-----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, DqjehMZizuqn5YEJQIxvpFH/s82Hc5xhywV3NDkpVa697PpiHeo9Zxlkj/6W7azy rSs1MWSb1BEQVGJyoydM2Q== 0000914024-00-000016.txt : 20000417 0000914024-00-000016.hdr.sgml : 20000417 ACCESSION NUMBER: 0000914024-00-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000414 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: 600994 BUSINESS ADDRESS: STREET 1: 8545 UNITED PLAZA BOULEVARD STREET 2: 2ND FLOOR CITY: BATON ROUGE STATE: LA ZIP: 70809 BUSINESS PHONE: (225) 932-2500 MAIL ADDRESS: STREET 1: 8545 UNITED PLAZA BOULEVARD STREET 2: 2ND FLOOR CITY: BATON ROUGE STATE: LA ZIP: 70809 10-Q 1 FOR THE QUATERLY PERIOD ENDED 2/29/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 2000 ------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ___________________ Commission File Number: 0-22992 -------------------------------------------------- The Shaw Group Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Louisiana 72-1106167 - ----------------------- --------------------------------------- (State of Incorporation) (I.R.S. Employer Identification Number) 8545 United Plaza Boulevard, Baton Rouge, Louisiana 70809 - --------------------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) (225) 932-2500 ------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date, is as follows: Common stock, no par value, 15,298,921 shares outstanding as of April 3, 2000. FORM 10-Q TABLE OF CONTENTS Part I - Financial Information Item 1. - Financial Statements Condensed Consolidated Balance Sheets - February 29, 2000 and August 31, 1999 3 - 4 Condensed Consolidated Statements of Income - For the Three Months and Six Months Ended February 29, 2000 and February 28,1999 5 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended February 29, 2000 and February 28, 1999 6 Notes to Condensed Consolidated Financial Statements 7 - 9 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 14 Item 3. - Quantitative and Qualitative Disclosures About Market Risk 14 Part II - Other Information Item 4. - Submission of Matters to a Vote of Security Holders 15 Item 6. - Exhibits and Reports on Form 8-K 15 Signature Page 16 Exhibit Index 17 PART I - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) ASSETS February 29, August 31, 2000 1999 ----------- ---------- Current assets: Cash and cash equivalents $ 7,134 $ 6,901 Accounts receivable, net 140,645 122,053 Receivables from unconsolidated entity, net 4,280 4,310 Inventories 79,673 78,464 Cost and estimated earnings in excess of billings on uncompleted contracts 37,400 24,277 Prepaid expenses 8,699 4,131 Deferred income taxes 1,264 992 Other current assets 9,622 10,942 --------- --------- Total current assets 288,717 252,070 Investment in unconsolidated entity 5,277 4,646 Investment in securities available for sale 14,608 13,830 Property and equipment, less accumulated depreciation of $39,840 at February 29, 2000 and $35,252 at August 31, 1999, respectively 94,637 95,508 Goodwill, net of accumulated amortization of $3,846 at February 29, 2000 and $3,276 at August 31, 1999 31,048 32,134 Other assets 11,401 8,874 --------- --------- $ 445,688 $ 407,062 ========= ========= (Continued) The accompanying notes are an integral part of these statements. 3 THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY February 29, August 31, 2000 1999 ----------- ---------- Current liabilities: Outstanding checks in excess of bank balance $ 8,084 $ 6,633 Accounts payable 33,568 37,714 Accrued liabilities 25,789 28,407 Current maturities of long-term debt 7,895 8,056 Revolving lines of credit 10,171 43,562 Deferred revenue - prebilled 6,423 3,576 Advanced billings and billings in excess of cost and estimated earnings on uncompleted contracts 13,385 10,147 --------- --------- Total current liabilities 105,315 138,095 Long-term debt, less current maturities 79,779 87,841 Deferred income taxes 6,555 6,887 Commitments and contingencies -- -- Shareholders' equity: Common stock, no par value, 15,298,921 and 11,736,046 shares outstanding, respectively 187,630 119,353 Retained earnings 89,595 77,071 Accumulated other comprehensive income (loss) (2,569) (1,535) Unearned restricted stock compensation (92) (125) Treasury stock, 8,224,236 shares (20,525) (20,525) ---------- -------- Total shareholders' equity 254,039 174,239 ---------- -------- $ 445,688 $407,062 ========== ======== The accompanying notes are an integral part of these statements. 4 THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts)
Three Months Ended Six Months Ended February 29 and 28, February 29 and 28, 2000 1999 2000 1999 ------- --------- --------- --------- Income: Sales $ 172,963 $ 112,660 $ 323,771 $ 228,692 Cost of sales 144,676 90,275 269,406 185,590 --------- --------- --------- --------- Gross profit 28,287 22,385 54,365 43,102 General and administrative expenses 17,248 14,000 33,160 28,275 --------- --------- --------- --------- Operating income 11,039 8,385 21,205 14,827 Interest expense (1,475) (2,261) (3,443) (4,703) Other income, net 200 144 373 224 --------- --------- --------- --------- (1,275) (2,117) (3,070) (4,479) Income before income taxes, earnings from unconsolidated entity and cumulative effect of change in accounting principle 9,764 6,268 18,135 10,348 Provision for income taxes 3,135 2,142 5,922 3,347 --------- --------- --------- -------- Income before earnings from unconsolidated entity and cumulative effect of change in accounting principle 6,629 4,126 12,213 7,001 Earnings from unconsolidated entity 395 198 631 145 --------- --------- --------- -------- Income before cumulative effect of change in accounting principle 7,024 4,324 12,844 7,146 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- -- (320) -- --------- --------- --------- -------- Net income $ 7,024 $ 4,324 $ 12,524 $ 7,146 ========= ========= ========= ======== Basic income per common share: Number of shares 15,233 11,775 13,872 12,120 Income before cumulative effect of change in accounting principle $ .46 $ .37 $ .92 $ .59 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- -- (.02) -- --------- --------- --------- -------- Net income per common share $ .46 $ .37 $ .90 $ .59 ========= ========= ========= ======== Diluted income per common share: Number of shares 15,990 12,126 14,617 12,356 Income before cumulative effect of change in accounting principle $ .44 $ 0.36 $ .88 $ .58 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- -- (.02) -- --------- -------- --------- -------- $ .44 $ 0.36 $ .86 $ .58 Net income per common share ========= ======== ========= ========
The accompanying notes are an integral part of these statements. 5 THE SHAW GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended February 29 and 28, 2000 1999 ---------- --------- Cash flows from operating activities: Net income $ 12,524 $ 7,146 Depreciation and amortization 6,669 6,410 Other (2,040) (899) Changes in assets and liabilities (excluding cash and those relating to investing and financing activities) (38,755) (21,841) --------- --------- Net cash provided by (used in) operating activiteis (21,602) (9,184) Cash flows from investing activities: Investment in securities available for sale -- (12,500) Purchases of property and equipment (7,350) (14,038) Proceeds from sale of property and equipment 1,476 49 --------- --------- Net cash used in investing activities (5,874) (26,489) Cash flows from financing activities: Net increase in outstanding checks in excess of bank balance 1,470 4,166 Net proceeds (repayments) on revolving credit agreements (33,363) 47,028 Proceeds from issuance of debt 708 5,374 Repayment of debt and leases (9,154) (3,624) Purchases of treasury stock -- (12,999) Issuance of common stock 68,277 7 --------- --------- Net cash provided by financing activities 27,938 39,952 Effect of exchange rate changes on cash (229) (202) --------- --------- Net increase in cash and cash equivalents 233 4,077 Cash and cash equivalents - beginning of period 6,901 3,743 --------- --------- Cash and cash equivalents - end of period $ 7,134 $ 7,820 ========== ========= Supplemental disclosure: Noncash investing and financing activities: Property and equipment acquired through issuance of debt $ 223 $ -- ========== ========= Sale of assets financed through issuance of note receivable $ 3,960 $ -- ========== ========= Investment in securities available for sale acquired in lieu of interest payment $ 778 $ 303 ========== ========= The accompanying notes are an integral part of these statements. 6 THE SHAW GROUP INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Unaudited Financial Information The financial information of The Shaw Group Inc. and its wholly-owned subsidiaries (collectively, "the Company" or "Shaw") for the three-month and six-month periods ended February 29, 2000 and February 28, 1999 and as of February 29, 2000 and August 31, 1999 included herein is unaudited; however, such information reflects, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) that are necessary to present fairly the results of operations for such periods. Results of operations for the interim periods are not necessarily indicative of results of operations that will be realized for the fiscal year ending August 31, 2000. Certain reclassifications have been made to the prior year's financial statements in order to conform to current reporting practices. Note 2 - Inventories The major components of inventories consist of the following (in thousands): February 29, 2000 August 31, 1999 -------------------------- --------------------------- Weighted Weighted Average FIFO Total Average FIFO Total ------- -------- ------- ------- -------- -------- Finished Goods $ 33,743 $ -- $33,743 $ 29,244 $ 642 $ 29,886 Raw Materials 4,205 33,617 37,822 3,686 32,869 36,555 Work in Process 1,413 6,695 8,108 1,306 10,717 12,023 -------- -------- ------- -------- -------- -------- $ 39,361 $ 40,312 $79,673 $ 34,236 $ 44,228 $ 78,464 ======== ======== ======= ======== ======== ======== Note 3 - Public Offering of Common Stock On November 10, 1999, the Company closed the sale of 3,000,000 shares of its common stock, no par value (the "Common Stock"), in an underwritten public offering at a price of $21 per share, less underwriting discounts and commissions. On November 16, 1999, the underwriters for such offering exercised an option to purchase an additional 450,000 shares of Common Stock from the Company pursuant to such terms to cover over-allotments. The net proceeds to the Company, less underwriting discounts and commissions and other expenses of the offering, totaled approximately $67,494,000 and were used to pay down amounts outstanding under the Company's primary revolving line of credit facility and certain other long-term debt. The Company's primary revolving line of credit facility has been used to provide working capital, as well as to fund fixed asset purchases and subsidiary acquisitions. Note 4 - Earnings Per Common Share Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share were determined based on the assumptions that all dilutive stock options were exercised and stock was repurchased using the treasury stock method, at the average price for each period. At February 29, 2000 and February 28, 1999, the Company had outstanding dilutive stock options of 1,140,375 and 1,218,500, respectively, which were assumed exercised using the treasury stock method. The resulting dilutive common equivalent shares were used in the calculation of diluted income per common share for each period presented. Additionally, the Company had 12,000 and 57,871 of stock options at February 29, 2000 and February 28, 1999, respectively, which were excluded from the calculation of diluted income per share because they were antidilutive. The weighted average common shares outstanding for the quarters ended February 29, 2000 and February 28, 1999 were 15,233,330 and 11,774,927, respectively. Dilutive common equivalent shares for the quarters ended February 29, 2000 and February 28, 1999 were 756,797 and 351,199, respectively, all attributable to stock options. The weighted average common shares outstanding for the six months ended February 29, 2000 and February 28, 1999 were 13,872,010 and 12,119,557, respectively. Dilutive common equivalent shares for the six months ended February 29, 2000 and February 28, 1999 were 745,046 and 236,693, respectively, all attributable to stock options. 7 Note 5 - Investment in Unconsolidated Entities During the six months ended February 29, 2000, the Company recognized earnings of $631,000 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain joint venture ("Shaw-Nass"). In addition, as of February 29, 2000 and August 31, 1999, the Company had outstanding receivables from Shaw-Nass totaling $4,280,000 and $4,310,000, respectively. These receivables relate primarily to inventory and equipment sold to Shaw-Nass. Note 6 - Investment in Securities Available for Sale In connection with its erection services, the Company embarked on its first significant project financing participation in December 1998, and, as a result, holds an investment in secured notes from a customer. Since the financing arrangement is related to erection services, the interest income from the notes is included in sales for all periods, and the interest cost associated with carrying these notes is included in cost of sales in the statements of income for all periods. Interest income related to these notes was $313,000 and $308,000 for the three months ended February 29, 2000 and February 28, 1999, respectively, and $778,000 and $308,000 for the six months ended February 29, 2000 and February 28, 1999, respectively. Interest expense associated with carrying these notes was $261,000 and $180,000 for the three months ended February 29, 2000 and February 28, 1999, respectively, and $519,000 and $180,000 for the six months ended February 29, 2000 and February 28, 1999, respectively. The interest cost was calculated at the Company's effective borrowing rate for each period, which approximated 7.2% and 6.3% for the three months ended February 29, 2000 and February 28, 1999, respectively, and 7.3% and 6.3% for the six months ended February 29, 2000 and February 28, 1999, respectively. Note 7 - Comprehensive Income SFAS No. 130 -- "Reporting Comprehensive Income," which was adopted by the Company in the first quarter of fiscal 1999, establishes standards for the reporting and display of comprehensive income as part of a full set of financial statements. Comprehensive income for a period encompasses net income and all other changes in a company's equity other than from transactions with the company's owners. Comprehensive income was comprised of the following (in thousands): Three Months Ended Six Months Ended February 29 and 28, February 29 and 28, 2000 1999 2000 1999 ------- ------- ------- ------- Net Income $ 7,024 $ 4,324 $ 12,524 $ 7,146 Foreign currency translation adjustments (608) (1,120) (1,034) (673) ------- ------- --------- ------- Total comprehensive income $ 6,416 $ 3,204 $ 11,490 $ 6,473 ======= ======= ======== ======= The foreign currency translation adjustments relate to the varying strength of the U.S. dollar in relation to the British pound, Australian dollar and Dutch guilder. 8 Note 8 - Business Segments The Company has aggregated its business activities into two operating segments: pipe services and manufacturing. The following table presents information about segment profits and assets (in thousands): Pipe Services Manufacturing Corporate Total -------- ------------- --------- --------- Quarter ended February 29, 2000: - -------------------------------- Sales to external customers $ 158,020 $ 14,943 $ -- $ 172,963 Intersegment sales -- 3,915 -- 3,915 Net income 6,467 340 217 7,024 Total assets 329,770 62,520 53,398 445,688 Quarter ended February 28, 1999: - -------------------------------- Sales to external customers $ 101,124 $ 11,536 $ -- $ 112,660 Intersegment sales -- 4,869 -- 4,869 Net income 4,609 (88) (197) 4,324 Total assets 327,184 55,376 32,722 415,282 Six months ended February 29, 2000: - ----------------------------------- Sales to external customers $ 296,214 $ 27,557 $ -- $ 323,771 Intersegment sales -- 8,789 -- 8,789 Net income 11,530 689 305 12,524 Six months ended February 28, 1999: - ----------------------------------- Sales to external customers $ 204,325 $ 24,367 $ -- $ 228,692 Intersegment sales -- 9,525 -- 9,525 Net income 7,136 297 (287) 7,146 Note 9 - Change in Accounting Principle In 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP"). The SOP is effective for fiscal years beginning after December 15, 1998 and requires costs of start-up activities to be expensed as incurred. During the six-month period ended February 29, 2000, the Company changed its accounting for start-up costs and expensed previously unamortized deferred start-up costs of approximately $320,000, net of taxes. The unamortized costs are reflected as a cumulative effect of a change in accounting principle. 9 PART I - FINANCIAL INFORMATION ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ The following discussion summarizes the financial position of The Shaw Group Inc. and its subsidiaries (hereinafter referred to collectively, unless the context otherwise requires, as "the Company" or "Shaw") at February 29, 2000, and the results of their operations for the three-month and six-month periods then ended and should be read in conjunction with the financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not historical facts (including without limitation, statements to the effect that the Company "believes," "anticipates," "plans," or other similar expressions) are forward-looking statements based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. The forward-looking statements include significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for and market acceptance of the Company's products and services; in general, economic conditions and, specifically, economic conditions prevailing in international markets; the presence of competitors with greater financial resources and the impact of competitive products, services and pricing; the effect of the Company's policies, including without limitation the amount and rate of growth of Company expenses; the continued availability to the Company of adequate funding sources and changes in interest rates; delays or difficulties in the production, delivery or installation of products and the provision of services; Y2K or Year 2000 risks; and various legal, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 10 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: Three Months Ended Six Months Ended February 29 and 28, February 29 and 28,
2000 1999 2000 1999 ------ ------ ------ ------ Income: Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 83.6 80.1 83.2 81.1 ----- ----- ----- ----- Gross profit 16.4 19.9 16.8 18.9 General and administrative expenses 10.0 12.5 10.2 12.4 ----- ----- ----- ----- Operating income 6.4 7.4 6.6 6.5 Interest expense (.8) (2.0) (1.1) (2.1) Other income, net .1 .1 .1 .1 ----- ----- ----- ----- (.7) (1.9) (1.0) (2.0) Income before income taxes, earnings from unconsolidated entity and cumulative effect of change in accounting principle 5.7 5.5 5.6 4.5 Provision for income taxes 1.8 1.9 1.8 1.5 ----- ----- ----- ----- Income before earnings from unconsolidated entity and cumulative effect of change in accounting principle 3.9 3.6 3.8 3.0 Earnings from unconsolidated entity .2 .2 .2 .1 ----- ----- ----- ----- Income before cumulative effect of change in accounting principle 4.1 3.8 4.0 3.1 Cumulative effect on prior years of change in accounting for start-up costs, net of taxes -- -- (.1) -- ----- ----- ----- ----- Net income 4.1% 3.8% 3.9% 3.1 % ===== ===== ===== ======
Sales increased 53.5% to $173.0 million for the six months ended February 29, 2000, as compared to $112.7 million for the same period in the prior year. The Company's sales to customers in the following geographic regions approximated the following: Three Months Ended February 29 and 28, 2000 1999 ----------------- ----------------- Geographic Region (in millions) % (in millions) % - ----------------- ----------------- ----------------- U.S.A. $ 139.7 81% $ 85.1 75% Far East/Pacific Rim 7.7 4 10.3 9 Middle East .5 -- 1.9 2 South America 6.2 4 3.1 3 Europe 14.8 9 9.9 9 Other 4.1 2 2.4 2 -------- ---- -------- ---- $ 173.0 100% $ 112.7 100% ======== ==== ========= ==== Sales for domestic projects increased $54.6 million, or 64%, to $139.7 million for the three months ended February 29, 2000 from $85.1 million for the three months ended February 28, 1999. The increase in domestic sales primarily resulted from increases in sales to the power generation and crude oil refining industries, partially offset by decreases in sales to the chemical and petrochemical processing industries. Sales for international projects increased $5.7 million, or 21%, to $33.3 million for the three months ended February 29, 2000 from $27.6 million for the same period of the prior year, but international sales for the quarter ended February 29, 2000 were approximately $.4 million 11 less than those for the quarter ended November 30, 1999, indicating that the international market continues to be weak. The Company is, however, encouraged by the bidding activity in international markets. Sales remain sluggish in the Far East/Pacific Rim region, but the bidding activity is strong, particularly in China, Malaysia and Taiwan. Middle East region sales are down from the previous year, partially due to more fabrication work being completed by the Company's joint venture, Shaw-Nass Middle East, W.L.L. ("Shaw Nass"); some of this work was previously completed by the Company's wholly-owned fabrication facilities. Since Shaw-Nass is a joint venture, its sales are not reflected in the Company's consolidated sales. Even though sales in the South American region for the three months ended February 29, 2000 had increased over the previous year's sales for the same period, these sales were less than those recorded in the quarter ended November 30, 1999. As a result, the Company's short-term outlook is uncertain in this region due to general economic conditions and, particularly with respect to Venezuela, political conditions, although the Company is encouraged by the Petroleos de Venezuela, S.A. ("PDVSA") recently announced years' 2000-2009 business plan and the related investment schedule. PDVSA is Venezuela's state-owned energy company and is the world's second largest energy company and one of the leading foreign suppliers of crude oil and refined petroleum products to the United States. The Company continues to believe that the Far East/Pacific Rim, Middle East and South American markets present significant long-term opportunities for the Company. For the quarter ended February 29, 2000, virtually all European sector sales were to the United Kingdom. European inquiries are increasing, with the majority of activity initiating in Spain. The Company's sales to customers in the following industry sectors approximated the following: Three Months Ended February 29 and 28, 2000 1999 ----------------- ---------------- Industry Sector (in millions) % (in milions) % - --------------- ----------------- ---------------- Power Generation $ 77.9 45% $ 32.1 28% Chemical Processing 28.4 17 33.6 30 Crude Oil Refining 44.6 26 23.7 21 Petrochemical Processing 2.2 1 8.3 7 Oil and Gas Exploration 5.7 3 6.5 6 and Production Other 14.2 8 8.5 8 ------- ---- -------- ---- $ 173.0 100% $ 112.7 100% ======= ==== ========= ==== Approximately 92% of the increases in sales to the power generation and crude oil refining industries resulted from domestic projects. Sales related to domestic power generation projects increased due to new power generation projects, including the previously announced $300 million, five-year contract with General Electric. Crude oil refining industry sales were positively impacted by a large construction project for a refinery in Norco, Louisiana, and increased activity in Venezuela. The decrease in sales in the chemical and petrochemical processing industry sectors resulted primarily from reduced domestic activity. The gross profit margin for the three-month period ended February 29, 2000, decreased to 16.4% from 19.9% for the same period the prior year. The Company is involved in numerous projects, all of which affect gross profit in various ways, such as product mix, pricing strategies, foreign work versus domestic work (profit margins differ, sometimes substantially, depending on where the work is performed), and constant monitoring of percentage of completion calculations. Gross profit margin improvements in the manufacturing segment of the Company's business were offset by an increase in the Company's revenues being related to erection and maintenance services (which carry lower margins than fabrication work). General and administrative expenses increased to $17.2 million for the quarter ended February 29, 2000 from $14.0 million for the quarter ended February 28, 1999. Approximately $1.0 million of this increase relates to increases in erection expenses and the remainder relates to variable expenses related to increased sales. As a percentage of sales, however, general and administrative expenses decreased to 10.0% for the three months ended February 29, 2000 from 12.5% for the three months ended February 28, 1999. Interest expense for the quarter ended February 29, 2000 was $1.5 million, compared to $2.3 million for the same period of the prior fiscal year. Interest expense varies from period to period due to several factors, including the level of borrowings and interest rate fluctuations on variable rate loans. Even though interest rates increased on the Company's primary revolving line of credit facility over the prior year's rates, interest expense on that line of credit facility decreased $823,000 due to lower borrowings, resulting from paydowns from the proceeds of the public stock offering (see Note 3 of Notes to Condensed Consolidated Financial Statements). 12 The Company's effective tax rates for the quarters ended February 29, 2000 and February 28, 1999 were 32.1% and 34.2%, respectively. The tax rates for each quarter relate primarily to the projected mix of foreign versus domestic work and the constant review of year-end estimates for each fiscal year. Total backlog increased to approximately $873 million at February 29, 2000, compared to $776 million reported at February 28, 1999 and $818 million reported at August 31, 1999. Approximately 79% of the backlog relates to domestic projects, and roughly 45% of the backlog relates to work currently anticipated to be completed during the 12 months following February 29, 2000. Backlog is not a measure defined in generally accepted accounting principles and the Company's backlog may not be comparable to backlog of other companies. The backlog is largely a reflection of the broader economic trends being experienced by the Company's customers and while Shaw believes backlog information may be helpful in understanding its business, it is not necessarily indicative of future sales. Backlog at February 29, 2000 by industry sector is as follows (in millions): Power Generation $ 497.0 Chemical Processing 235.2 Crude Oil Refining 102.9 Oil and Gas Exploration and Production 27.6 Petrochemical Processing 1.0 Other 9.5 ======== $ 873.2 ======== In December 1999, the Company joined with other manufacturers in filing an Anti-Dumping Duty Petition against importers of certain stainless pipe fittings. The suit alleges that these importers were dumping products in the United States in violation of U.S. unfair trade laws and international trade rules established by the World Trade Organization. In February 2000, the U.S. International Trade Commission ("ITC") unanimously reached a preliminary determination that there is a reasonable indication that these imports are causing material injury to the U.S. industry. A preliminary ruling from the U.S. Department of Commerce ("DOC") is scheduled for June 2000, subject to certain possible extensions and delays. The final rulings from the DOC and the ITC are scheduled for August and October 2000, respectively, subject to certain possible extensions and delays. While the Company cannot provide any assurances with respect to the ultimate outcome of such Petition, management of the Company believes that a favorable decision in such matter would enhance the long-term profitability in its manufacturing segment. In addition, in February 2000, with respect to actions previously filed, the DOC extended antidumping duties for imports of certain stainless pipe fittings from Japan, Taiwan and Korea for another five years. Liquidity and Capital Resources - ------------------------------- Net cash used in operations was $21.6 million for the six months ended February 29, 2000, compared to $9.2 million for the same period of the previous fiscal year. For the six months ended February 29, 2000, cash from operating activities was favorably impacted by net income of $12.5 million and depreciation and amortization of $6.7 million. Offsetting these positive factors were changes in certain assets and liabilities of $38.8 million and other non-cash items of $2.0 million. Increases in accounts receivables and cost and estimated earnings in excess of billings on uncompleted contracts accounted for approximately $32.4 million of the $38.8 million change in assets and liabilities. Net cash used in investing activities was $5.9 million for the six months ended February 29, 2000, compared to $26.5 million for the same period of the last fiscal year. During the three months ended February 29, 2000, the Company purchased approximately $7.4 million of property and equipment compared to $14.0 million for the three months ended February 28, 1999. During the quarter ended February 29, 2000, the Company received $1.5 million from the sale of property and equipment. 13 Net cash provided by financing activities was $27.9 million for the six-month period ended February 29, 2000, compared to $40.0 million provided for the three months ended February 28, 1999. The primary source of cash for the three months ended February 29, 2000 was the sale of 3,450,000 shares of the Company's common stock (see Note 3 of Notes to Condensed Consolidated Financial Statements). The net proceeds of $67.5 million were used to pay down amounts outstanding under the Company's primary revolving line of credit facility and certain other long-term debt. The Company's primary revolving line of credit facility has been used by the Company to provide working capital, as well as to fund fixed asset purchases and subsidiary acquisitions. The Company also received $.8 million from the exercise of stock options during the six months ended February 29, 2000. As of February 29, 2000, the Company had approximately $87 million available under its principal revolving line of credit facility. In September 1999, the maturity date of such line of credit facility was extended to May 31, 2002. The amendment also modified the interest rate spread to not exceed, at the Company's election, 2.5% over the London Interbank Offering Rate or 1.75% over the Prime Rate. The Company believes its current borrowing arrangements are sufficient to support its operations for the next twelve months. Year 2000 Compliance - -------------------- The year 2000 or Y2K issue was the result of computerized systems being written to store and process the year portion of dates using two digits rather than four. It was considered that date-sensitive systems might fail, or produce erroneous results, because the year 2000 might be interpreted as the year 1900. During 1998, the Company began implementation of a program to identify, evaluate and address its Y2K risks to ensure that its information technology systems and non-information technology systems were able to process dates from and after January 1, 2000 without critical systems failures. In addition to evaluating its own systems, the Company assessed the Y2K risks associated with its significant customers and suppliers. Through April 6, 2000, the Company has not experienced any material impact on its operations as a result of the year 2000 date change. All critical systems have continued to function normally, no material problems have been identified with respect to products and facilities and no disruptions have been experienced due to materials and services provided by third parties. The total cost of Y2K testing and remediation during the life cycle of the project to outside sources was approximately $.9 million (including the costs to replace non-compliant hardware). The Company cannot be assured, however, that such costs will not escalate and materially and negatively impact it. The Company incurred no outside costs in fiscal 1998 related to Y2K issues. Financial Accounting Standards Board Statements - ----------------------------------------------- In 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP"). The SOP is effective for fiscal years beginning after December 15, 1998 and requires costs of start-up activities to be expensed as incurred. During the six-month period ended February 29, 2000, the Company changed its accounting for start-up costs and expensed previously unamortized deferred start-up costs of approximately $320,000, net of taxes. The unamortized costs are reflected as a cumulative effect of a change in accounting principle. In fiscal 1999, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 133 -- "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in a derivative's fair value are to be recognized currently in earnings unless specific hedge accounting criteria are met. The Company will be required to adopt SFAS No. 133, as amended by SFAS No. 137 which defers the effective date for the Company to September 1, 2000. The Company has not yet quantified the impact on its financial statements that may result from adoption of SFAS No. 133; however, the Company does not use derivative instruments or hedging activities extensively in its business. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate and Foreign Currency Risk - --------------------------------------- The Company is exposed to interest rate risk and foreign currency risk. Since August 31, 1999, there have been no material changes in the Company's exposure to these risks. 14 PART II - OTHER INFORMATION ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fiscal quarter ended February 29, 2000, there were no matters submitted by the Company to a vote of security holders. ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits Exhibit Number Description -------------- ----------- +27 Financial Data Schedule ---------- + Filed herewith B. Form 8-K During the fiscal quarter ended February 29, 2000, the Company did not file a Form 8-K. 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE SHAW GROUP INC. Dated: April 14, 2000 /S/ Robert L. Belk --------------------------------------- Chief Financial Officer (Duly Authorized Officer) 16 THE SHAW GROUP INC. EXHIBIT INDEX Form 10-Q Quarterly Report for the Quarterly Period ended February 29, 2000. Exhibit Number Description -------------- ----------- +27 Financial Data Schedule ________ + Filed herewith 17 EX-27 2 FDS -- FORM 10-Q SECOND QUARTER
5 (Replace this text with the legend) 0000914024 The Shaw Group Inc. 1,000 U.S. Dollars 6-mos AUG-31-2000 SEP-01-1999 FEB-29-2000 1,000 7,134 0 140,645 0 79,673 288,717 134,477 39,840 445,688 105,315 0 0 0 187,630 66,409 445,688 323,771 323,771 269,406 269,406 0 0 3,443 18,135 5,922 12,844 0 0 (320) 12,524 .90 .86
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