-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KUro249Xz+NW7nJBeGWSVMtuIkoynLILufDNe0R/KnZtvd08KLWJ0vruJ1btNOEW V3xD/3ndkxtPyYsU8H0LFg== 0000914024-00-000001.txt : 20000202 0000914024-00-000001.hdr.sgml : 20000202 ACCESSION NUMBER: 0000914024-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHAW GROUP INC CENTRAL INDEX KEY: 0000914024 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 721106167 STATE OF INCORPORATION: LA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12227 FILM NUMBER: 507730 BUSINESS ADDRESS: STREET 1: 8545 UNITED PLAZA BOULEVARD STREET 2: 2ND FLOOR CITY: BATON ROUGE STATE: LA ZIP: 70816 BUSINESS PHONE: 5042961195 MAIL ADDRESS: STREET 1: 11100 MEAD RD STREET 2: 2ND FLOOR CITY: BATON ROUGE STATE: LA ZIP: 70816 10-Q 1 FORM 10-Q FOR QUARTER ENDED NOVEMBER 30, 1999 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, 1999 ------------------------------------ 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, 15,208,046 shares outstanding as of January 7, 2000. FORM 10-Q TABLE OF CONTENTS Part I - Financial Information Item 1. - Financial Statements Condensed Consolidated Balance Sheets - August 31, 1999 and November 30, 1999 3 - 4 Condensed Consolidated Statements of Income - For the Three Months Ended November 30, 1998 and 1999 5 Condensed Consolidated Statements of Cash Flows - For the Three Months Ended November 30, 1998 and 1999 6 Notes to Condensed Consolidated Financial Statements 7 - 10 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 17 Item 3. - Quantitative and Qualitative Disclosures About Market Risk 17 Part II - Other Information Item 4. - Submission of Matters to a Vote of Security Holders 18 Item 6. - Exhibits and Reports on Form 8-K 18 Signature Page 19 Exhibit Index 20 PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
ASSETS August 31, November 30, 1999 1999 -------------- ----------------- Current assets: Cash and cash equivalents $ 6,901 $ 7,937 Accounts receivable, net 122,053 142,465 Receivables from unconsolidated entity, net 4,310 4,289 Inventories 78,464 78,236 Cost and estimated earnings in excess of billings on uncompleted contracts 24,277 37,039 Prepaid expenses 4,131 6,553 Other current assets 11,934 11,921 -------------- ----------------- Total current assets 252,070 288,440 Investment in unconsolidated entity 4,646 4,882 Investment in securities available for sale 13,830 14,295 Property and equipment, less accumulated depreciation of $35,252 at August 31, 1999 and $37,815 at November 30, 1999, respectively 95,508 94,550 Goodwill, net of accumulated amortization of $3,276 at August 31, 1999 and $3,458 at November 30, 1999 32,134 31,356 Other assets 8,874 7,194 -------------- ----------------- $ 407,062 $ 440,717 ============== =================
(Continued) The accompanying notes are an integral part of these statements. THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, November 30, 1999 1999 --------------- ----------------- Current liabilities: Outstanding checks in excess of bank balance $ 6,633 $ 4,878 Accounts payable 37,714 28,355 Accrued liabilities 28,407 32,498 Current maturities of long-term debt 8,056 8,412 Revolving lines of credit 43,562 9,961 Deferred revenue - prebilled 3,576 7,266 Advanced billings and billings in excess of cost and estimated earnings on uncompleted contracts 10,147 12,141 --------------- ----------------- Total current liabilities 138,095 103,511 Long-term debt, less current maturities 87,841 83,530 Deferred income taxes 6,887 6,730 Commitments and contingencies -- -- Shareholders' equity: Common stock, no par value, 11,736,046 and 15,208,046 shares outstanding, respectively 119,353 186,969 Retained earnings 77,071 82,571 Accumulated other comprehensive income (loss) (1,535) (1,961) Unearned restricted stock compensation (125) (108) Treasury stock, 8,224,236 shares (20,525) (20,525) --------------- ----------------- Total shareholders' equity 174,239 246,946 --------------- ----------------- $ 407,062 $ 440,717 =============== =================
The accompanying notes are an integral part of these statements. THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts)
Three Months Ended November 30, 1998 1999 -------------- -------------- Income: Sales $ 116,032 $ 150,808 Cost of sales 95,315 124,730 -------------- -------------- Gross profit 20,717 26,078 General and administrative expenses 14,275 15,912 -------------- -------------- Operating income 6,442 10,166 Interest expense (2,442) (1,968) Other income, net 80 173 -------------- -------------- (2,362) (1,795) -------------- -------------- Income before income taxes, earnings (losses) from unconsolidated entity and cumulative effect of change in accounting principle 4,080 8,371 Provision for income taxes 1,205 2,787 -------------- -------------- Income before earnings (losses) from unconsolidated entity and cumulative effect of change in accounting principle 2,875 5,584 Earnings (losses) from unconsolidated entity (53) 236 -------------- -------------- Income before cumulative effect of change in accounting principle 2,822 5,820 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- (320) -------------- -------------- Net income $ 2,822 $ 5,500 ============== ============== Basic income per common share: Number of shares 12,460 12,510 Income before cumulative effect of change in accounting principle $ 0.23 $ 0.47 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- (0.03) -------------- -------------- Net income per common share $ 0.23 $ 0.44 ============== ============== Diluted income per common share: Number of shares 12,521 13,241 Income before cumulative effect of change in accounting principle $ 0.23 $ 0.44 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- (0.02) -------------- -------------- Net income per common share $ 0.23 $ 0.42 ============== ==============
The accompanying notes are an integral part of these statements. THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended November 30, 1998 1999 -------------- -------------- Cash flows from operating activities: Net income $ 2,822 $ 5,500 Depreciation and amortization 3,086 3,367 Other (319) (390) Changes in assets and liabilities (excluding cash and those relating to investing and financing activities) (26,375) (34,039) -------------- -------------- Net cash provided by (used in) operating activities (20,786) (25,562) Cash flows from investing activities: Purchases of property and equipment (5,401) (2,712) Proceeds from sale of property and equipment -- 1,031 -------------- -------------- Net cash used in investing activities (5,401) (1,681) Cash flows from financing activities: Net increase (decrease) in outstanding checks in excess of bank balance 3,130 (1,755) Net proceeds (repayments) on revolving credit agreements 36,687 (33,528) Proceeds from issuance of debt 974 708 Repayment of debt and leases (1,661) (4,663) Purchases of treasury stock (12,749) -- Issuance of common stock 7 67,617 -------------- -------------- Net cash provided by financing activities 26,388 28,379 Effect of exchange rate changes on cash (55) (100) -------------- -------------- Net increase in cash and cash equivalents 146 1,036 Cash and cash equivalents - beginning of period 3,743 6,901 -------------- -------------- Cash and cash equivalents - end of period $ 3,889 $ 7,937 ============== ============== Supplemental disclosure: Noncash investing and financing activities: Investment in securities available for sale acquired in lieu of interest payment $ -- $ 465 ============== ==============
The accompanying notes are an integral part of these statements. 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, 1998 and 1999 and as of August 31, 1999 and November 30, 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 period 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):
August 31, 1999 November 30, 1999 --------------------------------------- -------------------------------------- Weighted Weighted Average FIFO TOTAL Average FIFO TOTAL ------- ---- ----- ------- ---- ----- Finished Goods $29,244 $ 642 $29,886 $30,968 $ -- $30,968 Raw Materials 3,686 32,869 36,555 3,788 34,490 38,278 Work In Process 1,306 10,717 12,023 1,532 7,458 8,990 --------- --------- ---------- --------- -------- --------- $34,236 $44,228 $78,464 $36,288 $41,948 $78,236 ======= ======= ======= ======= ======= =======
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 $67,617,000 and were used to pay down amounts outstanding under the Company's primary revolving line of credit facility and certain other long-term debt. 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 November 30, 1998 and 1999, the Company had outstanding dilutive stock options of 235,750 and 1,196,250, 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 220,371 and 39,500 of stock options at November 30, 1998 and 1999, respectively, which were excluded from the calculation of diluted income per share because they were antidilutive. The weighted average common shares outstanding for the quarters ended November 30, 1998 and 1999 were 12,460,400 and 12,509,899, respectively. Dilutive common equivalent shares for the quarters ended November 30, 1998 and 1999 were 60,471 and 731,365, respectively, all attributable to stock options. Note 5 - Investment in Unconsolidated Entities During the three months ended November 30, 1999, the Company recognized earnings of $236,000 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain joint venture ("Shaw-Nass"). In addition, as of August 31, 1999 and November 30, 1999, the Company had outstanding receivables from Shaw-Nass totaling $4,310,000 and $4,289,000, 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 construction services, the Company embarked on its first significant project financing participation on December 15, 1998. As a result, the Company acquired $12,500,000 of 15% Senior Secured Notes due December 1, 2003 (the "15% Notes"), issued by a customer, together with certain preferred stock related thereto, also issued by the customer. The 15% Notes were secured originally by a first priority security interest in some of the assets in the customer's refinery located in Norco, Louisiana, at which the Company is currently providing construction services. Pursuant to an exchange offer initiated by the customer in October 1999, to all of the holders of the 15% Notes (aggregating approximately $254 million in principal and interest), on November 17, 1999, the Company exchanged its 15% Notes for (i) $14,294,535 (representing the principal and accrued interest on the Company's 15% Notes) of 10% Senior Secured Notes due November 15, 2004 (the "New Notes"), and (ii) shares of Class A Convertible Preferred Stock, the amount and value of which are not material. The 10% interest rate on the New Notes will increase to 14% per annum on November 16, 2003, and will continue at such rate until maturity. Through November 15, 2003, the Company expects to receive additional New Notes in lieu of interest payments. Pursuant to the New Notes exchange offer, the customer issued an aggregate of approximately $254 million of the New Notes to the holders of the 15% Notes. The Company participated in the New Notes exchange offer because, upon receipt of the requisite approval by the holders of the 15% Notes, the collateral securing the 15% Notes would be released. All holders of the 15% Notes participated in the New Notes exchange offer. Prior to the exchange offer, the Company's customer incurred additional secured indebtedness of approximately $150,000,000 ranking senior to the 15% Notes. Such indebtedness also ranks senior to the New Notes. As such, the security interest in the refinery assets securing the New Notes is subordinate to the security interest securing such additional indebtedness. Simultaneous with the incurrence of additional secured indebtedness, the customer issued additional common stock, raising $50 million of equity. Since the New Notes are available for sale, Statement of Financial Accounting Standards (SFAS) No. 115 -- "Accounting for Certain Investments in Debt and Equity Securities" requires that they be measured at fair value in the Company's consolidated balance sheet and that unrealized holding gains and losses, net of taxes, for these investments be reported in a separate component of shareholders' equity until realized. Based on issuance of additional debt securities by the customer during fiscal year 1999, the relatively dormant market for the New Notes, the raising of $50,000,000 of additional equity, and the impending scheduled completion of the refinery project, the Company believes that the New Notes had an aggregate value approximating the outstanding principal amount of $14,294,535 at November 30, 1999. As a result, no unrealized gain or loss is recognized in shareholders' equity. Since the financing arrangement is related to construction services, the interest income of $465,000 in the first quarter of fiscal year 2000 from the 15% Notes and the New Notes is included in sales, and the interest cost of $258,000 in the first quarter of fiscal year 2000 associated with carrying the 15% Notes and the New Notes is included in cost of sales in the statement of income. The interest cost was calculated at the Company's effective borrowing rate, which approximated 7.35% per annum for the three months ended November 30, 1999. In November 1999, the Company also exchanged the related preferred stock for shares of new Class C Convertible Preferred Stock, the amount and value of which are not material. 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 November 30, 1998 1999 -------- -------- Net Income $ 2,822 $ 5,500 Foreign currency translation adjustments 467 (426) -------- -------- Total comprehensive income $ 3,289 $ 5,074 ======== ======== The foreign currency translation adjustments relate to the varying strength of the U.S. dollar in relation to the British pound, Australian dollar and Dutch guilder. Note 8 - Business Segments The Company has aggregated its business activities into two operating segments: pipe services and manufacturing. The following table presents information about segment profits and assets (in thousands): Pipe Services Manufacturing Corporate Total --------- ------------- ---------- ------- Quarter ended November 30, 1998 Sales to external customers $ 103,201 $ 12,831 $ -- $ 116,032 Intersegment sales -- 4,656 -- 4,656 Net income 2,527 385 (90) 2,822 Total assets 321,128 56,362 25,635 403,125 Quarter 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 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 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. 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, 1999, 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 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. 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:
(Unaudited) Three Months Ended November 30, 1998 1999 ------------ -------------- Sales 100.0% 100.0% Cost of sales 82.2 82.7 ------------ ------------ Gross profit 17.8 17.3 General and administrative expenses 12.3 10.6 ------------ ------------ Operating income 5.5 6.7 Interest expense (2.1) (1.3) Other income, net .1 .1 ------------ ------------ (2.0) (1.2) ------------ ------------ Income before income taxes, earnings (losses) from unconsolidated entity and cumulative effect of change in accounting principle 3.5 5.5 Provision for income taxes 1.0 1.8 ------------ ------------ Income before earnings (losses) from unconsolidated entity and cumulative effect of change in accounting principle 2.5 3.7 Earnings (losses) from unconsolidated entity ( .1) .1 ------------ ------------ Income before cumulative effect of change in accounting principle 2.4 3.8 Cumulative effect on prior years of change in accounting for organization cost, net of taxes -- (.2) ------------ ------------ Net income 2.4% 3.6% ============ ============
Sales increased 30.0% to $150.8 million for the three months ended November 30, 1999, as compared to $116.0 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 November 30, 1998 1999 --------------------------- ---------------------- Geographic Region (in millions) % (in millions) % - ----------------- -------------- ---------- --------------- ----- U.S.A. $ 85.2 73% $ 117.1 78% Far East/Pacific Rim 9.3 8 8.0 5 Middle East 5.5 5 1.6 1 South America 2.8 2 9.6 6 Europe 9.0 8 12.4 8 Other 4.2 4 2.1 2 ---------- ------ ----------- ------ $ 116.0 100% $ 150.8 100% ========== ====== =========== ====== Sales for domestic projects increased $31.9 million, or 37%, from $85.2 million for the three months ended November 30, 1998 to $117.1 million for the three months ended November 30, 1999. The increase in domestic sales primarily resulted from increases in sales to the power generation and crude oil refining industries, partially offset by a decrease in sales to the chemical processing industry. Sales for international projects increased $2.9 million, or 9%, to $33.7 million for the three months ended November 30, 1999 from $30.8 million for the same period of the prior year, but international sales for the quarter ended November 30, 1999 were approximately $1 million less than those for the quarter ended August 31, 1999, indicating that the international market continues to be weak. Bidding activity in international markets, however, has recently increased. International sales remain sluggish in the Far East/Pacific Rim region (due to general economic conditions). 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 have recently shown some improvement, the Company's short-term outlook is uncertain due to general economic conditions and, particularly with respect to Venezuela, political conditions. The Company continues to believe, however, that the Far East/Pacific Rim, Middle East and South American markets present significant long-term opportunities for the Company. For the quarter ended November 30, 1999, virtually all European sector sales were to the United Kingdom. European inquiries are increasing with the majority of activity initiating in Spain. Based on the Company's available work force, its domestic fabrication shops operated at full capacity during the quarter ended November 30, 1999. The Company has increased it fabrication capacity through internal means and is pursuing opportunities for further expansion through asset acquisitions and/or new construction. The Company's sales to customers in the following industry sectors approximated the following: Three Months Ended November 30, 1998 1999 ------------------ ----------------- Industry Sector (in millions) % (in millions) % ------------ ---- ----------------- Power Generation $ 34.1 30% $ 58.3 39% Chemical Processing 38.3 33 28.5 19 Crude Oil Refining 20.1 17 42.7 28 Petrochemical Processing 7.7 7 2.6 2 Oil and Gas Exploration and Production 8.5 7 10.5 7 Other 7.3 6 8.2 5 --------- ---- ------- ----- $ 116.0 100% $150.8 100% ========= ==== ======= ===== Increases in sales to the power generation and crude oil refining industries resulted primarily from domestic projects, as well as international crude oil refining 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 processing industry sector resulted from reduced domestic activity. The gross profit margin for the three-month period ended November 30, 1999 decreased to 17.3% from 17.8% for the same period the prior year. Although gross profit margin improvements were recognized for some fabrication services and in the manufacturing segment of the Company's business, lower margins on erection and construction services offset these improvements. General and administrative expenses increased from $14.3 million for the quarter ended November 30, 1998 to $15.9 million for the quarter ended November 30, 1999. This increase relates primarily to variable expenses related to increased sales. As a percentage of sales, however, general and administrative expenses decreased from 12.3% for the three months ended November 30, 1998 to 10.6% for the three months ended November 30, 1999. Interest expense for the quarter ended November 30, 1999 was $2.0 million, compared to $2.4 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. The Company's effective tax rates for the quarters ended November 30, 1998 and 1999 were 29.5% and 33.3%, respectively. The tax rates for each quarter relate primarily to the mix of foreign versus domestic work. The increase in the tax rate for the quarter ended November 30, 1999, compared to the quarter ended November 30, 1998, is due primarily to the increase in domestic sales. Total backlog increased to $833 million at November 30, 1999, compared to $430 million reported at November 30, 1998 and $818 million reported at August 31, 1999. Approximately 76% of the backlog relates to domestic projects, and roughly 47% of the backlog relates to work currently anticipated to be completed during the 12 months following November 30, 1999. 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, 1999 by industry sector is as follows (in millions): Power Generation $ 527.7 Chemical Processing 136.8 Crude Oil Refining 125.7 Oil and Gas Exploration and Production 31.3 Petrochemical Processing .5 Other 11.2 ________ $ 833.2 ======== The Company recently 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. 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. Liquidity and Capital Resources - ------------------------------- Net cash used in operations was $25.6 million for the three months ended November 30, 1999, compared to $20.8 million for the same period of the previous fiscal year. For the three months ended November 30, 1999, cash from operating activities was favorably impacted by net income of $5.5 million and depreciation and amortization of $3.4 million. Offsetting these positive factors were changes in certain assets and liabilities of $34.0 million and other non-cash items of $.4 million. Increases in accounts receivables and cost and estimated earnings in excess of billings on uncompleted contracts and a reduction in accounts payable accounted for the majority of the $33.5 million change in assets and liabilities. Net cash used in investing activities was $1.7 million for the three months ended November 30, 1999, compared to $5.4 million for the same period of the last fiscal year. During the three months ended November 30, 1999, the Company purchased approximately $2.7 million of property and equipment compared to $5.4 million for the three months ended November 30, 1998. During the quarter ended November 30, 1999, the Company received $1 million from the sale of property and equipment. Net cash provided by financing activities was $28.4 million for the three-month period ended November 30, 1999, compared to $26.4 million provided for the three months ended November 30, 1998. The primary source of cash for the three months ended November 30, 1999 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 $67.6 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. As of November 30, 1999, the Company had approximately $89 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 is the result of computerized systems being written to store and process the year portion of dates using two digits rather than four. Date-sensitive systems may fail, or produce erroneous results, because the year 2000 may 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 are 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. In general, the Company's program for identifying, evaluating and addressing its Y2K risks for all of its systems involved preliminary assessments by its personnel and detail audits and assessments by consultants. The Company completed this phase in the fourth quarter of fiscal 1999. The Company segmented the analysis of its systems into local, national and international categories. Shaw divided each category into major business areas consisting of systems, products, facilities and suppliers. The Company then divided these business areas into smaller categories, such as computers, network equipment, production equipment, manufacturing equipment, alarm systems and phone systems, for data collection and evaluation. The Company entered the data into a repository that was created to track evaluation and remediation efforts. The following is an example of the methodology and results gathered during the Company's year 2000 program: Systems Shaw identified its proprietary and off-the-shelf systems during the inventory phases of its Y2K program. The Company's proprietary software has been remediated and tested for year 2000 problems. Year 2000 compliant software has been installed on all production systems. A testing methodology used for these proprietary systems, in an identical but separate environment, was established to evaluate operational functionality and current, future and crossover dates between the years 1999 and 2000. The Company upgraded other business critical off-the-shelf applications according to the directions of manufacturers to meet year 2000 compliance specifications. Products After an inventory and evaluation, Shaw believes that the majority of its products are generally not vulnerable to year 2000 problems. Design modifications have been implemented to Cojafex bending machines, the Company's only significant products with embedded technology, to assure Y2K compliance of future machines. The Company believes that, while certain reporting functions may be impacted, the production functionality of Cojafex machines previously sold will not be adversely affected by Y2K problems. Facilities The Company evaluated its facilities for Y2K purposes, including phone systems, HVAC, alarm systems, fire systems, elevators and electrical power. The Company evaluated these items because of their potential impact on business operations if they were to fail. To date, Shaw has not experienced or discovered that any of its major business facilities are materially noncompliant with its Y2K requirements. Suppliers Shaw believes the most likely Y2K problems that it may experience would be a temporary disruption in certain materials and services provided to it by third parties. These disruptions could have a material adverse effect on the Company. Shaw has attempted to identify and classify business suppliers based on relevant priority factors and has contacted numerous suppliers and potential suppliers regarding their Y2K compliance. Shaw believes that it will be able to replace non-compliant vendors; however, certain types of raw materials are available from only one or a few specialized suppliers. To date, the Company believes that it has contacted all suppliers material to its operations about their compliance efforts and status. The Company has not experienced or discovered any problems that it believes will materially adversely affect it, but the Company cannot be assured that problems of this nature will not arise. Current Assessment Through January 14, 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 Company cannot, however, be assured that it will not be materially adversely affected by Y2K problems in the future. The Company will continue its Y2K compliance monitoring for the foreseeable future due to the overall uncertainty surrounding the Y2K issue. 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 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. 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, on 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. PART II - OTHER INFORMATION ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fiscal quarter ended November 30, 1999, 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 Third Amendment to Credit Agreement made as of August 31, 1999, among the Company, Mercantile Business Credit Inc., Bank One Louisiana, N.A.(successor of First National Bank of Commerce, assignee of City National Bank of Baton Rouge), Hibernia National Bank and Union Planters Bank of Louisiana ++27 Financial Data Schedule ---------- + Incorporated by reference from the Company's Form 10-K for the fiscal year ended August 31, 1999, as amended ++ Filed herewith B. Form 8-K During the fiscal quarter ended November 30, 1999, the Company did not file a Form 8-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. THE SHAW GROUP INC. Dated: January 14, 2000 /S/ Robert L. Belk ----------------------------- Chief Financial Officer (Duly Authorized Officer) THE SHAW GROUP INC. EXHIBIT INDEX Form 10-Q Quarterly Report for the Quarterly Period ended November 30, 1999. Exhibit Number Description --------------- ----------- +10 Third Amendment to Credit Agreement made as of August 31, 1999, among the Company, Mercantile Business Credit Inc., Bank One Louisiana, N.A. (successor of First National Bank of Commerce, assignee of City National Bank of Baton Rouge), Hibernia National Bank and Union Planters Bank of Louisiana ++27 Financial Data Schedule ---------- + Incorporated by reference from the Company's Form 10-K for the fiscal year ended August 31, 1999, as amended ++ Filed herewith EX-27 2 FDS -- FORM 10-Q FIRST QUARTER
5 (Replace this text with the legend) 0000914024 The Shaw Group Inc. 1,000 U.S. Dollars 3-Mos AUG-31-2000 SEP-01-1999 NOV-30-1999 1.000 7,937 0 142,465 0 78,236 288,440 132,365 37,815 440,717 103,511 0 0 0 186,969 59,977 440,717 150,808 150,808 124,730 124,730 0 0 1,968 8,371 2,787 5,820 0 0 (320) 5,500 0.44 0.42
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