Materials 2,279 48,094 50,373 2,270 45,175 47,445
Work In Process 1,262 42,082 43,344 1,626 45,854 47,480
----------- ----------- ----------- ----------- ----------- -----------
$ 39,894 $ 90,176 $ 130,070 $ 40,054 $ 91,029 $ 131,083
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 5 - Investment in Unconsolidated Entities
During the three months ended November 30, 2000, the Company recognized
earnings of $52,000 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain
joint venture ("Shaw-Nass"). In addition, as of November 30, 2000 and August 31,
2000, the Company had outstanding receivables from Shaw-Nass totaling $5,981,000
and $5,871,000, respectively. These receivables relate primarily to inventory
and equipment sold to Shaw-Nass.
On September 18, 2000, the Company executed a definitive agreement with
Entergy Corporation ("Entergy") to create EntergyShaw, L.L.C. ("EntergyShaw"), a
new, equally-owned and jointly-managed company. Subsequent to the execution of a
letter of intent for this venture on June 2, 2000, Entergy and FPL Group, Inc.,
the parent of Florida Power & Light, announced a merger which will create the
largest U.S. power producer with generating capacity in excess of 48,000
megawatts. EntergyShaw's initial focus will be the construction of power plants
in North America and Europe for Entergy's and Florida Power & Light's
unregulated wholesale operations. On a combined basis, Entergy and Florida Power
& Light have approximately 70 turbines on order for their unregulated
operations.
9
<PAGE> 10
The Company expects that the installation of most of these turbines will be
managed by EntergyShaw, subject to the approval of its joint-management
committee. Shaw expects to provide the engineering, procurement, fabrication and
construction requirements to EntergyShaw for these plants. Under the terms of
the arrangement, the Company will present engineering, procurement and
construction opportunities that it receives after December 31, 2000 for power
generation projects to EntergyShaw.
During the three months ended November 30, 2000, the Company made an
initial investment in the new company of $2,000,000 and recognized a loss of
$138,000 (net of taxes) from EntergyShaw. In addition, as of November 30, 2000,
the Company had outstanding receivables from EntergyShaw totaling $3,000. After
its initial investment of $2,000,000, the Company has no further commitments to
EntergyShaw with respect to future capital contributions.
Note 6 - Investment in Securities Available for Sale
During the three months ended November 30, 2000 and 1999, the Company
recognized interest income of $312,000 and $465,000, respectively, from a
project financing participation. The interest income is included in sales since
the financing arrangement is related to construction services. The interest cost
of $381,000 and $258,000 for the three months ended November 30, 2000 and 1999,
respectively, associated with carrying the financing agreement is included in
cost of sales in the statements of income. The interest cost was calculated at
the Company's effective borrowing rate, which approximated 9.90% and 7.35% for
the three months ended November 30, 2000 and 1999, respectively.
Note 7 - Revolving Lines of Credit
In July 2000, in conjunction with the Stone & Webster acquisition, the
Company entered into a three-year $400,000,000 credit facility, with an
aggregate revolving credit commitment of $300,000,000 and an aggregate letter of
credit commitment of $100,000,000. During the quarter ended November 30, 2000,
the lead bank participants were completing the syndication of the facility. In
view of the Company's reduced credit needs from its October 2000 Common Stock
offering (see Note 2 of Notes to Condensed Consolidated Financial Statements),
proceeds received from the sale of assets acquired from Stone & Webster (see
Note 3 of Notes to Condensed Consolidated Financial Statements), the cash
received from return of escrowed consideration in the Stone & Webster
acquisition (also see Note 3 of Notes to Condensed Consolidated Financial
Statements), and better than expected operating cash flow, the Company elected
to close the syndication of the facility at $300,000,000, rather than the
committed amount of $400,000,000. The $300,000,000 facility permits revolving
credit loans and letters of credit, which letters of credit cannot exceed
$150,000,000. The facility allows the Company to borrow at interest rates not to
exceed 2.75% over the London Interbank Offered Rate ("LIBOR") or 1.25% over the
prime rate. The index used to determine the interest rate is selected by the
Company and the spread over the index is dependent upon certain financial ratios
of the Company. The credit facility is secured by, among other things, (i)
guarantees by the Company's domestic subsidiaries; (ii) the pledge of the
capital stock in the Company's domestic subsidiaries; (iii) the pledge of 66% of
the capital stock in certain of the Company's foreign subsidiaries; and (iv) a
security interest in all property of the Company and its domestic subsidiaries
(except real estate and equipment). The revolving credit agreement contains
restrictive covenants, which include ratios and minimum capital levels, among
other restrictions. As of November 30, 2000, the Company was in compliance with
the covenants. Since the facility matures in July 2003, the outstanding balance
at November 30, 2000 of $108,332,000 is classified as a long-term liability. As
of January 10, 2001, the credit facility had outstanding balances of
approximately $16,000,000 of revolving credit, $67,000,000 of outstanding
letters of credit, and availability under the facility of $217,000,000.
10
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Note 8 - Comprehensive Income
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) for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
November 30,
2000 1999
------------ ------------
<S> <C> <C>
Net Income $ 12,161 $ 5,500
Foreign currency translation adjustments (2,026) (426)
Unrealized net losses on hedging activities (50) --
------------ ------------
Total comprehensive income $ 10,085 $ 5,074
============ ============
</TABLE>
The foreign currency translation adjustments relate to the varying
strength of the U.S. dollar in relation to the British pound, Australian and
Canadian dollars and Dutch guilder.
The following is an analysis of the changes in the net gain (loss) on
cash flow hedging instruments included in accumulated other comprehensive income
(in thousands):
<TABLE>
<S> <C>
Balance at August 31, 2000 $ --
Cumulative effect of adoption of FAS 133 on September 1, 2000 (23)
Net gain for period 16
Amount transferred to earnings (43)
------
Balance at November 30, 2000 $ (50)
======
</TABLE>
11
<PAGE> 12
Note 9 - Business Segments
The Company has aggregated its business activities into two operating
segments: integrated EPC services segment (previously named pipe services
segment) and manufacturing and distribution segment. The following table
presents information about segment profits and assets (in thousands) for the
periods indicated:
<TABLE>
<CAPTION>
INTEGRATED EPC MANUFACTURING
SERVICES AND DISTRIBUTION CORPORATE TOTAL
-------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED NOVEMBER 30, 2000
Sales to external customers $ 401,835 $ 16,922 $ -- $ 418,757
Intersegment sales 9 5,183 -- 5,192
Net income 15,851 837 (4,527) 12,161
Total assets 1,182,868 65,048 57,378 1,305,294
THREE MONTHS ENDED NOVEMBER 30, 1999
Sales to external customers $ 138,194 $ 12,614 $ -- $ 150,808
Intersegment sales -- 4,874 -- 4,874
Net income 5,063 349 88 5,500
Total assets 351,050 59,166 30,501 440,717
</TABLE>
Note 10 - 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. All prior period shares and earnings per share amounts have been
restated to give affect to the two-for-one Common Stock split that was effective
on December 15, 2000.
At November 30, 2000 and 1999, the Company had outstanding dilutive
stock options of 3,698,560 and 2,392,500, 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 quarter end. Additionally, the Company had no stock options at
November 30, 2000 and 79,000 stock options at November 30, 1999, 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
November 30, 2000 and 1999 were 37,979,511 and 25,019,798, respectively.
Dilutive common equivalent shares for the quarters ended November 30, 2000 and
1999 were 1,415,773 and 1,462,730, respectively, all attributable to stock
options. Additionally, for the quarter ended November 30, 2000, dilutive shares
outstanding included an average of 408,622 shares of the Company's Common Stock
that was held in escrow until the October 2000 public offering of stock.
Note 11 - 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
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<PAGE> 13
the three-month period ended November 30, 1999, 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.
Effective September 1, 2000, the Company adopted Financial Accounting
Standards Board Statement No. 133 (Accounting for Derivative Instruments and
Hedging Activities), which requires that all derivative instruments be recorded
on the balance sheet at fair value. On the date derivative contracts are entered
into, the Company designates the derivative as either (a) a hedge of the fair
value of a recognized asset or liability or of an unrecognized firm commitment
(fair value hedge), (b) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge), or (c) a hedge of a net investment in a foreign
operation (net investment hedge).
Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, depending
on the type of hedge transaction. For fair value hedge transactions, changes in
fair value of the derivative instrument are generally offset in the income
statement by changes in the fair value of the item being hedged. For cash flow
hedge transactions, changes in the fair value of the derivative instrument are
reported in other comprehensive income. For net investment hedge transactions,
changes in the fair value are recorded as a component of the foreign currency
translation account that is also included in other comprehensive income. The
gains and losses on cash flow hedge transactions that are reported in other
comprehensive income are reclassified to earnings in the periods in which
earnings are effected by the variability of the cash flows of the hedged item.
The ineffective portions of all hedges are recognized in current period
earnings.
The Company utilizes forward foreign exchange contracts to reduce its
risk from foreign currency price fluctuations related to firm or anticipated
commitments to purchase or sell equipment, materials and/or services. These
investments are designated as cash flow hedging instruments. The Company
normally does not use any other type of derivative instrument or participate in
any other hedging activities.
Upon initial application of FAS 133, the Company recorded the fair
value of the existing hedge contracts on the balance sheet and a corresponding
unrecognized loss of $23,000 as a cumulative effect adjustment of accumulated
other comprehensive income, all of which is expected to be transferred to
earnings during 2001.
13
<PAGE> 14
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 November 30,
2000, and the results of their operations for the three-month period 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 the Company or Shaw or its management
"believes," "expects," "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. These forward-looking
statements involve significant risks and uncertainties (some of which are beyond
the control of the Company) and assumptions 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; changes in general economic conditions, and,
specifically, changes in the rate of economic growth in the United States and
other major international economies; the presence of competitors with greater
financial resources and the impact of competitive products, services and
pricing; the cyclical nature of the individual markets in which the Company's
customers operate; changes in investment by the energy, power and environmental
industries; the availability of qualified engineers and other professional staff
needed to execute contracts; the uncertain timing of awards and contracts; cost
overruns on fixed, maximum or unit priced contracts; changes in trade, monetary
and fiscal policies worldwide; currency fluctuations; the effect of the
Company's policies, including but not limited to the amount and rate of growth
of Company expenses; the continued availability to the Company of adequate
funding sources; delays or difficulties in the production, delivery or
installation of products and the provision of services; the ability of the
Company to successfully integrate the operations of Stone & Webster,
Incorporated, the protection and validity of patents and other intellectual
property; and various legal, regulatory and litigation risks. Should one or more
of these risks or uncertainties materialize, or should any of the Company's
assumptions prove incorrect, actual results may vary in material respects from
those projected in the forward-looking statements. 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. For a more detailed
discussion of some of the foregoing risks and uncertainties, see the Company's
filings with the Securities and Exchange Commission.
General
-------
The Company is the world's only vertically-integrated provider of
complete piping systems and comprehensive engineering, procurement and
construction services to the power generation industry. While approximately 72%
of Shaw's backlog at November 30, 2000 was attributable to the power generation
industry, the Company also does work in the process industries and the
environmental and infrastructure sectors. The Company's financial performance is
impacted by the broader economic trends affecting its customers. All of the
major industries in which Shaw operates are cyclical. Because Shaw's customers
participate in a broad portfolio of industries, the Company's experience has
been that downturns in one of its sectors may be mitigated by opportunities in
others.
14
<PAGE> 15
The acquisition by the Company of Stone & Webster in July 2000 has more
than doubled the size of the Company, increasing significantly the Company's
engineering, procurement and construction businesses, and will significantly
impact the Company's operations and its working capital requirements. For
additional information regarding the Stone & Webster acquisition, please see
Note 3 of Notes to Condensed Consolidated Financial Statements and Liquidity and
Capital Resources.
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>
(Unaudited)
Three Months Ended
November 30,
2000 1999
---------- ----------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 84.7 82.7
---------- ----------
Gross profit 15.3 17.3
General and administrative expenses 9.1 10.6
---------- ----------
Operating income 6.2 6.7
Interest expense (1.5) (1.3)
Other income, net .1 .1
---------- ----------
(1.4) (1.2)
---------- ----------
Income before income taxes, earnings (losses) from unconsolidated
entity and cumulative effect of change in accounting principle 4.8 5.5
Provision for income taxes 1.9 1.8
---------- ----------
Income before earnings (losses) from unconsolidated entity and
cumulative effect of change in accounting principle 2.9 3.7
Earnings (losses) from unconsolidated entity -- .1
---------- ----------
Income before cumulative effect of change in accounting principle 2.9 3.8
Cumulative effect on prior years of change in accounting for
organization cost, net of taxes -- (.2)
---------- ----------
Net income 2.9% 3.6%
========== ==========
</TABLE>
Sales increased 178% to $418.8 million for the three months ended
November 30, 2000, as compared to $150.8 million for the same period in the
prior year. Revenues from both of the Company's business segments increased with
the integrated EPC services segment reflecting a $263.6 million or 191%
increase. This increase was made possible by the Stone & Webster acquisition,
which was consummated in the fourth quarter of the prior fiscal year, fiscal
2000 (see Note 3 of Notes to Condensed Consolidated Financial Statements).
Because of the financial difficulties Stone & Webster incurred prior to the
acquisition by the Company, Stone & Webster's backlog was negatively impacted.
The Company is anticipating this loss of work by Stone & Webster to result in a
decline in revenues in the quarter ended February 28, 2001, due to the work-off
and completion of some of the projects assumed with this acquisition in the
Company's first quarter. The Company then anticipates sales growth closer to its
historical pattern in the third and fourth quarter of fiscal 2001, although
sales for the fourth quarter may still be less than those
15
<PAGE> 16
reflected in the quarter ended November 30, 2000. Revenues from the
manufacturing segment increased $4.3 million.
The Company's sales to customers in the following geographic regions
approximated the following for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended November 30,
2000 1999
---------------------------- ----------------------------
Geographic Region (in millions) % (in millions) %
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
U.S.A. $ 361.7 86% $ 117.1 78%
Far East/Pacific Rim 23.5 6 8.0 5
Europe 19.5 5 12.4 8
South America 8.5 2 9.6 6
Other 5.0 1 2.1 2
Middle East 0.6 0 1.6 1
---------- ---------- ---------- ----------
$ 418.8 100% $ 150.8 100%
========== ========== ========== ==========
</TABLE>
Sales for domestic projects increased $244.6 million, or 209%, to
$361.7 million for the three months ended November 30, 2000 from $117.1 million
for the three months ended November 30, 1999. Increases were experienced in all
domestic industry sectors. The power generation market continues to be robust in
the United States, accounting for approximately 73% of the increase in domestic
sales. This increase was made possible by the Stone & Webster acquisition in the
fourth quarter of last fiscal year (fiscal year 2000). As a result of the
acquisition of Stone & Webster, the Company now conducts business in the
Environment and Infrastructure industry sector. Domestic sales to this industry
sector in the first quarter of fiscal 2001 were $57.2 million, or 23% of the
increase in total domestic sales for the three months ended November 30, 2000.
Sales for international projects increased $23.4 million, or 69%, to
$57.1 million for the three months ended November 30, 2000 from $33.7 million
for the same period of the prior year. International sales for the quarter ended
November 30, 2000 were, however, approximately $6.8 million less than those for
the quarter ended August 31, 2000, indicating that the international market
continues to be weak. Sales in the Far East/Pacific Rim Region and Europe were
materially increased due to work performed by the acquired Stone & Webster
businesses. Bidding activity has increased in certain countries in the Far
East/Pacific Rim Region, such as China, Taiwan and Malaysia. Additionally, on
August 28, 2000, the Company announced the execution of a letter of intent for
the construction of a 600,000 metric ton-per-year ethylene plant in China. The
Company expects the final agreement will be executed in the quarter ended
February 28, 2001. Over 90% of the sales to the European sector were to the
United Kingdom and European inquiries remain high, particularly in Spain. Even
though sales in South America, the Middle East and other areas remain sluggish,
the Company continues to believe that these markets present long-term
opportunities for the Company.
16
<PAGE> 17
The Company's sales to customers in the following industry sectors
approximated the following for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended November 30,
2000 1999
------------------------------- --------------------------------
Industry Sector (in millions) % (in millions) %
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Power Generation $ 248.7 59% $ 58.3 39%
Process Industries 83.4 20 73.8 49
Environmental and Infrastructure 57.2 14 -- --
Other Industries 29.5 7 18.7 12
------------ ------------ ------------ ------------
$ 418.8 100% $ 150.8 100%
============ ============ ============ ============
</TABLE>
Revenues from power generation projects increased both domestically and
internationally by a total of $190.4 million for the three months ended November
30, 2000 over the revenues for the three months ended November 30, 1999. Demand
in the United States for power generation projects remained high, generating
$178.0 of that increase. Process industries sales increases were primarily in
the international market. The acquisition of Stone & Webster contributed
significantly to the increases in both the power generation and process
industries sectors. As a result of the acquisition of Stone & Webster, the
Company now conducts business in the Environment and Infrastructure industry
sector, which it did not participate in materially until it acquired Stone &
Webster.
Gross profit increased 145.7% to $64.1 million in the three months
ended November 30, 2000 from $26.1 million in the three months ended November
30, 1999 due to the growth in revenue volume during the same period. The gross
profit margin for the three-month period ended November 30, 2000 decreased to
15.3% from 17.3% 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. The Company's
gross profit margin has been declining due to the Company's increase in revenues
related to its erection and maintenance services and the inclusion of Stone &
Webster's procurement and construction activities, which generally carry lower
margins than fabrication work. The Company expects this margin to begin to
stabilize close to the current level during fiscal 2001.
General and administrative expenses increased to $38.0 million for the
quarter ended November 30, 2000 from $15.9 million for the quarter ended
November 30, 1999. This increase relates primarily to the integration of Stone &
Webster into Shaw. As a percentage of sales, however, general and administrative
expenses decreased to 9.1% for the three months ended November 30, 2000 from
10.6% for the three months ended November 30, 1999. This percentage is expected
to increase next quarter due to the anticipated reduction in sales for that
quarter.
Interest expense for the quarter ended November 30, 2000 was $6.6
million, compared to $2.0 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.
During fiscal 2001, reported interest expense is and will be higher than
expected based on borrowing levels due to the amortization of loan fees
associated with the primary facility which are classified as interest expense.
The Company's effective tax rates for the quarters ended November 30,
2000 and 1999 were 38.9% and 33.3%, respectively. The tax rates for each quarter
relate primarily to the mix of foreign (including foreign export sales) versus
domestic work. The increase in the tax rate for the quarter ended November 30,
2000, compared to the quarter ended November 30, 1999, is due primarily to the
increase in domestic sales and an increase in nondeductible expenses, such as a
portion of the goodwill recognized from the Stone & Webster acquisition.
17
<PAGE> 18
Total backlog increased to $2.1 billion at November 30, 2000, compared
to $1.9 billion reported at August 31, 2000 and $833 million reported at
November 30, 1999. Approximately 81% of the backlog relates to domestic
projects, and roughly 41% of the backlog relates to work currently anticipated
to be completed during the 12 months following November 30, 2000. The backlog is
largely a reflection of the broader economic trends being experienced by the
Company's customers and is important in anticipating operational needs. 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. While
Shaw believes backlog information may be helpful in understanding its business,
it is not necessarily indicative of future earnings.
Backlog at November 30, 2000 by industry sector is as follows (in
millions):
<TABLE>
<S> <C>
Power Generation $ 1,485.4
Process Industries 312.4
Environmental and Infrastructure 184.6
Other Industries 85.1
------------
$ 2,067.5
============
</TABLE>
Liquidity and Capital Resources
-------------------------------
Net cash used in operations was $14.2 million for three months ended
November 30, 2000, compared to $25.6 million for the same period of fiscal 2000.
For the quarter ended November 30, 2000, net cash was favorably impacted by net
income of $12.2 million and depreciation and amortization of $9.4 million.
Offsetting these positive factors were changes in certain assets and liabilities
of $33.9 million and other non-operating items netting $1.9 million. Reductions
of accounts payables of $49.6 million and accrued contract losses and reserves
of $33.3 million were offset by increases in advanced billings and billings in
excess of cost and estimated earnings on uncompleted contracts of $40.6 million
and other changes netting $8.4 million, resulting in the $33.9 million change
in certain assets and liabilities.
Accounts payable decreased primarily due to the payment of some of the
liabilities assumed in the Stone & Webster acquisition. The Company acquired a
large number of contracts from Stone & Webster with either inherent losses or
lower than market remaining margins due to the effect of the financial
difficulties experienced by Stone & Webster on negotiating and executing the
contracts. These contracts were adjusted to their fair value at acquisition date
by establishing a reserve which will reduce contract costs incurred in future
periods and adjust the gross margins recognized on the contracts. In addition, a
liability was recorded for accrued losses on assumed contracts. During the
quarter ended November 30, 2000, the Company incurred a $33.3 million net
reduction of the accrued contract losses and reserves. The increase in advanced
billings and billings in excess of cost and estimated earnings on uncompleted
contracts resulted from accelerated billing provisions in more contracts.
Net cash used in investing activities was $4.0 million for the first
quarter of fiscal 2001, compared to $1.7 million for the same period of the
prior fiscal year. During the first three months of fiscal 2001, the Company
purchased $2.6 million of property and equipment and sold property and equipment
for approximately $.6 million. These amounts are consistent with the first three
months of fiscal 2000 and, other than certain integration costs related to the
Stone & Webster acquisition, the Company does not expect its capital
expenditures for fiscal year 2001 to be substantially different from its
historical levels. As an additional use of
18
<PAGE> 19
cash in the first quarter of fiscal 2001, the Company made its initial
investment of $2.0 million in its EntergyShaw Joint Venture (see Note 5 of Notes
to Condensed Consolidated Financial Statements).
Net cash provided by financing activities totaled $19.5 million for the
three months ended November 30, 2000, compared to $28.4 million provided in the
first quarter of fiscal 2000. In October 2000, the Company completed the sale of
4,837,338 shares (including 1,200,000 shares for over-allotments) of its Common
Stock, no par value per share (the "Common Stock"), in an underwritten public
offering at a price of $31.75 per share, less underwriting discounts and
commissions. The net proceeds to the Company, less underwriting discounts and
commissions and other offering expenses, totaled approximately $144.8 million
and were used to pay amounts outstanding under the Company's primary revolving
line of credit facility. The Company's primary revolving line of credit
facility has been used to provide working capital, and to fund fixed asset
purchases and subsidiary acquisitions including the acquisition of
substantially all of the operating assets of Stone & Webster, Incorporated
("Stone & Webster"). The Company also received approximately $1.3 million from
employees upon the exercise of stock options during such quarter.
Stone & Webster had a working capital deficit at the time of the
acquisition. The Company assumed a portion of this deficit through its
assumption of certain contracts and their related net liability positions. This
working capital deficit is approximately $96.1 million as of November 30, 2000,
which excludes approximately $47.4 million of remaining non-cash liabilities
relating to adjusting the acquired contracts to their fair value at acquisition
date as discussed above. The working capital deficit does include the remaining
accrued losses assumed on the contracts of approximately $25.8 million as of
November 30, 2000. This working capital deficit represents future net cash
expenditures primarily from billings in excess of cost and estimated earnings on
completed contracts which represents work billed but not yet performed and
accruals from expected losses on assumed contracts related to the Company's
assumed contracts. This working capital deficit is down from $125.4 million at
August 31, 2000, and the Company expects that this working capital deficit will
be worked off during fiscal 2001.
The acquisition agreement contains an adjustment provision that
requires the consideration paid by the Company to be increased or decreased by
the amount of the net assets or liabilities, as determined by the agreement, of
the excluded items. In addition, $25,000,000 of the acquisition proceeds were
placed in escrow by the sellers to secure certain indemnification obligations of
the sellers in the agreement. On December 27, 2000, the parties entered into an
agreement that resulted in the return by the sellers of approximately
$22,750,000 of the escrow funds to the Company and the waiver by the sellers of
the purchase price adjustment provision in exchange for the Company's assumption
of three previously excluded items. In addition, the Company and the sellers
agreed to account for four contracts as completed contracts and, therefore, not
assumed by the Company. This agreement has been approved by the bankruptcy court
and, accordingly, will result in a net reduction in the Company's purchase price
and goodwill. This reduction will be recorded by the Company in the quarter
ended February 28, 2001.
As of November 30, 2000, the Company had a positive working capital
balance of approximately $148.7 million. Because the Stone & Webster acquisition
has more than doubled the size of its operations and because a number of the
contracts assumed in the acquisition will result in negative cash flow in the
near term, the Company cannot provide assurance that its working capital
requirements associated with its ongoing projects at any given point in time
will not exceed its available borrowing capacity. To the extent the Company's
working capital requirements exceed its borrowing capacity, Shaw's operations
could be significantly adversely affected.
On September 18, 2000, the Company executed a definitive agreement with
Entergy Corporation to create EntergyShaw, a new, equally-owned and
jointly-managed company. As of November 17, 2000, the Company has invested $2
million into the entity, as required under the terms of the agreement.
Subsequent to
19
<PAGE> 20
the execution of a letter of intent for this venture on June 2, 2000, Entergy
and FPL Group, Inc., the parent of Florida Power & Light, announced a merger
which will create the largest U.S. power producer with generating capacity in
excess of 48,000 megawatts. EntergyShaw's initial focus will be the construction
of power plants in North America and Europe for Entergy's and Florida Power &
Light's unregulated wholesale operations. On a combined basis, Entergy and
Florida Power & Light have approximately 70 turbines on order for their
unregulated operations. The Company expects that the installation of most of
these turbines will be managed by EntergyShaw, subject to the approval of its
joint-management committee. The Company estimates that EntergyShaw will generate
approximately $100 million in revenues per turbine installed. Shaw expects to
provide the engineering, procurement, fabrication and construction requirements
to EntergyShaw for these plants. Under the terms of the arrangement, the Company
will present engineering, procurement and construction opportunities that it
receives after December 31, 2000 for power generation projects to the new
company. The Company does not believe that work performed for EntergyShaw will
require a significant working capital investment due to expected terms of the
contract with EntergyShaw.
The Company also acquired certain assets in the Stone & Webster
acquisition which it has sold subsequent to November 30, 2000. The Company
acquired a cold storage and frozen-food handling operation which it sold for
approximately $70 million. In addition, the Company sold an office building in
Houston, Texas, which, after paying off the mortgage of approximately $19.1
million, resulted in the receipt by the Company of net proceeds of approximately
$21.1 million. The net proceeds from these asset disposals have been used to pay
down the Company's revolving credit facility.
In July 2000, in conjunction with the Stone & Webster acquisition, the
Company entered into a three-year $400 million credit facility, with an
aggregate revolving credit commitment of $300 million and an aggregate letter of
credit commitment of $100 million. During the quarter ended November 30, 2000,
the lead bank participants were completing the syndication of the facility. In
view of the Company's reduced credit needs from its October 2000 Common Stock
offering (see Note 2 of Notes to Condensed Consolidated Financial Statements),
proceeds received from the sale of assets acquired from Stone & Webster (see
Note 3 of Notes to Condensed Consolidated Financial Statements), the cash
received from return of escrowed consideration in the Stone & Webster
acquisition (also see Note 3 of Notes to Condensed Consolidated Financial
Statements), and better than expected operating cash flow, the Company elected
to close the syndication of the facility at $300 million, rather than the
committed amount of $400 million. The $300 million facility permits revolving
credit loans and letters of credit, which letters of credit cannot exceed $150
million. The facility allows the Company to borrow at interest rates not to
exceed 2.75% over the London Interbank Offered Rate ("LIBOR") or 1.25% over the
prime rate. The index used to determine the interest rate is selected by the
Company and the spread over the index is dependent upon certain financial ratios
of the Company. The credit facility is secured by, among other things, (i)
guarantees by the Company's domestic subsidiaries; (ii) the pledge of the
capital stock in the Company's domestic subsidiaries; (iii) the pledge of 66% of
the capital stock in certain of the Company's foreign subsidiaries; and (iv) a
security interest in all property of the Company and its domestic subsidiaries
(except real estate and equipment). The revolving credit agreement contains
restrictive covenants, which include ratios and minimum capital levels, among
other restrictions. As of November 30, 2000, the Company was in compliance with
the covenants. Since the facility matures in July 2003, the outstanding balance
at November 30, 2000 of $108.3 million is classified as a long-term liability.
As of January 10, 2001, the credit facility had outstanding balances of
approximately $16 million of revolving credit, $67 million of outstanding
letters of credit, and availability under the facility of $217 million. The
Company believes that working capital generated from its operations and its
availability under its revolving credit facility will be adequate to fund the
working capital deficit acquired in the Stone & Webster acquisition, its capital
expenditures, and its normal operations for the next twelve months.
20
<PAGE> 21
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 three-month period ended November 30, 1999, 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.
During 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 adopted SFAS No. 133, as amended by SFAS No. 137 on September 1, 2000,
and has recognized a $23,000 charge to accumulated other comprehensive income
upon adoption.
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, 2000, there have been no material changes in the Company's
exposure to these risks.
21
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended November 30, 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
+10.1 Amended and Restated Credit Agreement made as of
November 30, 2000 among the Company, Bank One, NA,
Firstar Bank, N.A., Credit Lyonnais New York
Branch and Union Planters Bank, N.A.
----------
+ Filed herewith.
B. Reports on Form 8-K
1. On October 13, 2000, the Company filed a Form 8-K announcing that the
Company and Stone & Webster Incorporated, Stone & Webster Group Limited,
and Stone & Webster Canada Limited entered into a purchase agreement with
certain underwriters to sell 4,600,000 shares of the Company's Common
Stock, no par value per share, including an over-allotment option of
600,000 shares of the Company's Common Stock. (The number of shares has
not been restated for the Company's two-for-one Common Stock split
effective on December 15, 2000.)
2. On September 19, 2000, the Company filed a Form 8-K attaching a press
release dated September 18, 2000, announcing that the Company and Entergy
Corporation will sign a definitive agreement to create EntergyShaw,
L.L.C., a new company that will provide management, engineering,
procurement, construction and commissioning services to build electric
power plants worldwide.
22
<PAGE> 23
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: January 16, 2001 /s/ Robert L. Belk
-------------------------
Chief Financial Officer
(Duly Authorized Officer)
23
<PAGE> 24
EXHIBIT INDEX
Form 10-Q Quarterly Report for the Quarterly Period ended November 30,
2000.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
+10.1 Amended and Restated Credit Agreement made as of
November 30, 2000 among the Company, Bank One, NA,
Firstar Bank, N.A., Credit Lyonnais New York
Branch and Union Planters Bank, N.A.
</TABLE>
----------
+ Filed herewith.
24
