10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2006

Or

o 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 1-12227

The Shaw Group Inc.

(Exact name of registrant as specified in its charter)

Louisiana	72-1106167
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

4171 Essen Lane, 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

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, 80,268,785 shares outstanding as of April 6, 2006.

FORM 10-Q
TABLE OF CONTENTS

 Composite of the Amended and Restated By-Laws

 Certification Pursuant to Section 302

 Certification Pursuant to Section 302

 Certification Pursuant to 18 U.S.C. Section 1350

 Certification Pursuant to 18 U.S.C. Section 1350

2

Part I — Financial Information

Item 1. — Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

PART I — FINANCIAL INFORMATION
ITEM 1. — FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

ASSETS

		February 28, 2006 (Unaudited)		August 31, 2005
Current assets:
Cash and cash equivalents	$	109,941		$	56,779
Restricted and escrowed cash		53,908			171,900
Accounts receivable, including retainage, net		577,543			418,035
Inventories		97,091			97,684
Costs and estimated earnings in excess of billings on uncompleted contracts, including claims		758,483			395,124
Deferred income taxes		54,159			85,500
Prepaid expenses and other current assets		50,972			42,931
Total current assets		1,702,097			1,267,953
Investments in and advances to unconsolidated entities, joint ventures and limited partnerships		38,910			34,871
Property and equipment, less accumulated depreciation of $153,753 at February 28, 2006 and $142,051 at August 31, 2005		158,575			157,536
Goodwill		505,145			506,453
Other assets		110,986			116,975
	$	2,515,713		$	2,083,788
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	591,992		$	326,976
Accrued liabilities		171,221			163,651
Advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts		232,708			274,198
Contract liability adjustments		5,148			6,936
Deferred revenue — prebilled		9,125			8,357
Current maturities of long-term debt		5,913			4,135
Short-term revolving lines of credit		9,714			6,367
Current portion of obligations under capital leases		1,546			1,854
Total current liabilities		1,027,367			792,474
Long-term revolving line of credit		173,450			40,850
Long-term debt, less current maturities		21,007			21,718
Obligations under capital leases, less current portion		2,617			2,973
Deferred income taxes		17,051			21,518
Other liabilities		44,063			44,462
Minority interests		1,845			15,240
Shareholders’ equity:
Common stock, no par value, 85,646,199 and 84,289,004 shares issued, respectively; and 80,256,258 and 78,957,349 shares outstanding, respectively		1,041,262			1,023,603
Retained earnings		321,821			263,812
Accumulated other comprehensive loss		(33,295	)		(31,752	)
Unearned stock-based compensation		—			(11,197	)
Treasury stock, 5,389,941 shares and 5,331,655 shares, respectively		(101,475	)		(99,913	)
Total shareholders’ equity		1,228,313			1,144,553
	$	2,515,713		$	2,083,788

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Revenues	$	1,244,839		$	747,631		$	2,382,918		$	1,556,157
Cost of revenues		1,144,870			681,054			2,175,104			1,415,469
Gross profit		99,969			66,577			207,814			140,688
General and administrative expenses		55,555			45,796			109,932			90,984
Operating income		44,414			20,781			97,882			49,704
Interest expense		(4,971	)		(9,692	)		(8,364	)		(19,345	)
Interest income		1,732			1,413			3,479			2,451
Foreign currency transaction gain (loss), net		(129	)		(996	)		817			(2,158	)
Other income (expense), net		722			2,372			(880	)		817
		(2,646	)		(6,903	)		(4,948	)		(18,235	)
Income before income taxes, minority interest, earnings (loss) from unconsolidated entities and income (loss) from and impairment of discontinued operations		41,768			13,878			92,934			31,469
Provision for income taxes		15,850			4,686			34,014			10,915
Income before minority interest, earnings (loss) from unconsolidated entities and income (loss) from and impairment of discontinued operations		25,918			9,192			58,920			20,554
Minority interest, net of income taxes		(706	)		(1,393	)		(1,813	)		(1,537	)
Earnings (loss) from unconsolidated entities, net of income taxes		(1	)		1,869			1,137			2,127
Income from continuing operations		25,211			9,668			58,244			21,144
Income (loss) from and impairment of discontinued operations, net of income taxes		85			(420	)		(235	)		(883	)
Net income	$	25,296		$	9,248		$	58,009		$	20,261
Net income per common share:
Basic:
Income from continuing operations	$	0.32		$	0.15		$	0.74		$	0.33
Income (loss) from and impairment of discontinued operations, net of income taxes		—			—			—			(0.01	)
Net income	$	0.32		$	0.15		$	0.74		$	0.32
Diluted:
Income from continuing operations	$	0.31		$	0.14		$	0.72		$	0.32
Income (loss) from and impairment of discontinued operations, net of income taxes		—			—			—			(0.01	)
Net income	$	0.31		$	0.14		$	0.72		$	0.31
Weighted average shares outstanding:
Basic		78,734			63,427			78,412			63,351
Diluted:
Stock options		1,609			924			1,342			696
LYONs Convertible Debt		10			—			10			—
Restricted stock		285			1,058			283			1,017
Total		80,638			65,409			80,047			65,064

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

	Six Months Ended
	February 28,
	2006			2005
Cash flows provided by (used in) operating activities:
Net income	$	58,009		$	20,261
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		16,162			15,569
Income (loss) from and impairment of discontinued operations, net of taxes		235			883
Provision for deferred income taxes		26,874			8,267
Stock-based compensation expense		8,146			1,949
Accretion of interest on discounted long-term debt		21			185
Amortization of deferred debt issue costs		454			2,272
Amortization of contract adjustments		(1,788	)		(7,240	)
Earnings from unconsolidated entities, net of tax		(1,137	)		(2,127	)
Foreign currency transaction (gains) losses, net		(817	)		2,158
Gain (loss) on sale of businesses, net		183			(264	)
Minority interest, net of taxes		1,813			1,537
Distributions from unconsolidated entities		816			1,639
(Increase) decrease in receivables		(151,695	)		17,887
(Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts, including claims		(353,484	)		18,646
(Increase) decrease in prepaid expenses		(6,899	)		(2,117	)
Increase (decrease) in accounts payable		240,704			(35,422	)
Increase (decrease) in advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts		(40,783	)		(10,418	)
Other operating activities, net		20,544			1,965
Net cash provided by (used in) operating activities		(182,642	)		35,630
Cash flows provided by (used in) investing activities:
Purchases of property and equipment		(18,263	)		(10,953	)
Investments in and advances to unconsolidated entities and joint ventures		(3,818	)		(12,450	)
Distributions from unconsolidated entities		1,738			994
Acquisition costs		(2,143	)		—
Proceeds from sale of property and equipment		1,239			478
Proceeds from sale of businesses, net		650			13,023
Purchases of businesses		(720	)		—
Cash received from restricted and escrowed cash		129,206			95,136
Cash deposited into restricted and escrowed cash		(11,214	)		(160,882	)
Net cash provided by (used in) investing activities		96,675			(74,654	)
Cash flows provided by (used in) financing activities:
Repayment of debt and capital leases	$	(1,835	)	$	(4,096	)
Payments for financed insurance premiums		(5,708	)		(5,917	)
Return of capital to joint venture partner		(4,685	)		—
Proceeds from issuance of debt		11			6,036
Deferred credit costs		(1,552	)		(771	)
Issuance of common stock		15,937			1,404
Proceeds from revolving credit agreements		692,803			12,749
Repayments of revolving credit agreements		(556,853	)		(12,773	)
Net cash provided by (used in) financing activities		138,118			(3,368	)
Cash from consolidation of joint venture entity previously unconsolidated		1,565			—
Effects of foreign exchange rate changes on cash		(554	)		(1,855	)
Net change in cash and cash equivalents		53,162			(44,247	)
Cash and cash equivalents — beginning of year		56,779			102,351
Cash and cash equivalents — end of period	$	109,941		$	58,104
Non-cash investing and financing activities:
Issuance of restricted stock	$	13,317		$	9,150
Financed insurance premiums	$	7,483		$	8,663
Joint venture partner’s transfer of member’s equity as payment of note	$	10,025		$	—
Common stock received from employees to satisfy employee related payroll taxes	$	1,561		$	—
Assets acquired under capital leases	$	430		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

THE SHAW GROUP INC. AND SUBSIDIARIES
SUMMARY OF OPERATING SEGMENTS
(Unaudited)
(Dollars in Thousands)

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Revenues:
E&I	$	629,515		$	252,022		$	1,187,059		$	563,677
E&C		329,522			292,643			654,079			565,738
Maintenance		216,443			157,897			412,063			342,503
F&M		69,359			45,069			129,717			84,239
Total consolidated revenues	$	1,244,839		$	747,631		$	2,382,918		$	1,556,157
Intersegment revenues:
E&I	$	1,316		$	578		$	1,743		$	810
E&C		375			55			455			252
Maintenance		11			1,097			3,264			2,023
F&M		6,128			7,599			18,201			17,041
Total intersegment revenues	$	7,830		$	9,329		$	23,663		$	20,126
Gross profit:
E&I	$	58,034		$	20,002		$	123,230		$	62,376
E&C		15,197			27,742			37,556			49,499
Maintenance		11,648			8,118			19,672			9,962
F&M		15,090			10,715			27,356			18,851
Total gross profit	$	99,969		$	66,577		$	207,814		$	140,688
Gross profit percentage:
E&I		9.2	%		7.9	%		10.4	%		11.1	%
E&C		4.6			9.5			5.7			8.7
Maintenance		5.4			5.1			4.8			2.9
F&M		21.8			23.8			21.1			22.4
Total gross profit percentage		8.0			8.9			8.7			9.0
Income before income taxes, minority interest, earnings (loss) from unconsolidated entities and income (loss) from and impairment of discontinued operations:
E&I	$	40,461		$	6,188		$	86,564		$	30,089
E&C		5,895			18,445			21,130			29,009
Maintenance		9,108			5,745			14,430			5,593
F&M		10,354			4,283			18,108			7,826
Corporate items and eliminations		(24,050	)		(20,783	)		(47,298	)		(41,048	)
Total income before income taxes, minority interest, earnings (loss) from unconsolidated entities and income (loss) from and impairment of discontinued operations	$	41,768		$	13,878		$	92,934		$	31,469

	February 28,			August 31,
	2006			2005
Segment Assets:
E&I	$	978,446		$	656,188
E&C		600,881			692,105
Maintenance		94,181			73,741
F&M		321,934			309,322
Corporate		604,757			406,497
Total segment assets		2,600,199			2,137,853
Elimination of intercompany receivables		(10,857	)		(11,815	)
Income taxes not allocated to segments		(73,629	)		(42,250	)
Total consolidated assets	$	2,515,713		$	2,083,788

6

THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — General Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the interim reporting requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with Generally Accepted Accounting Principles (GAAP) have been condensed or omitted. Readers of this report should, therefore, refer to the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005.

The financial information of The Shaw Group Inc., including its wholly-owned subsidiaries, its consolidated variable interest entities, and the proportionate share of some of our investments in joint ventures as of February 28, 2006 and for the three and six month period ended February 28, 2006, was not audited by our independent auditors. In the opinion of management, all adjustments (consisting of normal recurring adjustments) which are necessary to fairly present our financial position and our results of operations as of and for these periods have been made.

Our interim results of operations are not necessarily indicative of results of operations that will be realized for the full fiscal year. The results of operations related to our disaster relief, emergency response and recovery services work in the Gulf Coast area of the United States are not necessarily indicative of our expected results for future periods (See Note 5 of our condensed consolidated financial statements).

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and costs during the reporting periods. Actual results could differ materially from those estimates. On an ongoing basis, we review our estimates based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Certain reclassifications have been made to the prior period’s financial statements in order to conform to the current period’s presentation. The August 31, 2005 balance sheet reflects an increase of $13.1 million in cash and cash equivalents, $7.7 million in accrued liabilities and $3.6 million in accounts payable to reflect outstanding checks on certain bank accounts in a manner consistent with the February 28, 2006 balance sheet presentation. This adjustment is also reflected as an increase of $19.5 million in cash and cash equivalents and an increase in the change in other operating activities, net of $5.9 million in the February 28, 2005 condensed consolidated statement of cash flows to present it in a manner consistent with the February 28, 2006 condensed consolidated statement of cash flow presentation.

Note 2 — Share-Based Compensation

We have various types of share-based compensation plans. These plans are administered by our compensation committee of the Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions, performance measures, and other provisions of the award. Readers should refer to Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005, for additional information related to these share-based compensation plans.

Effective September 1, 2005, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised), “Share-Based Payment” (SFAS 123(R)) utilizing the modified prospective approach. Prior to the adoption of SFAS 123(R), we accounted for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (the intrinsic value method), and accordingly, recognized no compensation expense for stock option grants.

Under the modified prospective approach, SFAS 123(R) applies to new awards and to awards that were outstanding on September 1, 2005 as well as those that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized in the three and six months ended February 28, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of September 1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all share-based payments granted subsequent to September 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Prior periods were not restated to reflect the impact of adopting the new standard.

7

As a result of adopting SFAS 123(R) on September 1, 2005, our income before taxes, net income and basic and diluted earnings per share for the three months ended February 28, 2006, were $2.6 million, $2.0 million, $0.03 and $0.02 lower, respectively, and our income before taxes, net income and basic and diluted earnings per share for the six months ended February 28, 2006, were $4.6 million, $3.7 million, $0.05 and $0.05 lower, respectively, than if we had continued to account for share-based compensation under APB Opinion No. 25 for our stock option grants.

We receive a tax deduction for certain stock option exercises during the period the options are exercised, generally for the excess of the price at which the stock is sold over the exercise price of the options. In addition, we receive an additional tax deduction when restricted stock vests at a higher value than the value used to recognize compensation expense at the date of grant. Prior to adoption of SFAS 123(R), we reported all tax benefits resulting from the award of equity instruments as operating cash flows in our condensed consolidated statements of cash flows. In accordance with SFAS 123(R), we are required to report excess tax benefits from the award of equity instruments as financing cash flows, however as we are currently in a net operating loss carryforward, there is no cash flow effect for the excess tax benefits. Excess tax benefits will be recorded when a deduction reported for tax return purposes for an award of equity instruments exceeds the cumulative compensation cost for the instruments recognized for financial reporting purposes once we are no longer in a net operating loss carryforward position. For the six months ended February 28, 2006, $2.2 million of tax benefits were reported as financing cash flows rather than operating cash flows.

Net cash proceeds from the exercise of stock options were $15.9 million for the six months ended February 28, 2006. The actual income tax benefit realized from stock option exercises was $4.7 million for the same period.

The following table illustrates the effect on operating results and per share information had the Company accounted for share-based compensation in accordance with SFAS 123(R) for the periods indicated (in thousands, except per share amounts):

	Three Months Ended			Six Months Ended
	February 28, 2005			February 28, 2005
Net income:
As reported	$	9,248		$	20,261
Add: Share-based employee compensation reported in net income, net of taxes		764			1,533
Deduct: Share-based employee compensation under the fair value method for all awards, net of taxes		(2,622	)		(5,161	)
Pro forma	$	7,390		$	16,633
Basic net income per share:
As reported	$	0.15		$	0.32
Add: Share-based employee compensation reported in net income, net of taxes		0.01			0.02
Deduct: Share-based employee compensation under the fair value method for all awards, net of taxes		(0.04	)		(0.08	)
Pro forma	$	0.12		$	0.26
Diluted net income per share:
As reported	$	0.14		$	0.31
Add: Share-based employee compensation reported in net income, net of taxes		0.01			0.02
Deduct: Share-based employee compensation under the fair value method for all awards, net of taxes		(0.04	)		(0.08	)
Pro forma	$	0.11		$	0.25

Stock Options

We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards with the following weighted-average assumptions for the indicated periods.

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Dividend yield		0	%		0	%		0	%		0	%
Expected volatility		42	%		65	%		47	%		65	%
Risk-free interest rate		4.4	%		3.7	%		4.5	%		3.5	%
Expected life of options (in years)		5.4			5			6.6			5
Weighted-average grant-date fair value	$	21.43		$	9.36		$	15.35		$	7.95

8

The assumptions above are based on multiple factors, including historical exercise patterns of employees in relatively homogeneous groups with respect to exercise and post-vesting employment termination behaviors, expected future exercise patterns for these same homogeneous groups and the implied volatility of our stock price.

At February 28, 2006, there was $18.8 million of unrecognized compensation cost related to share-based payments which is expected to be recognized over a weighted-average period of 2.9 years.

The following table represents stock option activity for the six months ended February 28, 2006:

				Weighted-Average		Weighted-Average
	Number of Shares			Exercise Price		Contract Life
Outstanding options at beginning of period		5,761,162		$	16.11
Granted		768,694			21.07
Exercised		(1,018,496	)		15.82
Forfeited		(94,858	)		16.59
Outstanding options at end of period		5,416,502		$	16.86	6.64 Yrs
Outstanding exercisable at end of period		3,134,897		$	17.33	5.21 Yrs

Shares available for future stock option grants to employees and directors under existing plans were 3,561,219 and 113,098, respectively, at February 28, 2006. The aggregate intrinsic value of options outstanding at February 28, 2006 of $89.3 million, and the aggregate intrinsic value of options exercisable of $50.2 million. Total intrinsic value of options exercised was $12.0 million for the six months ended February 28, 2006.

The following table summarizes our nonvested stock option activity for the six months ended February 28, 2006:

				Weighted-Average
	Number of Shares			Grant-Date Fair Value
Nonvested stock options at beginning of period		2,372,626		$	8.17
Granted		768,694			15.37
Vested		(769,123	)		5.77
Forfeited		(90,592	)		7.55
Nonvested stock options at end of period		2,281,605		$	11.43

Restricted Stock

The plans, as described in Note 15 of our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005, allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The unrecognized compensation cost related to these awards is expected to be expensed over the period the restrictions lapse (generally one to four years).

The compensation expense for these awards was determined based on the market price of our stock at the date of grant applied to the total numbers of shares that were anticipated to fully vest. As of February 28, 2006, we have unrecognized compensation expense of $21.8 million associated with these awards. Upon adoption of SFAS 123(R), we recorded an immaterial cumulative effect of a change in accounting principle as a result of our change in policy from recognizing forfeitures as they occur to one where we recognize expense based on our expectation of the amount of awards that will vest over the requisite service period for our restricted stock awards. This amount was recorded in other income (expense) in the accompanying condensed consolidated statements of operations.

The following table represents the compensation expense that was included in general and administrative expenses and cost of revenues in the accompanying condensed consolidated statements of operations related to these restricted stock grants for the periods indicated below (in thousands):

	Three Months Ended				Six Months Ended
	February 28,				February 28
	2006		2005		2006		2005
Compensation expense	$	1,892	$	828	$	2,915	$	1,776

9

The following table represents the shares that were granted and outstanding as of February 28, 2006 and August 31, 2005:

	February 28,		August 31,
	2006		2005
Restricted stock:
Granted, during and as of the period ended		401,155		454,152
Outstanding, as of		1,186,845		1,152,608
Future restricted stock awards:
Granted, during and as of the period ended		—		211,800
Outstanding, as of		—		21,000

Note 3 — Significant Estimates

Our Annual Report on Form 10-K addresses significant accounting policies used in the preparation of our financial statements. The following enhances that discussion relative to selected significant estimates that have a material impact on our financial statements for the period end February 28, 2006.

Performance Guarantees

Our approach to estimating liability provisions related to contractual performance guarantees on sales of our technology paid-up license agreements requires that we make estimates on the performance of technology on projects where we may not be the EPC contractor. Our accounting for these contracts is discussed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005 in “Critical Accounting Policies and Related Estimates That Have a Material Effect on Our Consolidated Financial Statements.” Our historical experience with performance guarantees on these types of agreements supports estimated liability provisions that vary based on our experience with the different types of technologies for which we license and provide engineering (for example, ethyl benzene, styrene, cumene, Bisphenol A). Our liability provisions range from nominal amounts up to 100% of the contractual performance guarantee. If our actual obligations under performance guarantees differ from our estimated liability provisions at the completion of these projects, we will record an increase or decrease in revenues (or an increase in costs where we are required to incur costs to remediate a performance deficiency) for the difference.

Prior to February of 2006, our estimates of these performance guarantees were recorded at the maximum contractual liability until the related plant became operational, performance tests were met, the guarantee provisions expired or other factors provided evidence that the maximum liability was unlikely to be incurred. After three to six years of experience in addition to the previous experience of companies we acquired, we now believe that our history and experience with these types of guarantees allows us to make more accurate estimates of the potential liability and, in certain circumstances, revise our recorded performance liability amount below the maximum performance liability. For the three and six months ended February 28, 2006, we recorded gross profit of $4.5 million due to changes in estimates for performance guarantees below the maximum liability. Our total estimated performance liability remaining as of February 28, 2006, is $14.7 million.

Project Incentives and Unapproved Change Orders

As discussed in our Annual Report on Form 10-K, application of the percentage of completion method of accounting for contracts requires significant estimates. Included below is a description of a number of material estimates on individual projects.

We have revised our estimated revenues on a substantially complete EPC power project to include a schedule incentive under the contract terms for substantial completion and satisfaction of performance tests before a specified date. Based on our progress to-date, we believe it is probable that the terms will be met. As a result, the recognition of this incentive increased revenues and gross profit by $7.4 million for our E&C segment during the three and six months ended February 28, 2006.

The estimated revenues on two nuclear projects include a performance incentive of $35.1 million which we will receive if we achieve a number of agreed upon criteria including, among other factors, schedule, safety, quality, productivity and cost savings. If we do not achieve the specified delivery date and other criteria, our revenues and profit related to this incentive will be reduced in part or entirely. This incentive is being recognized in revenues using the percentage-of-completion method of accounting. We have recorded in cost and estimated earnings in excess of billings on uncompleted contracts $25.8 million as of February 28, 2006, related to this performance incentive based on our progress to-date.

The estimated revenues on one of our clean fuels projects includes $25.2 million related to unapproved change orders submitted to our customer related to multiple factors including escalation in labor costs which we believe are recoverable through force majeure provisions within the contract. If we are unable to recover the amounts recorded related to these claims from our customer, or if our estimates of the amounts recoverable change, our revenues and profits will be reduced to reflect the amount actually recovered or the revised estimate of the amount recoverable.

In addition to the above unapproved change order, see Note 11 for more details related to our accounting for the estimates and our claims on certain major projects.

Government Indirect Rate Accrual

We have contracts with the U.S. government that contain provisions requiring compliance with the U.S. Federal Acquisition Regulation (“FAR”), and the U.S. Cost Accounting Standards (“CAS”). These regulations limit the recovery of certain specified costs on contracts subject to the FAR. Our process for recording revenue and corresponding billings for our services is based on forward pricing rates applicable to a given fiscal year. We provide reserves for estimated amounts due to or from the U.S. Government for services provided and billed but for which the forward pricing rates may differ from actual recoverable rates. In addition, the U.S. Defense Contract Audit Agency (“DCAA”) routinely audits our overhead rates and incurred contract costs and may question whether the treatment of these costs is consistent with the requirements of the FAR and CAS and may recommend that such costs be disallowed. Our government rate reserve is adjusted, as necessary, based on the results of the DCAA audits. Our government rate reserve is included in costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying balance sheets.

Note 4 — Goodwill and Other Intangible Assets

Goodwill

The following table reflects the changes in the carrying value of goodwill by segment from September 1, 2005 to February 28, 2006 (in thousands):

	E&I		E&C			Maintenance			F&M			Total
Balance at September 1, 2005	$	186,878	$	262,142		$	42,371		$	15,062		$	506,453
Currency translation adjustment		—		(725	)		(80	)		(239	)		(1,044	)
Sale of Shaw Field Services, Inc.		—		—			(264	)		—			(264	)
Balance at February 28, 2006	$	186,878	$	261,417		$	42,027		$	14,823		$	505,145

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During the first quarter of fiscal 2006, we sold the assets of Shaw Field Services, Inc. for $1.1 million in a combination of cash proceeds and a promissory note. The sale resulted in a net loss of $0.2 million, and is included in other expense in the accompanying condensed consolidated statements of operations for the six months ended February 28, 2006.

As of February 28, 2006 and August 31, 2005, we had tax deductible goodwill of approximately $170.1 million and $178.2 million, respectively.

The gross carrying values and accumulated amortization of our amortizable intangible assets, included in other assets, are presented below (in thousands):

	Proprietary Technologies,
	Patents and Tradenames					Customer Relationships
	Gross Carrying		Accumulated			Gross Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Balance at August 31, 2005	$	44,261	$	(12,122	)	$	2,752	$	(868	)
Amortization		—		(1,541	)		—		(132	)
Balance at February 28, 2006	$	44,261	$	(13,663	)	$	2,752	$	(1,000	)

The following table presents the annual amortization for our intangible assets not associated with contract adjustments related to our proprietary technologies, patents, and trademarks (in thousands):

2006	$	1,573
2007		3,031
2008		2,970
2009		2,866
2010		2,708
Thereafter		17,450
Total	$	30,598

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The following table presents the annual amortization for our customer relationships (in thousands):

2006	$	154
2007		307
2008		307
2009		307
2010		307
Thereafter		370
Total	$	1,752

Contract Adjustments and Accrued Contract Losses

The contract liability (asset) adjustments and accrued contract losses established in purchase accounting (related to the IT Group and Stone & Webster acquisitions) are recognized periodically as reductions to cost of revenues in the accompanying condensed consolidated statements of operations.

The following table presents the additions to and utilization of contract liability (asset) adjustments and accrued contract losses established in purchase accounting for the periods indicated (in thousands):

						Cost of Revenues
	December 1, 2005			Asset or Liability		Increase			February 28, 2006
Three Months ended February 28, 2006	Balance			Increase/ Decrease		(Decrease)			Balance
Contract (asset) adjustments	$	(409	)	$	—	$	110		$	(299	)
Contract liability adjustments		6,042			—		(894	)		5,148
Accrued contract losses		1,827			—		(1,781	)		46
Total	$	7,460		$	—	$	(2,565	)	$	4,895

						Cost of Revenues
	September 1, 2005			Asset or Liability		Increase			February 28, 2006
Six Months ended February 28, 2006	Balance			Increase/ Decrease		(Decrease)			Balance
Contract (asset) adjustments	$	(519	)	$	—	$	220		$	(299	)
Contract liability adjustments		6,936			—		(1,788	)		5,148
Accrued contract losses		2,965			—		(2,919	)		46
Total	$	9,382		$	—	$	(4,487	)	$	4,895

						Cost of Revenues
	December 1, 2004			Asset or Liability		Increase			February 28, 2005
Three Months ended February 28, 2005	Balance			Increase/ Decrease		(Decrease)			Balance
Contract (asset) adjustments	$	(1,170	)	$	—	$	246		$	(924	)
Contract liability adjustments		14,252			—		(3,458	)		10,794
Accrued contract losses		5,853			—		(39	)		5,814
Total	$	18,935		$	—	$	(3,251	)	$	15,684

						Cost of Revenues
	September 1, 2004			Asset or Liability		Increase			February 28, 2005
Six Months ended February 28, 2005	Balance			Increase/ Decrease		(Decrease)			Balance
Contract (asset) adjustments	$	(1,415	)	$	—	$	491		$	(924	)
Contract liability adjustments		17,347			—		(6,553	)		10,794
Accrued contract losses		5,878			—		(64	)		5,814
Total	$	21,810		$	—	$	(6,126	)	$	15,684

The decreases in the contract liability (asset) adjustments and accrued contract losses for the three and six months ended February 28, 2006 and 2005, as presented above, represent the utilization of adjustments related to the IT Group and Stone & Webster acquisitions.

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Accrued contract losses not accrued in business combinations are included in billings in excess of costs and estimated earnings on uncompleted contracts and were $7.1 million and $6.6 million as of February 28, 2006 and August 31, 2005, respectively. Contract (asset) adjustments are included in other current assets in the accompanying condensed consolidated balance sheets.

Note 5 — Inventories, Accounts Receivable and Concentration of Credit Risk

Inventories

The major components of inventories were as follows (in thousands):

	February 28, 2006						August 31, 2005
	Weighted						Weighted
	Average		FIFO		Total		Average		FIFO		Total
Finished goods	$	40,238	$	—	$	40,238	$	33,553	$	—	$	33,553
Raw materials		4,779		40,812		45,591		2,431		49,490		51,921
Work in process		1,232		10,030		11,262		1,579		10,631		12,210
	$	46,249	$	50,842	$	97,091	$	37,563	$	60,121	$	97,684

Accounts Receivable

Accounts receivable as of February 28, 2006 and August 31, 2005 were as follows (in thousands):

	February 28,		August 31,
	2006		2005
Trade accounts receivable, net	$	412,693	$	303,412
Unbilled accounts receivable		29,888		26,793
Retainage		134,962		87,830
Total accounts receivable, including retainage, net	$	577,543	$	418,035

The increase in trade accounts receivable and retainage is primarily due to the disaster relief, emergency response and recovery services provided to FEMA and the U.S. Army Corps of Engineers.

Concentration of Credit — Government Contracting

The following table presents amounts due from government agencies or entities owned by the U.S. Government, along with revenues related to these governmental agencies and entities (in millions):

	February 28,		August 31,
	2006		2005
Amounts due from U.S. Government	$	122.3	$	70.1

	Three Months Ended				Six Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Revenues	$	585.5	$	228.2	$	1,093.7	$	497.6

The increase in the amounts due from and revenues earned from government agencies or entities owned by the U.S. Government is primarily due to the disaster relief, emergency response and recovery services provided to FEMA and the U.S. Army Corps of Engineers.

Costs and estimated earnings in excess of billings on uncompleted contracts include $460.7 million related to the U.S. Government agencies and related entities, an increase of $359.2 million during the six months ended February 28, 2006. This increase reflects our rapid deployment of a high volume of resources for the disaster relief, emergency response and recovery services provided in the Gulf Coast area of the U.S.

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Note 6 — Other Assets and Other Liabilities

Other Assets

The following table summarizes the balance of other assets (in thousands):

	February 28,		August 31,
	2006		2005
Power generation plant equipment and materials	$	12,692	$	15,303
LandBank assets		32,606		33,111
Intangible assets, other than contract (asset) adjustments, less accumulated amortization		32,350		34,023
Notes receivable		8,727		12,792
Deposits		2,633		2,642
Real estate option		12,183		12,183
Deferred financing fees		4,804		3,706
Deferred acquisition costs		2,507		958
Other		2,484		2,257
Total other assets	$	110,986	$	116,975

The following summarizes significant changes in other assets since August 31, 2005.

Power generation plant equipment and materials has decreased by $2.6 million during the first half of 2006, as we have used these assets on projects for other customers.

Notes receivable have decreased during the first half of fiscal 2006 by $4.1 million. During the first quarter of fiscal 2006, one of our consolidated joint ventures, Badger Licensing, LLC (Badger) received a transfer of a portion of its joint venture partner member’s equity as payment of a $8.9 million long-term note receivable owed to Badger. Additionally, during the second quarter of fiscal 2006, we recorded a note receivable of $4.2 million related to the substantial payment and release of certain claims on the Wolf Hollow project (See Note 11). The payment of the receivable balance is due in 2012 from the purchaser of the plant and related assets.

It is our policy to defer certain third party costs directly attributable to our efforts on potential acquisitions. During the second quarter of fiscal 2006, we expensed $4.6 million of previously deferred costs relating to financing and equity offering costs and certain due diligence costs. These deferred costs are recorded in general and administrative expenses on our condensed consolidated statements of operations for the three and six months ended February 28, 2006. The remaining $2.5 million of deferred acquisition costs relates to ongoing negotiations for the acquisition of a strategic equity investment in the same target company.

Other Liabilities

The following table summarizes the balance of other liabilities (in thousands):

	February 28,		August 31,
	2006		2005
Defined benefits plans’ accumulated benefit obligations	$	28,212	$	27,463
Deferred rental expense and lease obligations		3,543		3,237
LandBank environmental remediation liabilities		8,944		9,738
Other		3,364		4,024
Total other liabilities	$	44,063	$	44,462

Note 7 — Variable Interest Entities, Unconsolidated Entities, Joint Ventures and Limited Partnerships

Shaw invests in and makes advances to unconsolidated entities, joint ventures, and limited partnerships. Each of these entities is recorded in the accompanying condensed consolidated financial statements based on the structure associated with each respective entity. These entities are accounted for as either variable interest entities (VIEs) as defined by FIN 46(R), “Consolidation of Variable Interest Entities (revised December 2003) — an interpretation of ARB No. 51,” and the proportionate share of some of our investments in joint ventures or as investments accounted for under the equity method, except for one entity which we account for at cost.

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Variable Interest Entities

The following table represents the total assets and liabilities, before intercompany eliminations, of those VIEs for which we are the primary beneficiary, and therefore consolidate, and the total assets and liabilities before intercompany eliminations of those VIEs of which we are not the primary beneficiary, and therefore do not consolidate (in thousands):

	February 28,		August 31,
	2006		2005
Primary Beneficiary:
Total assets	$	88,746	$	96,150
Total liabilities		65,135		48,591
Not Primary Beneficiary:
Total assets	$	948,908	$	897,380
Total liabilities		828,946		814,023

There have been no significant changes in the status of our VIEs since August 31, 2005.

Unconsolidated Entities (including VIEs), Joint Ventures and Limited Partnerships

The following is a summary of our investments in and advances to unconsolidated entities which are accounted for under the equity method, except for one which is accounted for at cost.

Investments in unconsolidated entities, joint ventures and limited partnerships (in thousands):

	February 28,		August 31,
	2006		2005
Privatization entities	$	20,033	$	19,441
Other entities:
Shaw-YPC Piping (Nanjing) Co., Ltd.		255		844
Stennis joint venture		5,181		4,584
Nordic		1,930		1,930
KB Home/Shaw Louisiana LLC		1,238		—
S&W Fluor Daniels		2,478		2,388
Newberg Perini		1,971		1,219
Other		2,676		1,317
Total investments		35,762		31,723
Long-term advances to and receivables from unconsolidated entities:
Shaw-YPC Piping (Nanjing) Co., Ltd.		3,081		3,081
Other		67		67
Total other advances and receivables		3,148		3,148
Total investments in and advances to unconsolidated entities, joint ventures and limited partnerships	$	38,910	$	34,871

Earnings (losses) from unconsolidated entities, net of income taxes, are as follows (in thousands):

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Privatization entities	$	236		$	937		$	855		$	1,121
Other entities:
Shaw-YPC Piping (Nanjing) Co., Ltd.		(338	)		(382	)		(602	)		(609	)
Stennis joint venture		175			192			358			348
Other		(74	)		1,122			526			1,267
Total earnings (losses) from unconsolidated entities, net of income taxes	$	(1	)	$	1,869		$	1,137		$	2,127

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We provided $1.1 million and $2.2 million in equity contributions during the three and six months ended February 28, 2006, respectively, related to our housing privatization joint ventures as compared to $4.5 million and $10.5 million during the three and six months ended February 28, 2005, respectively. In addition, pending the outcome of a proposed privatization project, we may be obligated to make an additional contribution of $10.0 million during fiscal 2007.

During the second quarter of fiscal 2006, we acquired for $0.5 million the interest held by one of the joint venture partners associated with our unconsolidated joint venture, Duke Cogema Stone & Webster, LLC, which increased our ownership percentage to 70%. As a result of the transaction, we obtained a controlling interest and consolidated the joint venture as of February 28, 2006. The total assets and total liabilities associated with the acquired entity were $12.3 million and $11.9 million, respectively as of February 28, 2006.

Note 8 — Long-term Debt and Revolving Lines of Credit

Long-term debt consisted of the following (in thousands):

	February 28, 2006			August 31, 2005
10.75% Senior Notes	$	15,052		$	15,041
Notes payable for insurance premiums		3,366			1,591
Notes payable of consolidated VIEs		7,308			8,038
Other notes payable		1,194			1,183
Total debt		26,920			25,853
Less: current maturities		(5,913	)		(4,135	)
Total long-term portion of debt	$	21,007		$	21,718

During fiscal 2006, we have financed insurance premiums of $7.5 million of which payments of $5.7 million have been made on the financed insurance premiums. The remainder of the amount financed will be paid over the next four months.

Credit Facilities and Revolving Lines of Credit

Amounts outstanding under credit facilities and revolving lines of credit consisted of the following (in millions):

	February 28,			August 31,
	2006			2005
Credit Facility	$	173.5		$	40.9
Foreign subsidiaries’ revolving lines of credit		—			0.1
Credit facilities of consolidated VIEs		9.7			6.3
Total outstanding		183.2			47.3
Less: current maturities		(9.7	)		(6.4	)
Total long-term revolving lines of credit	$	173.5		$	40.9

On October 3, 2005, we entered into Amendment I to increase our Credit Facility dated April 25, 2005, from $450.0 million to $550.0 million, then on February 27, 2006 we entered into Amendment II, which increased our Credit Facility from $550.0 million to $750.0 million, and increased our sublimits for revolving credit and financial letters of credit from $325.0 million to $425.0 million, which will retract to $375.0 million on August 27, 2007. The amendments retained the original terms of the agreement, which is five years and commenced on April 25, 2005. Readers should refer to Note 8 of the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005 for a more detailed description of our Credit Facility.

The following table presents our available credit under our amended Credit Facility as of February 28, 2006 (in millions), which is subject to a borrowing base calculation which is addressed in our 2005 Annual Report referred to above.

Total Credit Facility	$	750.0
Less: outstanding performance letters of credit		(217.0	)
Less: outstanding financial letters of credit		(43.6	)
Less: outstanding revolving credit loans		(173.5	)
Remaining availability for performance letters of credit	$	315.9
Portion of Credit Facility available for financial letters of credit and revolving credit loans	$	425.0
Less: outstanding financial letters of credit		(43.6	)
Less: outstanding revolving credit loans		(173.5	)
Remaining availability for financial letters of credit and revolving credit loans	$	207.9

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In addition to the calculation presented above, the portion of the Credit Facility available for financial letters of credit and revolving credit loans is also limited to the lesser of the total Credit Facility ($750.0 million as of February 28, 2006) less outstanding performance letters of credit or the portion of the Credit Facility ($425.0 million as of February 28, 2006) available for financial letters of credit and revolving credit loans. The Credit Facility availability is also subject to a borrowing base calculation as mentioned above.

The Credit Facility will be used, from time to time, for working capital needs and to fund fixed asset purchases, acquisitions and investments in joint ventures. During fiscal 2006, we have and we expect we will continue to periodically borrow under our Credit Facility for our working capital needs and general corporate purposes.

The interest rates for revolving credit loans under the Credit Facility may be in a range of (i) LIBOR plus 1.50% to 3.00% or (ii) the defined base rate plus 0.00% to 0.50%. The weighted-average interest rate on the Credit Facility was 6.68% and 6.96% for the three and six months ended February 28, 2006. As of February 28, 2006, we had outstanding letters of credit (inclusive of both domestic financial and domestic performance) of approximately $260.6 million under our Credit Facility as compared to $243.6 million as of August 31, 2005. The total amount of fees associated with these letters of credit were approximately $1.1 million and $2.1 million for the three and six months ended February 28, 2006 compared to $1.8 million and $3.7 million for the three and six months ended February 28, 2005.

As of February 28, 2006, we were in compliance with the covenants contained in the Credit Facility.

The following table sets forth the outstanding letters of credit and short-term revolving lines of credit for our foreign subsidiaries, excluding our VIEs (in thousands, except percentages):

	February 28, 2006			August 31, 2005
Capacity of foreign letters of credit and short-term revolving lines of credit	$	6,096		$	6,253
Outstanding:
Letters of credit		3,436			4,072
Short-term revolving lines of credit		26			57
Total outstanding		3,462			4,129
Remaining availability for foreign letters of credit and short-term revolving lines of credit	$	2,634		$	2,124
Weighted-average interest rate		6.50	%		6.75	%

As of February 28, 2006, borrowings under the short-term revolving lines of credit and term loan of one of our consolidated VIEs were $9.7 million and $1.2 million, respectively, with no outstanding performance bonds. Interest rates under this credit facility vary and ranged from 6.9% to 7.2% as of February 28, 2006. We also have a 50% guarantee related to this credit facility. As of August 31, 2005, this VIE had borrowings under the short-term revolving line of credit and term loan of $6.3 million and $1.2 million, respectively, with no outstanding performance bonds. Interest rates under this credit facility vary and ranged from 6.25% to 6.5% as of August 31, 2005.

The estimated fair value of our long-term debt, excluding capital leases and borrowings on our Credit Facility as of February 28, 2006 and August 31, 2005 was approximately $25.1 million and $24.0 million, respectively, based generally on the current market prices of such debt.

For the three and six months ended February 28, 2006, we recognized $0.3 million and $0.5 million of interest expense associated with the amortization of financing fees that were incurred with respect to the issuance of our Senior Notes and our Credit Facility, as compared to $1.2 million and $2.3 million for the three and six months ended February 28, 2005. As of February 28, 2006, unamortized deferred financing fees related to the Senior Notes and our Credit Facility were approximately $4.8 million and unamortized deferred financing fees related to our long-term debt were approximately $3.7 million as of August 31, 2005.

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Note 9 — Comprehensive Income and Hedging Activities

Comprehensive income for a period encompasses net income and all other changes in a company’s equity other than changes from transactions with the company’s owners. Comprehensive income was comprised of the following for the periods indicated (in thousands):

	Three Months Ended
	February 28,
	2006		2005
Net income	$	25,296	$	9,248
Foreign currency translation adjustments:
Unrealized translation adjustment gains, net		104		158
Change in unrealized net gains on hedging activities, net of taxes		20		—
Total comprehensive income	$	25,420	$	9,406

	Six Months Ended
	February 28,
	2006			2005
Net income	$	58,009		$	20,261
Foreign currency translation adjustments:
Unrealized translation adjustment (losses), net		(1,601	)		2,460
Plus: reclassification adjustment for realized losses included in net income		—			495
Change in unrealized net (losses) gains on hedging activities, net of taxes		57			(178	)
Total comprehensive income	$	56,465		$	23,038

The foreign currency translation adjustments relate to the varying strength of the U.S. dollar in relation to the British pound, Mexican peso, Australian dollars, Canadian dollars and the Euro.

We enter into derivative instruments from time to time to hedge a portion of our expected future cash flows from unanticipated fluctuations caused by volatility in currency exchange rates related to certain EPC contracts. We had seventeen derivative instruments outstanding as of February 28, 2006, all of which were foreign currency forward exchange contracts denominated in Canadian Dollars, Euros or British Pounds.

Eleven of the seventeen contracts were designated and qualify as cash flow hedges of foreign currency denominated forecasted transactions and mature within the next thirteen months. As of February 28, 2006, a deferred net gain of approximately $0.1 million was included in accumulated other comprehensive income for these contracts. This gain is expected to be reclassified to earnings over the life of the contracts as the forecasted transactions occur. There was no ineffectiveness during the six months ended February 28, 2006 related to these cash flow hedges.

The remaining six contracts did not qualify for hedge accounting treatment under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted. For the six months ended February 28, 2006, we recognized in other income approximately $0.3 million in net gains on these seven contracts.

Note 10 — Supplemental Disclosure to Earnings (Loss) Per Common Share

The following table includes weighted-average incremental shares excluded from the calculation of diluted income per share because they were anti-dilutive (in thousands):

	Three Months Ended				Six Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Stock options		89		2,279		376		3,051
LYONs convertible debt		—		10		—		10

Note 11 — Claims on Major Projects

Claims include amounts in excess of the original contract price (as it may be adjusted for approved change orders) that we seek to collect from our customers for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs and are included in estimated revenues when recovery of the amounts is probable and the costs can be reasonably estimated. Backcharges and claims against vendors, subcontractors and others are included in our cost estimates as a reduction in total estimated costs when recovery of the amount is probable and the costs can be reasonably estimated. We refer to these claims from customers and backcharges and claims against vendors, subcontractors and others as “claims.” As a result, the recording of claims increases revenues or decreases cost of revenues on the related projects in the period. Claims receivable are included in costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying condensed consolidated balance sheets.

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If we collect amounts different than the amounts that we have recorded as claims receivable, that difference will be recognized as income or loss. Timing of claim collections is uncertain and depends on negotiated settlements, trial date scheduling and other dispute resolution processes pursuant to the contracts. As a result, we may not collect our claims receivable within the next twelve months.

The following disclosure provides a summary and update of significant changes, if any, from August 31, 2005, related to our significant claims. Readers should refer to Note 18 of the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005 for a more detailed description of each claim.

A summary of our net claims receivable position on the major projects discussed below, is as follows (in millions):

	February 28,			August 31,
	2006			2005
Receivables from owners under contract terms	$	48.2		$	112.9
Reimbursement of letter of credit draws by owners		46.9			46.9
Claims receivable from owners, equipment vendors, subcontractors and others for costs incurred		22.8			28.2
Less: Liquidated damages recorded in contract costs		(12.0	)		(17.1	)
Less: Amounts collected by drawing letters of credit		(17.5	)		(17.5	)
Net claims receivable	$	88.4		$	153.4

Covert & Harquahala Projects

In December 2005, phase one of the previously announced arbitration relating to the Covert and Harquahala projects was completed. We received an arbitration award of $35.4 million, which was paid in January, on claims relating to the New Covert Generating Company, LLC (Covert).

The Harquahala arbitration proceeding commenced in January 2006, and we expect a final ruling in May 2006. Interest related claims on both Covert and Harquahala are pending and will be addressed following the ruling on Harquahala.

We had already reached settlements with the turbine manufacturers on both the Covert and Harquahala projects in the second quarter of fiscal 2005.

We continue to believe we have a strong basis for our claims and backcharges for amounts in excess of the recorded amounts; however, recovery of the claims and other amounts is dependent upon negotiations with the applicable parties, which are ongoing, and the results of arbitration. We can not provide absolute assurance as to the timing or outcome of these negotiations or results of arbitration.

Wolf Hollow Project

In May 2005, we completed the testimony phase of the arbitration proceeding between us and the major equipment supplier. The parties completed post hearing briefing in late July 2005. During the six months ended February 28, 2006, there were no material changes to the status of the arbitration.

In December 2005, we reached an agreement with the lender and a prospective purchaser of the Wolf Hollow plant and related assets, whereby we agreed to release our interests in the plant and assets, cancel the $27.7 million in subordinated notes and accrued interest due us and agreed to a mutual release of claims with the lender, in exchange for a substantial cash payment and a note receivable, due in 2012. The transaction closed on December 22, 2005.

We have reserved our rights to pursue AES Corporation and Parsons, and we intend to continue to vigorously pursue collection of those claims. On December 9, 2005, the District Court entered a new scheduling order in the trial against AES Corporation and Parsons that established a trial start date of June 28, 2006.

In a letter ruling dated February 21, 2006, the trial court Judge indicated he intended to grant “AES Corp’s Motion for Summary Judgment Based upon Plaintiff’s Waiver and Regarding Plaintiff’s Allegations of Vicarious Liability”. The ruling does not state clearly whether the Court intended to dismiss all our claims against AES Corp., including the fraud claim asserted directly against AES Corp., or just certain claims asserted based on vicarious liability. The letter has no effect on the claims against Parsons.

On March 24, 2006 the Court heard argument on the proper scope of the ruling and our motion for reconsideration. A decision by the trial court judge is imminent. We remain confident that the law supports our position and that under our interpretation of the letter ruling, our likelihood of success at trial remains unchanged. However, it is difficult to predict how the trial court Judge will rule under the current

19

circumstances. Should the Judge issue an adverse decision we believe an appeal would be warranted. Nevertheless, in the event of such a ruling we also believe it would be prudent to reassess the collectibility of our recorded claim receivable from AES Corp. of $48.2 million, and we would likely fully or partially reduce our claim receivable which would result in a material non-cash charge to earnings.

We continue to believe that we have a strong basis for our claims and backcharges for amounts in excess of the recorded amounts; however, recovery of the claims and other amounts is dependent upon negotiations with the applicable parties, which are ongoing, and the results of litigation. We cannot provide absolute assurance as to the timing or outcome of these negotiations or results of arbitration.

Marcus Hook Project

During the second quarter of fiscal 2006, we have agreed to terms with FPL-Energy (“FPLE”) and our primary subcontractor on this project. Under the agreements, we have received certain payments from a third party insurance company (toward settlement of certain of the claims) and certain payments from FPLE for certain outstanding receivables due us on the project. In addition, all parties agreed to a mutual release of claims and FPLE has released our outstanding $23.0 million letter of credit. As a result of this agreement, we recorded an immaterial loss during the first half of fiscal 2006.

See Note 3 for a discussion of other claims, unapproved change orders and project uncertainties.

Note 12— Income Taxes

The components of our deferred tax position are as follows (in thousands):

	February 28,			August 31,
	2006			2005
Assets:
Deferred tax assets	$	125,426		$	149,363
Less: valuation allowance		(24,651	)		(25,712	)
Total assets		100,775			123,651
Liabilities:
Deferred tax liabilities		(63,667	)		(59,669	)
Net deferred tax assets	$	37,108		$	63,982

Our effective tax rate for the three and six months ended February 28, 2006 was 37.9% and 36.6%, respectively, while our effective tax rate for the three and six months ended February 28, 2005 was 33.8% and 34.7%, respectively.

We believe our deferred tax assets, net of valuation allowances, at February 28, 2006, are realizable through future reversals of existing taxable temporary differences and future taxable income. Uncertainties that affect the ultimate realization of deferred tax assets include the risk of not having future taxable income, which have been considered in determining the valuation allowances.

Note 13 — Contingencies and Commitments

Guarantees

Our lenders issue letters of credit on our behalf to customers or sureties in connection with our contract performance and in limited circumstances on certain other obligations of third parties. We are required to reimburse the issuers of these letters of credit for any payments which they make pursuant to these letters of credit. At February 28, 2006 and August 31, 2005, the amount of outstanding letters of credit was approximately $264.1 million and $247.7 million, respectively. Of the amount of outstanding letters of credit at February 28, 2006, $217.0 million are issued to customers in connection with contracts. Of the $217.0 million, five customers held $146.1 million or 67% of the outstanding letters of credit. The largest letter of credit issued to a single customer on a single project is $53.0 million. There were no draws under these letters of credit for the three and six months ended February 28, 2006.

In some cases, performance assurances are extended to customers that guarantee certain performance measurements upon completion of a project. If performance assurances are extended to customers, our potential exposure generally limited to the remaining cost of the work to be performed by or on behalf of third parties under engineering and construction contracts with potential recovery from third party vendors and subcontractors for work performed in the ordinary course of contract execution. As a result, the total costs of the project could exceed our original cost estimates and we could experience reduced gross profit or possibly a loss for that project. In some cases, where we fail to meet certain performance standards, we may be subject to contractual liquidated damages.

During the second quarter of fiscal 2005, we entered into a guarantee agreement with a third party to guarantee the performance of one of our unconsolidated entities, American Eagle Northwest, LLC, related to the development and construction phase of the Pacific

20

Northwest Communities, LLC military housing privatization which is scheduled to be completed in calendar year 2009. Our maximum exposure under this performance guarantee at the time we entered into this guarantee was estimated to be $81.7 million. As of February 28, 2006, the maximum exposure amount has decreased to $70.1 million due to development and construction services already executed, and our exposure will continue to be reduced over the contract term as further project services are provided. We would be able to recover a portion of this exposure through surety bonding provided by our general contractor. We have also committed to fund $6.0 million of the total project costs for which proceeds from the sale of real estate obtained in connection with the contract will be used to fulfill this guarantee. As of February 28, 2006 and August 31, 2005, we have recorded a $0.5 million liability and corresponding asset related to this guarantee.

During the third quarter of fiscal 2005, we entered into an agreement with a third party to guarantee a revolving line of credit for one of our unconsolidated entities, Shaw YPC Piping (Nanjing) Co. LTD, for its working capital needs. Our maximum exposure under this agreement at the time we entered into this guarantee was estimated at $1.8 million. As of February 28, 2006, we have recorded an immaterial liability and corresponding asset related to this guarantee.

Finally, during the fourth quarter of fiscal 2005, we entered into a guarantee with a third party to guarantee the payment of certain tax contingencies related to Roche Consulting, Group Limited, which was sold during the fourth quarter of fiscal 2005. Our maximum exposure under this guarantee at the time we entered into this guarantee was estimated at $2.3 million. As of February 28, 2006, we had recorded an immaterial liability and corresponding asset related to this guarantee.

SEC Inquiry

On June 1, 2004, we were notified by the staff of the SEC that the staff is conducting an informal inquiry relating to our financial statements. The SEC has not advised us as to either the reason for the inquiry or its precise scope. However, the requests for information we have received to date appear to primarily relate to the purchase method of accounting for various of our acquisitions. We have been cooperating with the SEC, including providing documents and responding to requests for voluntary production, as well as conducting a detailed review of our accounting for our acquisitions. In addition, if the SEC takes further action, it may escalate the informal inquiry into a formal investigation which may result in an enforcement action or other legal proceedings against us and potentially members of our management. Responding to such actions or proceedings could be costly and could divert the efforts and attention of our management team, including senior officers. If any such action or proceeding is resolved unfavorably to us or any members of management, we or they could be subject to injunctions, fines, increased review and scrutiny by regulatory authorities and other penalties or sanctions, including criminal sanctions, that could materially and adversely affect our business operations, financial performance, liquidity and future prospects and materially adversely affect the trading market and price of our stock. Any unfavorable actions could also result in private civil actions, loss of key personnel or other adverse consequences.

Securities Litigation

We and certain of our current officers have been named as defendants in purported shareholder class action lawsuits alleging violations of federal securities laws. These types of class action lawsuits are not uncommon when there has been a notification of an informal inquiry by the SEC. The first filed lawsuit is styled Earl Thompson v. The Shaw Group Inc. et al and was filed on June 16, 2004 in the United States District Court for the Eastern District of Louisiana, Case No. 04-1685. The complaint filed in the Thompson action alleges claims under Sections 10(b) and Rule 10(b-5) promulgated thereunder and 20(a) of the Securities Exchange Act of 1934 on behalf of a class of purchasers of our common stock during the period from October 19, 2000 to June 10, 2004. The complaint alleges, among other things, that (i) certain of our press releases and SEC filings contained material misstatements and omissions, (ii) that the manner in which we accounted for certain acquisitions was improper and (iii) that we improperly recorded revenue on certain projects, and as a result, our financial statements were materially misstated at all relevant times. The complaint does not specify the amount of damages sought. Since the filing of the Thompson lawsuit, nine additional purported shareholder class action lawsuits have been filed and other actions may also be commenced. Each of the additional lawsuits includes the same defendants, and essentially alleges the same statutory violations based on the same or similar alleged misstatements and omissions. All of these actions have been consolidated under the Thompson caption in the Eastern District of Louisiana and the Court has appointed a lead plaintiff to represent the members of the purported class. The consolidated actions have not been certified as class actions by the Court. We have filed a motion to dismiss the consolidated action, which is pending.

In addition, two shareholder derivative actions, styled as Jonathan Nelson v. J.M. Bernhard, Jr., et al. and Larry F. Reusche v. Tim Barfield, Jr., et al., have been filed based on essentially the same allegations as the purported class actions. The derivative actions, which the plaintiffs purport to be bringing on behalf of the Company, name certain of our directors and current and former officers as defendants, and name the Company as a nominal defendant. The derivative suits collectively make claims of breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment based on allegations that the named

21

defendants committed, condoned or failed to identify and disclose the misconduct alleged in the purported class action lawsuits, and that certain defendants sold Company stock while in possession of knowledge of the alleged misconduct. The complaints do not specify the amount of damages sought. These derivative lawsuits have been stayed indefinitely by a court order as of December 14, 2004.

Both the purported shareholder class action lawsuits and the derivative lawsuits are in the early stages of litigation. We believe our financial statements were prepared in accordance with generally accepted accounting principles (GAAP) and that none of our public press releases or public filings contained misrepresentations or omissions. Accordingly, we intend to defend the Company and our directors and officers vigorously against each of these actions. Although it is not possible at this early stage to predict the likely outcome of these actions, an adverse result in any of these lawsuits could have a material adverse effect on us.

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Other Litigation

During fiscal 2005, the U.S. District Court in Delaware rendered a judgment against us and in favor of Saudi American Bank in the amount of $6.7 million. Saudi American Bank claimed that as part of the acquisition of Stone & Webster in July 2000, we had assumed the estate company’s liability under a loan agreement and guarantee. We have filed a notice of appeal, and we expect to have the judgment overturned. Saudi American Bank has sought to make the judgment final, and has sought interest and attorney’s fees, bringing its total claim to $11.3 million plus legal interest while the appeal is pending. Although we expect to prevail on appeal, in the event we are unsuccessful, there could be a material adverse effect on our financial statements for the period in which any judgment becomes final. We have not recorded any liability for this contingency.

Also on one of our projects, a client is claiming damages of approximately $9 million related to the troubleshooting, shutdown, repairs and loss of production. We are contesting the amount of damages claimed and have accrued an amount for our expected loss. In the event damages exceed our accrual and are not covered by insurance, there could be a material adverse effect on our financial position.

Environmental Liabilities

LandBank Group, Inc. (LandBank), a subsidiary of our E&I segment, acquires and remediates environmentally impaired real estate. The real estate is recorded at cost, which typically reflects some degree of discount due to environmental issues related to the real estate. As remediation efforts are expended, the book value of the real estate is increased to reflect improvements made to the asset. We had $32.6 million and $33.1 million of such real estate assets recorded in other assets on the accompanying balance sheets at February 28, 2006 and at August 31, 2005, respectively. Additionally, LandBank records a liability for estimated remediation costs for real estate that is sold, but for which the environmental obligation is retained. We also record an environmental liability for properties held by LandBank if funds are received from transactions separate from the original purchase to pay for environmental remediation costs. As of February 28, 2006, we had $8.9 million of environmental liabilities recorded in other liabilities in the accompanying condensed consolidated balance sheets compared to $9.7 million at August 31, 2005.

Impairment of Assets

During the six months ended February 28, 2006, we recorded impairment charges in other expense of $0.8 million, net of estimated insurance proceeds under our replacement cost policy, on certain assets that were damaged as a result of Hurricanes Katrina and Rita.

Note 14 — Assets Held for Sale

The following table presents the assets that were classified as assets held for sale (in thousands), which are recorded in other assets in the accompanying condensed consolidated balance sheets.

	February 28,		August 31,
	2006		2005
Fabrication facilities in Louisiana and Texas (F&M segment)	$	2,576	$	2,996
Fabrication facilities in Virginia (F&M segment)		1,118		1,518
Facilities in the United Kingdom (E&C segment)		4,880		5,006
Total assets held for sale	$	8,574	$	9,520

During the first fiscal quarter of 2006, we recorded impairment on our assets held for sale associated with our F&M segment of $0.3 million, net of taxes, which is included in loss from discontinued operations on the accompanying condensed consolidated statements of operations.

Note 15 — Restricted and Escrowed Cash

As of February 28, 2006 and August 31, 2005, we had restricted and escrowed cash of $53.9 million and $171.9 million, respectively, which consisted of:

• $52.8 million and $170.8 million, respectively, in connection with the EPC project to build a combined-cycle energy plant in the Northeast area of the U.S., which we have joint authority with another party to the contract. All payments received from the project owner are deposited directly into a separate account (the Project Account) to be used for certain permitted withdrawals. Permitted withdrawals, as defined by the contract, include the payment of third-party vendor costs, the guaranty fee, labor costs and out-of-pocket expenses incurred by us on a monthly basis, as well as a percentage of the expected total gross profit on the EPC project to be determined on a monthly basis subject to limitations under the contract. The Project Account is subject to a first lien security agreement between a third-party,

23

who has guaranteed our performance on the project (the Guarantor), and us where the Guarantor has, upon certain triggering events, sole control over the Project Account. Any withdrawals from this Project Account, excluding permitted withdrawals, require the approval of both the Guarantor and us. The project is scheduled to be completed by April 30, 2006;

• $1.1 million in each period related to deposits designated to fund remediation costs associated with a sold property.

Restricted cash is invested in short-term, low-risk investments and investment income is remitted to us on a periodic basis.

Note 16 — Pension and Other Post Retirement Benefit Plans

The following table sets forth the net periodic pension cost for the three foreign defined benefit plans we have sponsored (in thousands):

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Service cost	$	708		$	678		$	1,422		$	1,327
Interest cost		1,681			1,705			3,373			3,306
Expected return on plan assets		(1,669	)		(1,671	)		(3,347	)		(3,261	)
Amortization of net loss		731			458			1,466			898
Other		9			9			18			70
Total net periodic benefit cost	$	1,460		$	1,179		$	2,932		$	2,340

The total net periodic benefit cost related to other benefits for the three and six months ended February 28, 2006 and 2005 were not material. We expect to contribute $4.1 million to our pension plans in fiscal 2006. As of February 28, 2006, $2.4 million in contributions have been made.

Note 17 — Related Party Transactions

During the quarter ended February 28, 2006, we subcontracted a portion of our work, primarily related to the disaster recovery efforts of the Gulf Coast region of the United States, with two companies owned by one of our Directors whom our Board had previously determined is considered non-independent. Payments made to these companies were approximately $11.7 million and $17.4 million during the three and six months ended February 28, 2006 and amounts due to these companies were $2.2 million as of February 28, 2006. We believe this subcontracted work was performed under similar terms as would have been negotiated with an unrelated party.

A company (the “Related Company”) for whom an executive officer and a significant owner is the brother to our Chief Executive Officer is a subcontractor to several of our subcontractors on various projects related to temporary housing efforts in Louisiana, where the Related Company has operated in its respective field of mechanical contracting since its founding in 1919. We were not involved in the agreements between our subcontractors and the Related Company and we have not been provided any information about the terms of these contracts.

Note 18 — New Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140” (SFAS No. 155), which improves the financial reporting of certain hybrid financial instruments by eliminating exemptions to allow for a more uniform and simplified accounting treatment for these instruments. This Statement will be effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 16, 2006. SFAS No. 155 will be effective for our 2008 fiscal year. Adoption of this standard is not expected to have a material impact on our consolidated financial position or results of operations.

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Note 19 — Subsequent Events

On March 21, 2006, one of our foreign subsidiaries, entered into a $27.0 million unsecured standby letter of credit facility. The term of the facility is one year, renewable on an annual basis. Quarterly fees are calculated using a base rate of 2% plus local bank charges.

Note 20 — Unaudited Condensed Consolidating Financial Information

The following presents unaudited condensed consolidating financial information with respect to our financial position as of February 28, 2006 and August 31, 2005, the results of our operations for the three and six months ended February 28, 2006 and 2005 and our cash flows for the six months ended February 28, 2006 and 2005.

In connection with our sale of our seven year, 10.75% Senior Notes on March 17, 2003 which were due March 15, 2010, our material wholly-owned domestic subsidiaries issued joint and several guarantees of the Senior Notes. These subsidiaries are referred to as the Guarantor Subsidiaries in the unaudited condensed consolidating financial information which is presented below. Our subsidiaries which have not issued guarantees for the Senior Notes (primarily foreign subsidiaries) are referred to as the Non-Guarantor Subsidiaries.

The unaudited condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although we believe that the disclosures made are adequate to make the information presented not misleading. Certain reclassifications were made to conform all of the condensed consolidating financial information to the presentation of the consolidated financial statements. The principal eliminating entries eliminate investment in subsidiaries, intercompany balances and intercompany revenues and expenses.

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The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
(Unaudited)
(Dollars in thousands)

							Elimination
					Non-		and
	Parent		Guarantor		Guarantor		Consolidation
	Only		Subsidiaries		Subsidiaries		Entries			Consolidated
	As of February 28, 2006
Current assets	$	705,389	$	824,302	$	210,685	$	(38,279	)	$	1,702,097
Intercompany long-term receivables		240		46,916		871		(48,027	)		—
Investments in subsidiaries and joint ventures		796,141		123,025		5,753		(886,009	)		38,910
Property and equipment, net		28,974		101,653		27,948		—			158,575
Other assets		28,287		563,784		31,072		(7,012	)		616,131
Total Assets	$	1,559,031	$	1,659,680	$	276,329	$	(979,327	)	$	2,515,713
Current liabilities	$	94,745	$	810,890	$	160,487	$	(38,755	)	$	1,027,367
Intercompany long-term debt		42,801		872		4,354		(48,027	)		—
Long-term revolving line of credit		173,450		—		—		—			173,450
Long-term debt and capital leases		15,052		2,617		5,955		—			23,624
Other non-current liabilities		4,670		35,205		28,251		(7,012	)		61,114
Minority interest obligation		—		—		—		1,845			1,845
Shareholders’ Equity		1,228,313		810,096		77,282		(887,378	)		1,228,313
Total Liabilities & Shareholders’ Equity	$	1,559,031	$	1,659,680	$	276,329	$	(979,327	)	$	2,515,713

							Elimination
					Non-		and
	Parent		Guarantor		Guarantor		Consolidation
	Only		Subsidiaries		Subsidiaries		Entries			Consolidated
	As of August 31, 2005
Current assets	$	948,096	$	221,955	$	131,150	$	(33,248	)	$	1,267,953
Intercompany long-term receivables		240		484,291		9,708		(494,239	)		—
Investments in subsidiaries and joint ventures		739,737		132,114		6,251		(843,231	)		34,871
Property and equipment, net		30,805		98,756		27,975		—			157,536
Other assets		18,375		560,281		44,772		—			623,428
Total Assets	$	1,737,253	$	1,497,397	$	219,856	$	(1,370,718	)	$	2,083,788
Current liabilities	$	50,482	$	703,944	$	71,828	$	(33,780	)	$	792,474
Intercompany long-term debt		476,429		9,708		8,102		(494,239	)		—
Long-term revolving line of credit		40,850		—		—		—			40,850
Long-term debt and capital leases		15,040		2,977		6,674		—			24,691
Other non-current liabilities		9,899		28,620		27,461		—			65,980
Minority interest obligation		—		—		—		15,240			15,240
Shareholders’ Equity		1,144,553		752,148		105,791		(857,939	)		1,144,553
Total Liabilities & Shareholders’ Equity	$	1,737,253	$	1,497,397	$	219,856	$	(1,370,718	)	$	2,083,788

26

The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
(Unaudited)
(Dollars in thousands)

										Elimination
							Non-			and
	Parent			Guarantor			Guarantor			Consolidation
	Only			Subsidiaries			Subsidiaries			Entries			Consolidated
	For the Three Months Ended February 28, 2006
Revenues	$	—		$	1,178,974		$	83,301		$	(17,436	)	$	1,244,839
Cost of revenues		—			1,085,607			76,372			(17,109	)		1,144,870
Gross profit		—			93,367			6,929			(327	)		99,969
General and administrative expenses		19,912			32,557			3,506			(420	)		55,555
Operating income (loss)		(19,912	)		60,810			3,423			93			44,414
Other income (expense)		19,912			(21,688	)		(777	)		(93	)		(2,646	)
Equity in earnings (loss) of subsidiaries		25,296			1,205			—			(26,501	)		—
Income (loss) before income taxes, minority interest, earnings (loss) from unconsolidated entities and income from discontinued operations		25,296			40,327			2,646			(26,501	)		41,768
Provision (benefit) for income taxes		—			15,623			227			—			15,850
Income (loss) before minority interest, earnings (loss) from unconsolidated entities and income from discontinued operations		25,296			24,704			2,419			(26,501	)		25,918
Minority interest, net of income taxes		—			—			—			(706	)		(706	)
Earnings (loss) from unconsolidated entities, net of income taxes		—			334			(335	)		—			(1	)
Income (loss) from continuing operations		25,296			25,038			2,084			(27,207	)		25,211
Income from discontinued operations, net of income taxes		—			85			—			—			85
Net income (loss)	$	25,296		$	25,123		$	2,084		$	(27,207	)	$	25,296

										Elimination
							Non-			And
	Parent			Guarantor			Guarantor			Consolidation
	Only			Subsidiaries			Subsidiaries			Entries			Consolidated
	For the Three Months Ended February 28, 2005
Revenues	$	—		$	717,305		$	41,982		$	(11,656	)	$	747,631
Cost of revenues		—			659,930			32,990			(11,866	)		681,054
Gross profit		—			57,375			8,992			210			66,577
General and administrative expenses		12,237			29,020			4,518			21			45,796
Operating income (loss)		(12,237	)		28,355			4,474			189			20,781
Other income (expense)		12,237			(18,588	)		(363	)		(189	)		(6,903	)
Equity in earnings (loss) of subsidiaries		9,248			(227	)		—			(9,021	)		—
Income (loss) before income taxes, minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		9,248			9,540			4,111			(9,021	)		13,878
Provision (benefit) for income taxes		—			6,401			(1,715	)		—			4,686
Income (loss) before minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		9,248			3,139			5,826			(9,021	)		9,192
Minority interest, net of income taxes		—			—			5			(1,398	)		(1,393	)
Earnings (loss) from unconsolidated entities, net of income taxes		—			2,380			(511	)		—			1,869
Income (loss) from continuing operations		9,248			5,519			5,320			(10,419	)		9,668
Loss from discontinued operations, net of income taxes		—			(52	)		(368	)		—			(420	)
Net income (loss)	$	9,248		$	5,467		$	4,952		$	(10,419	)	$	9,248

27

The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
(Unaudited)
(Dollars in thousands)

										Elimination
							Non-			and
	Parent			Guarantor			Guarantor			Consolidation
	Only			Subsidiaries			Subsidiaries			Entries			Consolidated
	For the Six Months Ended February 28, 2006
Revenues	$	—		$	2,275,059		$	133,787		$	(25,928	)	$	2,382,918
Cost of revenues		—			2,073,611			127,050			(25,557	)		2,175,104
Gross profit		—			201,448			6,737			(371	)		207,814
General and administrative expenses		40,006			64,319			6,117			(510	)		109,932
Operating income (loss)		(40,006	)		137,129			620			139			97,882
Other income (expense), net		40,006			(43,233	)		(1,582	)		(139	)		(4,948	)
Equity in earnings (loss) of subsidiaries		58,009			(5,027	)		—			(52,982	)		—
Income (loss) before income taxes, minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		58,009			88,869			(962	)		(52,982	)		92,934
Provision (benefit) for income taxes		—			33,499			515			—			34,014
Income (loss) before minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		58,009			55,370			(1,477	)		(52,982	)		58,920
Minority interest, net of income taxes		—			—			—			(1,813	)		(1,813	)
Earnings (loss) from unconsolidated entities, net of income taxes		—			1,734			(597	)		—			1,137
Income (loss) from continuing operations		58,009			57,104			(2,074	)		(54,795	)		58,244
Loss from discontinued operations, net of income taxes		—			(235	)		—			—			(235	)
Net income (loss)	$	58,009		$	56,869		$	(2,074	)	$	(54,795	)	$	58,009

										Elimination
							Non-			and
	Parent			Guarantor			Guarantor			Consolidation
	Only			Subsidiaries			Subsidiaries			Entries			Consolidated
	For the Six Months Ended February 28, 2005
Revenues	$	—		$	1,483,664		$	87,085		$	(14,592	)	$	1,556,157
Cost of revenues		—			1,358,974			71,495			(15,000	)		1,415,469
Gross profit		—			124,690			15,590			408			140,688
General and administrative expenses		24,685			59,173			7,136			(10	)		90,984
Operating income (loss)		(24,685	)		65,517			8,454			418			49,704
Other income (expense), net		24,660			(41,363	)		(1,114	)		(418	)		(18,235	)
Equity in earnings (loss) of subsidiaries		20,261			(246	)		—			(20,015	)		—
Income (loss) before income taxes, minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		20,236			23,908			7,340			(20,015	)		31,469
Provision (benefit) for income taxes		32			14,232			(3,349	)		—			10,915
Income (loss) before minority interest, earnings (loss) from unconsolidated entities and loss from or impairment of discontinued operations		20,204			9,676			10,689			(20,015	)		20,554
Minority interest, net of income taxes		—			—			5			(1,542	)		(1,537	)
Earnings (loss) from unconsolidated entities, net of income taxes		57			2,846			(776	)		—			2,127
Income (loss) from continuing operations		20,261			12,522			9,918			(21,557	)		21,144
Loss from discontinued operations, net of income taxes		—			(819	)		(64	)		—			(883	)
Net income (loss)	$	20,261		$	11,703		$	9,854		$	(21,557	)	$	20,261

28

The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
(Unaudited)
(Dollars in thousands)

							Non-
	Parent			Guarantor			Guarantor
	Only			Subsidiaries			Subsidiaries			Eliminations		Consolidated
	For the Six Months Ended February 28, 2006
Net cash provided by (used in) operating activities	$	55,971		$	(269,884	)	$	29,060		$	—	$	(184,853	)
Net cash provided by (used in) investing activities		(4,620	)		104,897			(3,602	)		—		96,675
Net cash (used in) provided by financing activities		(48,235	)		162,106			26,458			—		140,329
Cash from consolidation of variable interest entities previously unconsolidated		—			—			1,565			—		1,565
Effects of foreign exchange rate changes on cash		—			—			(554	)		—		(554	)
Net decrease in cash and cash equivalents		3,116			(2,881	)		52,927			—		53,162
Cash and cash equivalents — beginning of year		870			22,970			32,939			—		56,779
Cash and cash equivalents — end of period	$	3,986			20,089			85,866			—		109,941

							Non-
	Parent			Guarantor			Guarantor
	Only			Subsidiaries			Subsidiaries			Eliminations		Consolidated
	For the Six Months Ended February 28, 2005
Net cash provided by (used in) operating activities	$	22,180		$	1,073		$	12,377		$	—	$	35,630
Net cash provided by (used in) investing activities		(3,812	)		(68,180	)		(2,662	)		—		(74,654	)
Net cash (used in) provided by financing activities		(55,468	)		60,952			(8,852	)		—		(3,368	)
Effects of foreign exchange rate changes on cash		—			—			(1,855	)		—		(1,855	)
Net decrease in cash and cash equivalents		(37,100	)		(6,155	)		(992	)		—		(44,247	)
Cash and cash equivalents — beginning of period		47,485			40,888			13,978			—		102,351
Cash and cash equivalents — end of period	$	10,385		$	34,733		$	12,986		$	—	$	58,104

29

ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

PART I — FINANCIAL INFORMATION
ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion summarizes the financial position of The Shaw Group Inc. and its subsidiaries as of February 28, 2006, and the results of their operations for the three and six months ended February 28, 2006, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended August 31, 2005.

Cautionary Statement Regarding Forward Looking Statements

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 we “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” or other similar expressions) are forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those anticipated by us. These forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based upon various factors, including but not limited to the risks and uncertainties summarized below:

• cyclical changes in demand for our products and services;

• cyclical nature of the individual markets in which our customers operate;

• the dollar amount of our backlog, as stated at any given time, is not indicative of our future earnings;

• delays or difficulties related to our projects including additional costs, reductions in revenues or the payment of liquidated damages;

• the effect of our percentage-of-completion accounting policies;

• changes in the estimates and assumptions we use to prepare our financial statements;

• our ability to obtain surety bonds or other means of credit support for projects;

• our ability to obtain waivers or amendments with our lenders or sureties, or to collateralize letters of credit or surety bonds upon non-compliance with covenants in our Credit Facility or surety indemnity agreements;

• covenants in our Credit Facility and surety bond indemnity agreements that restrict our ability to pursue our business strategies;

• our indebtedness, which could adversely affect our financial condition and impair our ability to fulfill our obligations under our Credit Facility;

• various legal, regulatory and litigation risk including but not limited to, class action lawsuits, the outcome of a pending informal inquiry by the SEC and regulatory activities and associated periodic reviews of the SEC and Public Company Accounting Oversight Board;

• the possibility of a downgrade of our debt securities by rating agencies;

• the nature of our contracts, particularly fixed-price contracts;

• risks associated with being a government contractor;

• our ability to collect funds on work performed for emergency response activities from governmental agencies and private sector clients that are facing budgeting challenges;

• the failure to meet schedule or performance requirements of our contracts;

• our dependence on subcontractors and equipment manufacturers;

• possible cost escalations associated with our fixed-price contracts;

30

• our ability to obtain new contracts for large-scale domestic and international projects and the timing of the performance of these contracts;

• potential contractual and operational costs related to our environmental and infrastructure operations;

• risks associated with our integrated environmental solutions businesses;

• reputation and financial exposure due to the failure of our partners to perform their contractual obligations;

• our dependence on one or a few significant customers;

• delays and/or defaults in customer payments;

• potential professional liability, product liability, warranty and other potential claims, which may not be covered by insurance;

• the presence of competitors with greater financial resources and the impact of competitive products, services and pricing;

• changes in the political and economic conditions of the countries in which we operate;

• work stoppages and other labor problems;

• our liquidity position;

• currency fluctuations;

• liabilities associated with various acquisitions, including the Stone & Webster and IT Group acquisitions;

• a determination to write-off a significant amount of intangible assets or long-lived assets;

• our ability to successfully identify, integrate and complete acquisitions;

• our failure to attract and retain qualified personnel;

• our ability to retain key members of our management;

• our competitors’ ability to develop or otherwise acquire equivalent or superior technology;

• general economic conditions;

• future changes in accounting standards or interpretations;

• inability to maintain an effective system of internal control, which could result in inaccurate reporting of our financial results or an inability to prevent fraud;

• provisions in our articles of incorporation and by-laws and rights agreement could make it more difficult to acquire us and may reduce the market price of our common stock;

• changes in the U.S. economy and global markets as a result of terrorists’ actions;

• market prices of our equity securities have changed significantly and could change further;

• recent changes in accounting for equity-related compensation could impact our financial statements and our ability to attract and retain key employees;

• increases in employee-related costs and expenses including healthcare and other employee benefits such as unemployment insurance and workers’ compensation;

• closing of any U.S. military bases related to our privatization interests; and

• our dependency on technology in our operations and the possible impact of system and information technology interruptions.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. We undertake 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 risk and uncertainties, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005, as well as the other reports and registration statements filed by us with the SEC and under “Forward Looking Statements” on our

31

website. These documents are available free of charge from the SEC or from our Investor Relations department. All of our annual, quarterly, and current reports and amendments thereto, filed with the SEC are available on our website under “Investor Relations.” For more information about us and the announcements we make from time to time, visit our website at www.shawgrp.com.

General

We offer a broad range of services to clients in the energy, chemical, environmental and infrastructure industries worldwide. We are a vertically integrated provider of comprehensive technology, engineering, procurement, construction, maintenance, pipe fabrication and consulting services to the energy and chemicals industries. We are also a leading provider of consulting, engineering, construction, remediation and facilities management services to the environmental, infrastructure and homeland security markets.

Founded in 1987, we have expanded rapidly through internal growth and the completion and integration of a series of strategic transactions including the Stone & Webster transaction in late fiscal 2000 and the IT Group transaction in fiscal 2002. Our fiscal 2005 revenues were approximately $3.3 billion and our backlog at February 28, 2006 was approximately $7.6 billion. We are headquartered in Baton Rouge, Louisiana with offices and operations in North America, South America, Europe, the Middle East and the Asia-Pacific region and employ approximately 22,000 people.

Comments Regarding Future Operations

Historically, we have used acquisitions to pursue market opportunities and to augment or increase existing capabilities, and we plan to continue to do so. However, all comments concerning our expectations for future revenue and operating results are based on our forecasts for existing operations and do not include the potential impact of any future acquisitions.

Critical Accounting Policies

Item 7, included in Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005, presents the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition, and results of operations and which require complex management judgment and assumptions, or involve uncertainties.

Information regarding our other accounting policies is included in the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005.

A substantial portion of our revenue and profit, particularly for our E&C and E&I segments, is derived from engineering, procurement and construction (EPC) projects. Some of these projects may span several years from start to finish. We recognize revenue and margin for many of these contracts on the percentage-of-completion method which requires estimates of the total revenue and total costs at completion as well as the progress towards completion.

These estimates are dependent upon judgments including material costs and quantities, labor productivity, subcontractor performance and other costs. In addition, disputes on our projects can and sometimes do occur with our customers, subcontractors and equipment vendors that require significant judgment as to the ultimate resolution and may take an extended period of time to resolve.

As projects are executed, estimates of total revenues and total costs at completion are refined and revised. These estimates change due to factors and events affecting execution and often include estimates for resolution of disputes that may be settled in negotiations or through arbitration, mediation or other legal methods.

The percentage-of-completion method requires that adjustments to estimated revenues and costs, including estimated claim recoveries, be recognized on a cumulative basis, when the adjustments are identified. When these adjustments are identified near or at the end of a project, the full impact of the change in estimate would be recognized as a change in the margin on the contract in that period. This can result in a material impact on our results for a single reporting period. Therefore, our discussion of results for each of our segments often includes discussion of significant changes in major projects and their impact on our results.

Backlog is largely a reflection of the broader economic trends being experienced by our customers and is important in anticipating operational needs. Backlog is not a measure defined in generally accepted accounting principles, and our methodology in determining backlog may not be comparable to the methodology used by other companies in determining their backlog. We cannot provide any assurance that revenues projected in our backlog will be realized, or if realized, will result in profits.

32

Results of Operations

Executive Summary

The need for disaster relief, emergency response and recovery services in the Gulf Coast area of the U.S. a result of Hurricanes Katrina and Rita and increased activity in the energy markets, consistent demand for clean air and fuels, garrison support services and transmission and distribution services have contributed to our overall revenue growth for the three and six months ended February 28, 2006.

In connection with our disaster relief, emergency response and recovery services to federal, state and local governmental entities as well as to not-for-profit and private entities in the hurricane damaged areas of the U.S. Gulf Coast, each of our segments contributed management, personnel and use of assets to help meet the needs of this work. However, because emergency response and governmental services are contracted through our E&I segment, all revenues and costs are included in our E&I segment.

Gross profit for the first half of fiscal 2006 increased compared to the same period for fiscal 2005 primarily due to increased work in our E&I segment driven by disaster relief, emergency response and recovery services in the Gulf Coast area of the U.S., which was offset by a decrease in the E&C segment, primarily due to estimated cost increases on three clean fuels projects. In addition, we recorded gross profit of $4.5 million in the second quarter of fiscal 2006 due to change in estimates for performance liabilities on technology license agreements.

General and administrative expenses for the first half of fiscal 2006 increased compared to the same period for fiscal 2005 primarily due to expensing of previously deferred third party financing and equity offering costs and certain due diligence costs related to an acquisition of $4.5 million and due to an increase in employee compensation expense for share-based plans under SFAS 123(R) of $4.6 million.

Since August 31, 2005, our backlog has increased approximately $879.4 million. The increase is primarily due to increased backlog associated with hurricane response related services, increased activity in the energy markets and increased demand for clean air projects.

Cash flows from operations were negative during the first half of fiscal 2006 as compared to the first half of fiscal 2005 primarily due to the cash requirements associated with our disaster recovery efforts and the near completion of our EPC projects in the Northeast area of the U.S. These items were offset by recoveries on claims during the period.

We expect fiscal 2006 revenues from our energy markets to increase and revenues from our chemicals market to increase substantially. These end markets will drive increased revenues in our E&C, Maintenance and F&M segments, which we expect to increase gross profit overall. We also anticipate increases in revenues in our E&I segment driven by hurricane recovery and restoration work and expect increases in gross profit due to the higher revenues. Finally, we expect significant improvements in net income in fiscal 2006 compared to fiscal 2005, primarily due to higher revenues and gross profit, reduced interest costs from the reduction in our outstanding debt, offset by slightly higher general and administrative costs.

Segment Analysis

The comments and tables that follow compare revenues, gross profit, gross profit percentages and backlog by operating segment for the indicated periods. We have reclassified certain prior-period amounts to conform to the current period’s presentation.

33

Selected summary financial information for our operating segments, for the periods indicated (in millions):

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Revenues:
E&I	$	629.5		$	252.0		$	1,187.0		$	563.7
E&C		329.5			292.6			654.1			565.7
Maintenance		216.4			157.9			412.1			342.5
F&M		69.4			45.1			129.7			84.3
Total revenue	$	1,244.8		$	747.6		$	2,382.9		$	1,556.2
Gross profit:
E&I	$	58.0		$	20.0		$	123.2		$	62.3
E&C		15.2			27.7			37.6			49.5
Maintenance		11.7			8.1			19.7			10.0
F&M		15.1			10.8			27.3			18.9
Total gross profit	$	100.0		$	66.6		$	207.8		$	140.7
Gross profit percentage:
E&I		9.2	%		7.9	%		10.4	%		11.1	%
E&C		4.6			9.5			5.7			8.7
Maintenance		5.4			5.1			4.8			2.9
F&M		21.8			23.8			21.1			22.4
Total gross profit percentage		8.0			8.9			8.7			9.0

The following table presents our revenues by industry sector:

	Three Months Ended										Six Months Ended
	February 28,										February 28,
	2006					2005					2006					2005
Industry Sector	(In Millions)		%			(In Millions)		%			(In Millions)		%			(In Millions)		%
Environmental and Infrastructure	$	629.5		51	%	$	252.0		34	%	$	1,187.0		50	%	$	563.7		36	%
Energy
E&C		196.9		16			188.7		25			403.4		17			374.4		24
Maintenance		101.6		8			105.1		14			223.4		9			242.9		15
F&M		13.4		1			22.4		3			25.8		1			39.2		3
Chemical
E&C		127.8		10			98.5		13			235.8		10			181.1		12
Maintenance		114.8		9			49.0		7			187.9		8			95.3		6
F&M		33.1		3			17.8		2			67.3		3			30.7		2
Other Industries
E&C		4.8		—			5.4		1			14.9		1			10.2		1
Maintenance		—		—			3.8		—			0.8		—			4.3		—
F&M		22.9		2			4.9		1			36.6		1			14.4		1
Total revenue	$	1,244.8		100	%	$	747.6		100	%	$	2,382.9		100	%	$	1,556.2		100	%

The following table presents our revenues by geographic region:

	Three Months Ended										Six Months Ended
	February 28,										February 28,
	2006					2005					2006					2005
Geographic Region	(In Millions)		%			(In Millions)		%			(In Millions)		%			(In Millions)		%
United States	$	1,126.3		90	%	$	641.5		86	%	$	2,183.8		92	%	$	1,340.6		86	%
Asia/Pacific Rim		45.9		4			58.4		8			77.6		4			118.6		8
Middle East		46.0		4			21.6		3			71.6		3			46.3		3
Canada		3.4		—			3.0		—			6.7		—			5.3		—
Europe		14.6		1			13.1		2			30.7		1			25.1		2
South America and Mexico		5.2		1			5.2		1			6.6		—			12.7		1
Other		3.4		—			4.8		—			5.9		—			7.6		—
Total revenue	$	1,244.8		100	%	$	747.6		100	%	$	2,382.9		100	%	$	1,556.2		100	%

34

Our backlog by segment is as follows:

	February 28, 2006					August 31, 2005
	(In Millions)		%			(In Millions)		%
E&I	$	2,669.7		35	%	$	2,244.6		34	%
E&C		3,640.3		48			3,099.9		46
Maintenance		1,143.1		15			1,227.9		18
F&M		125.7		2			130.0		2
Total backlog	$	7,578.8		100	%	$	6,702.4		100	%

Our backlog by industry sector is as follows:

	February 28, 2006					August 31, 2005
Industry Sector	(In Millions)		%			(In Millions)		%
Environmental and Infrastructure	$	2,669.7		35	%	$	2,244.6		34	%
Energy
Nuclear:
E&C		70.4		1			85.4		1
Maintenance		825.6		11			877.2		13
Fossil Fuel:
E&C		2,142.7		28			1,860.2		28
Maintenance		71.3		1			92.8		1
Other:
E&C		44.0		—			28.1		—
F&M		68.3		1			55.5		1
Chemical:
E&C		1,383.2		19			1,126.2		17
Maintenance		246.2		3			257.8		4
F&M		33.3		1			40.4		1
Other:
Maintenance		—		—			0.1		—
F&M		24.1		—			34.1		—
Total backlog	$	7,578.8		100	%	$	6,702.4		100	%

	February 28, 2006					August 31, 2005
Status of Contract	(In Millions)		%			(In Millions)		%
Signed contracts and commitments	$	6,606.9		87	%	$	5,194.3		77	%
Letters of intent		971.9		13			1,508.1		23
Total backlog	$	7,578.8		100	%	$	6,702.4		100	%

E&I Segment

We provided disaster relief, emergency response and recovery services to federal, state and local governmental entities as well as to not-for-profit and private entities in the hurricane damaged areas of the U.S. Gulf Coast. Each of our segments contributed management, personnel and use of assets to help meet the needs of this work. However, because emergency response and governmental services are contracted through our E&I segment, all revenues and costs are included in our E&I segment.

Revenues

The increases in revenues of $377.5 million and $623.3 million for the three and six months ended February 28, 2006, respectively as compared to the three and six months ended February 28, 2005 are primarily attributable to:

• increases in project revenues of $392.7 million and $676.6 million for the three and six months ended February 28, 2006 associated with providing hurricane recovery and restoration work; and

• environmental and logistic support services for the U.S. Army of $7.0 million and $14.7 million for the three and six months ended February 28, 2006.

35

The increase in revenues for the three and six months ended February 28, 2006 was partially offset by:

• project services provided to U.S. Government customers in Iraq due to a competitive bid environment arising from changes in government contracting vehicles to more fixed price opportunities;

• the substantial completion of a major fixed price contract in fiscal 2005;

• domestic federal environmental remediation work due to federal budget restrictions impacting environmental opportunities, less work being awarded under existing contracts and/or delays in funding under existing contracts; and

• an overall reduction in demand for construction services to commercial customers as our national customers are trending toward requesting bids on opportunities as opposed to issuing new awards under master service agreements.

Gross Profit and Gross Profit Percentage

Gross profit for the three months of February 28, 2006 was $58.0 million or 9.2% as compared to $20.0 million or 7.9% for the three months ended February 28, 2005. The change in gross profit and related gross profit percentage is due primarily to:

• increased gross profit of $32.2 million for the three months ended February 28, 2006, associated with providing hurricane recovery and restoration work;

• increased gross profit and related percentage on non-hurricane related work resulting from indirect cost absorption arising from our overall increase in sales volumes;

• offset by the positive impact in the prior year quarter ended February 28, 2005, of an adjustment to the estimated costs to complete a major fixed price contract, which resulted from cessation of certain operations on the project.

Gross profit for the six months of February 28, 2006 was $123.2 million or 10.4% as compared to $62.3 million or 11.1% for the six months ended February 28, 2005. The change in gross profit and related gross profit percentage is due primarily to:

• gross profit of $70.6 million for the six months ended February 28, 2006, as compared to $4.8 million for the same period in fiscal 2005, associated with providing disaster relief, emergency response, and recovery services to federal, state and local governmental entities in hurricane damaged areas; and

• increased gross profit and related percentage on non-hurricane related work resulting from indirect cost absorption arising from our overall increase in sales volumes.

The increases in gross profit are offset by:

• the positive impact in the six months ended February 28, 2005, of an adjustment to the estimated costs to complete a major fixed price contract, which resulted from cessation of certain operations on the project;

• decreased project services supporting the U.S. Government customers in Iraq;

• lower volumes of work earned from commercial customers along with lower gross profit and related gross profit percentage on commercial construction projects awarded and executed this fiscal year as compared to last fiscal year;

• the application of lower estimated governmental indirect rates to contract direct costs due to higher volume of disaster relief, emergency response and recovery services work this year; and

• lower gross profit and gross profit percentage from domestic federal environmental remediation work being awarded and executed this fiscal year as compared to last fiscal year, together with lower gross profit percentage earned on a higher volume of mission support services work compared to the lower volume of federal remediation work earning a higher gross profit percentage.

Backlog

Backlog for the E&I segment as of February 28, 2006 is $2.7 billion, as compared to $2.2 billion as of August 31, 2005. The increase in backlog is primarily attributable to new contracts awarded in fiscal 2006 by FEMA, the U.S. Army Corps of Engineers, U.S. Coast

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Guard and state and local jurisdictions in response to Hurricanes Katrina and Rita, and a significant Department of Energy (DOE) contract award of approximately $190.0 million. These awards served to offset backlog reductions in the Middle East. Bolstered by the disaster relief, emergency response, and recovery services, contract work executed through the second quarter of fiscal 2006 exceeded anticipated levels; we expect the E&I backlog to remain sensitive to the levels of awards related to disaster relief, emergency response, and recovery services projects. We believe E&I is well-positioned to capitalize on opportunities in core and emerging markets, and backlog will rest on our ability to win new contract awards in this highly competitive environment.

The E&I backlog includes only amounts up to the contractual not-to-exceed stated amounts in contracts awarded and preauthorization letters received on or before February 28, 2006. However, since that time, the ceiling under the FEMA contract was raised by $400.0 million. We believe this substantial expansion in contract capacity will permit E&I to play a vital and continuing role in support of ongoing disaster relief, emergency response, and recovery efforts, providing a wide range of services as work under the FEMA contract is executed.

At February 28, 2006, government agencies or entities owned by the U.S. Government and state government agencies account for $2.4 billion or 91% of the $2.7 billion in backlog for the E&I segment.

We anticipate fiscal 2006 revenues to be significantly higher than fiscal 2005 levels as performance of project work continues under contracts awarded to aid in the disaster relief, emergency response, and recovery efforts in the hurricane damaged areas. Revenue for the remainder of fiscal 2006 is expected to be slightly less than that generated through the second quarter, but will continue to be significantly higher than anticipated for fiscal 2006 and for the comparable period during fiscal 2005. The fiscal 2006 gross profit percentage is expected to be slightly lower than it was for fiscal 2005 due to lower than historical margins earned on certain significant disaster relief, emergency response and recovery related awards, the changing composition of work executed by E&I and the competitive nature of work won in this industry sector, but gross profit will be significantly higher in fiscal 2006 than fiscal 2005, with core E&I project work enhanced by execution of our disaster relief, emergency response and recovery services in the Gulf Coast region of the United States.

E&C Segment

Revenues

The increase of $36.9 million or 13% and $88.4 million or 16% in segment revenues for the three and six months ended February 28, 2006, respectively, as compared to the three and six months ended February 28, 2005, respectively, is primarily attributable to:

• increased activity in the Flue Gas Desulphurization (FGD), transmission and distribution and Plant Services markets of our Power business;

• the commencement of engineering activities relating to major coal power projects;

• the commencement of major international ethylene plant projects; and

• the progress on three clean fuels projects.

The increase in revenues for the six months ended February 28, 2006 was partially offset by:

• the scheduled progress towards completion of major EPC gas projects; and

• the completion of an ethylene project and a clean fuels project.

Gross Profit and Gross Profit Percentage

Gross profit for the three and six months ended February 28, 2006 was $15.2 million or 4.6% and $37.6 million or 5.7% compared to $27.7 million or 9.5% and $49.5 million or 8.7%, respectively, for the three and six months ended February 28, 2005. Gross profit and gross profit percentage decreases are primarily due to reductions in gross profit estimates on three clean fuels projects which generated $12.8 million and $22.0 million in negative gross profit during the three and six months ended February 28, 2006, respectively.

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The decrease in gross profit on these three clean fuels projects was due to multiple factors including construction costs exceeding previous estimates, however, a portion of the increase is due to significant escalations in construction labor costs driven by demand for construction labor in areas affected by hurricanes Katrina and Rita. We believe this escalation in labor costs is recoverable from our customers through force majeure provisions within the contracts. We also have a significant amount of costs on these projects which we believe are recoverable from our customers through unapproved change orders for the six months ended February 28, 2006. We have included $25.2 million in estimated revenues on these three projects for unapproved change orders. The amount of revenues recorded is limited to identifiable costs that we believe are recoverable based on negotiations to-date. However, the amount that we are claiming against our customers exceeds the amounts recorded. Upon final resolution, the amount that we have included in revenues may differ from the amount settled on with our customer which will result in an adjustment to gross profit, which could be material to our future reported earnings.

This decrease in gross profit and gross profit percentage for the three and six months ended February 28, 2006 was partially offset by:

• higher gross profit associated with our EPC FGD projects; and

• increased volume of proprietary technology sales and related engineering work.

• During the quarter ended February 28, 2006, we revised our estimated revenues on a substantially complete EPC power project to include a schedule incentive under the contract terms for substantial completion and satisfaction of performance tests before a specified date. Based on our progress to-date, we believe it is probable that the terms will be met. As a result, the recognition of this incentive increased revenues by $7.4 million during the quarter ended February 28, 2006.

• During fiscal 2006, we changed our estimates for liability provisions related to contractual performance guarantees on sales of our technology paid-up license agreements. Our accounting for these contracts is discussed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2005 filed in “Critical Accounting Policies and Related Estimates That Have a Material Effect on Our Consolidated Financial Statements.” Our revenues related to the sale of these technologies under paid-up license agreements increased with our acquisition of Badger Technologies in 2003 and its then existing portfolio of proprietary technology. Historically, our estimation approach for liability provisions resulted in a reduction of revenues in our percentage of completion computation for each contract generally equal to the maximum contractual performance liability under the contract until performance testing or other factors provided evidence of a reduction in the performance liability. This approach did not take into account historical data for estimating liability provisions on these types of contracts. Our actual experience with performance guarantees on these types of agreements currently supports estimated liability provisions that vary based on our experience with the different type of technologies for which we license and provide engineering (for example, ethyl benzene, styrene, cumene, Bisphenol A) and generally support lower liability provisions for certain technologies. Prior to February of 2006, our estimates of these performance guarantees were recorded at the maximum contractual liability until the related plant became operational, performance tests were met, the guarantee provisions expired or other factors provided evidence that the maximum liability was unlikely to be incurred. After three to six years of experience in addition to the previous experience of companies we acquired, we now believe that our history and experience with these types of guarantees would allow us to make more accurate estimates of the potential liability and, in certain circumstances, revised our recorded performance liability amount below the maximum performance liability. For the three and six months ended February 28, 2006, we recorded gross profit of $4.5 million due to changes in estimates for performance guarantees below the maximum liability. Our total estimated performance liability remaining as of February 28, 2006, is $14.7 million.

Backlog

Backlog for the E&C segment as of February 28, 2006 is $3.6 billion, as compared to $3.1 billion as of August 31, 2005. The increase in backlog is primarily a result of a new major coal power project, FGD projects, two new ethylene projects in our process business, and continued growth of contracts in our Energy Delivery Services (EDS) business. This was partially offset by scheduled progress on major projects.

At February 28, 2006, five customers account for $2.8 billion or 78% of the $3.6 billion in backlog for the E&C segment.

We anticipate fiscal 2006 revenues to be significantly higher than fiscal 2005 levels as the E&C segment continues work on large power projects and the continuation of work on major international chemical projects. We expect our gross profit to increase in fiscal 2006 with higher gross profit on our EPC FGD and coal projects and the commencement of major international process projects, but at a lower gross profit rate due to project execution on the clean fuels projects, composition of work awarded and executed on a competitive basis.

Maintenance Segment

Revenues

The increase in revenues of $58.5 million or 37% for the three months ended February 28, 2006 as compared to the three months ended February 28, 2005 and $69.6 million or 20% for the six months ended February 28, 2006 compared to the six months ended February 28, 2005 is primarily attributable to:

• revenues related to capital construction services for three customers in the chemical industry; and

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• increased activity and increased scope for our nuclear project.

The increase in revenues for the three and six months ended February 28, 2006 were partially offset by a reduction in the amounts of maintenance services for two customers in the energy industry due to these customers’ seasonal schedules of refueling outages.

Gross Profit and Gross Profit Percentage

Gross profit for the three months ended February 28, 2006 was $11.7 million or 5.4% compared to $8.1 million or 5.1% for the three months ended February 28, 2005. The increase in gross profit and gross profit percentage is primarily due to the increase in capital construction services for chemical industry customers, which is being executed at a higher gross profit than the routine maintenance services. In addition, these capital construction service revenues have increased the overall revenue volume of the Maintenance segment without a corresponding increase in operating expenses creating a larger gross profit percentage for the segment. The increase in the gross profit and gross profit percentage has been offset by a lower gross profit percentage in the energy industry due to favorable fee awards recognized during fiscal year 2005.

Gross profit for the six months ended February 28, 2006 was $19.7 million or 4.8% compared to $10.0 million or 2.9% for the six months ended February 28, 2005. This increase in gross profit and gross profit percentage is primarily due to the increase in capital construction services in the chemical industry as noted above, as well as, the reversal of revenue and gross profit related to a nuclear project in the first quarter of fiscal 2005 as a result of our agreement to perform additional tasks associated with our nuclear project, which were previously excluded from our scope of work. These additional tasks increased the contract value for the project by approximately 43% and added gross profit to our original project estimate. Due to the increase in the scope of the work on the project, our calculated percentage-of-completion at November 30, 2004 decreased as compared to the percentage-of-completion calculated as of August 31, 2004, which resulted in the temporary reversal of performance incentive revenues and gross profit in the first quarter of fiscal 2005, which were previously recognized. On the project, we record material performance incentives based primarily on schedule and cost savings on the project that will be ultimately determined and paid at the completion of the project, which we anticipate will occur in fiscal 2007. We record the estimated amount of performance incentives that we expect to receive in revenue and costs and estimated earnings in excess of billings on uncompleted contracts on the percentage-of-completion method of accounting based on costs incurred to date as a percentage of estimated total project costs at completion of the project. Due to the increase in the scope of work on the project, the incentive revenues are being recognized over larger estimated total project costs at completion, which is lowering the gross profit percentage on the project as compared with fiscal 2005. However, the performance incentive revenues and gross profit amounts reversed during fiscal 2005 will be recognized as costs are incurred over the remaining contract term.

Additionally, in conjunction with the increase in our scope of work in the first quarter of fiscal 2005, we reduced our estimate of the total performance incentives expected to be earned on the project resulting in a reduction of revenues and gross profit previously recognized. Although these reductions were offset by progress in percentage-of-completion achieved during the period, we recognized a net reduction in revenue and gross profit on the project of $4.5 million related to the performance incentive in the first quarter of fiscal 2005.

Backlog

Backlog decreased $84.8 million since August 31, 2005. The decrease in backlog was due to progress on existing contracts offset, in part, by two new awards in the chemical industry and one new award in the energy industry. Our first award in the chemical industry is to provide restoration services on two natural gas refining plants that were damaged by Hurricane Rita. Our second award in the chemical industry is to provide routine maintenance services to an existing customer, which is a result of cross selling efforts across the Company. Our award in the energy industry is to provide maintenance, modifications, and construction services for two nuclear power plants for a new customer.

At February 28, 2006, four customers account for $0.7 billion or 64% of the $1.1 billion in backlog for Maintenance.

We anticipate fiscal 2006 revenues to be higher than fiscal 2005 levels as we continue to provide additional services for current and new customers in the energy and chemical industries. We expect our gross profit to increase in fiscal 2006, with higher gross profit associated with our continued work on a nuclear project and additional work associated with current and new customers.

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F&M Segment

Revenues

The increase in revenues of $24.3 million or 54% and $45.4 million or 54% for the three months and six months ended February 28, 2006 as compared to the three months and six months ended February 28, 2005 is primarily attributable to significant new contract awards from the energy and chemical industries and the continued shortage of materials available in the manufacturing and distribution markets worldwide.

Segment revenues exclude intersegment revenues of $6.1 million and $18.2 million, respectively, for the three and six month periods ended February 28, 2006 compared to $7.6 million and $17.0 million for the same three and six month periods in fiscal 2005. Intersegment revenues reflect a continuation of support of this segment’s operations, for the most part by our E&C and Maintenance segments.

Gross Profit and Gross Profit Percentage

Gross profit for the three months ended February 28, 2006 was $15.1 million or 21.8% compared to $10.8 million or 23.8% for the three months ended February 28, 2005, while the gross profit for the six months ended February 28, 2006 was $27.3 million or 21.1% compared to $18.9 million or 22.4% for the six months ended February 28, 2005. The increase in gross profit was primarily attributable to the increase in volume while the decrease in the gross profit percentage is primarily due to increased labor costs.

Backlog

Backlog for the F&M segment as of February 28, 2006 was $125.7 million, as compared to $130.0 million as of August 31, 2005. The decrease in backlog was primarily due to work performed under existing contracts during the six months ended February 28, 2006, which was partially offset by the signing of new contracts in the energy and chemical industries. Based on our market outlook, we expect revenues and gross profit to increase for the remainder of fiscal 2006 compared to prior year.

General and Administrative Expenses, Interest Expense and Income, Other Income (Expense), Earnings (loss) from Unconsolidated Entities and Income (loss) from and Impairment of Discontinued Operations

The following table sets forth general and administrative expenses, interest expense and income, other income (expense), earnings (loss) from unconsolidated entities and income (loss) from and impairment of discontinued operations for the indicated periods (in thousands):

	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
General and administrative expenses	$	55,555		$	45,796		$	109,932		$	90,984
Interest expense		(4,971	)		(9,692	)		(8,364	)		(19,345	)
Interest income		1,732			1,413			3,479			2,451
Other income (expense), net		722			2,372			(880	)		817
Earnings (losses) from unconsolidated entities, net		(1	)		1,869			1,137			2,127
Gain (loss) from and impairment of discontinued operations		85			(420	)		(235	)		(883	)

The increase in general and administrative expenses of $9.8 million and $18.9 million during the three and six months ended February 28, 2006 compared to the same period in fiscal 2005 includes an increase in other employee compensation and the impact of our adoption of
SFAS 123(R) under the modified prospective method. The adoption of SFAS 123(R) requires the recognition of stock-based compensation related to stock options in our results of operations for the three and six months ended February 28, 2006, as compared to the same period of fiscal 2005 when we accounted for this stock-based compensation in accordance with APB Opinion No. 25. As of February 28, 2006, there was $18.8 million of unrecognized compensation costs related to stock option payments which is expected to be recognized over a weighted-average period of 2.9 years. We anticipate general and administrative expenses for the remainder of fiscal 2006 to be higher than the comparable periods of fiscal 2005.

General and administrative costs for the three and six months ended February 28, 2006 also includes $4.6 million of expenses related to costs associated with a potential acquisition. We defer certain third party costs directly attributable to our efforts on potential acquisitions. During the second quarter of fiscal 2006, we determined that it was unlikely that we would obtain a controlling interest in a potential acquisition and, therefore, expensed all costs including the amounts previously deferred, related to the incremental effort required to obtain the contemplated controlling interest (primarily financing, equity offering costs and certain due diligence costs). A portion of the costs related to due diligence continue to be deferred since we are still pursuing a strategic equity investment in this acquisition target.

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The decrease in interest expense reflects the decrease in our long-term debt, which resulted from the repurchase of our Senior Notes during the third quarter of fiscal 2005, which was partially offset by interest due to borrowings on our Credit Facility.

The decrease in other income (expense) for the six months ended February 28, 2006 was primarily due to the recognition of a $2.0 million gain on the sale of the assets of Shaw Power Technologies, Inc. during the six months ended February 28, 2005.

Our effective income tax rate for the three months and six months ended February 28, 2006 was 37.9% and 36.6% respectively compared to 33.8% and 36.6% for the three and six months ended February 28, 2005, respectively. The increase in the tax rate is due to higher than expected overall income and lower than expected utilization of foreign net operating loss carryforwards.

The decreased earnings from unconsolidated entities, net reflects the consolidation of a previously unconsolidated entity due to our acquisition of one of our joint venture partners.

Related Party Transactions

During the quarter ended February 28, 2006, we subcontracted a portion of our work, primarily related to the disaster recovery efforts of the Gulf Coast region of the United States, with two companies owned by one of our Directors whom our Board had previously determined is considered non-independent. Payments made to these companies were approximately $11.7 million and $17.4 million during the three and six months ended February 28, 2006 and amounts due to these companies were $2.2 million as of February 28, 2006. We believe this subcontracted work was performed under similar terms as would have been negotiated with an unrelated party.

A company (the “Related Company”) for whom an executive officer and a significant owner is the brother to our Chief Executive Officer is a subcontractor to several of our subcontractors on various projects related to temporary housing efforts in Louisiana, where the Related Company has operated in its respective field of mechanical contracting since its founding in 1919. We were not involved in the agreements between our subcontractors and the Related Company and we have not been provided any information about the terms of these contracts.

Liquidity and Capital Resources

Credit Facilities and Revolving Lines of Credit

Amounts outstanding under credit facilities and revolving lines of credit consisted of the following (in millions):

	February 28,			August 31,
	2006			2005
Credit Facility	$	173.5		$	40.9
Foreign subsidiaries’ revolving lines of credit		—			0.1
Credit facilities of consolidated VIEs		9.7			6.3
Total outstanding		183.2			47.3
Less: current maturities		(9.7	)		(6.4	)
Total long-term revolving lines of credit	$	173.5		$	40.9

On October 3, 2005, we entered into Amendment I to increase our Credit Facility dated April 25, 2005, from $450.0 million to $550.0 million, then on February 27, 2006 we entered into Amendment II, which increased our Credit Facility from $550.0 million to $750.0 million, and increased our sublimits for revolving credit and financial letters of credit from $325.0 million to $425.0 million, which will retract to $375.0 million on August 27, 2007. The amendments retained the original terms of the agreement, which is five years and commenced on April 25, 2005. Readers should refer to Note 8 of the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005 for a more detailed description of our Credit Facility.

The following table presents our available credit under our amended Credit Facility as of February 28, 2006 (in millions), which is subject to a borrowing base calculation as mentioned in Note 8 of the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2005.

Total Credit Facility	$	750.0
Less: outstanding performance letters of credit		(217.0	)
Less: outstanding financial letters of credit		(43.6	)
Less: outstanding revolving credit loans		(173.5	)
Remaining availability for performance letters of credit	$	315.9

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Portion of Credit Facility available for financial letters of credit and revolving credit loans	$	425.0
Less: outstanding financial letters of credit		(43.6	)
Less: outstanding revolving credit loans		(173.5	)
Remaining availability for financial letters of credit and revolving credit loans	$	207.9

In addition to the calculation presented above, the portion of the Credit Facility available for financial letters of credit and revolving credit loans is also limited to the lesser of the total Credit Facility ($750.0 million as of February 28, 2006) less outstanding performance letters of credit or the portion of the Credit Facility ($425.0 million as of February 28, 2006) available for financial letters of credit and revolving credit loans. The Credit Facility availability is also subject to a borrowing base calculation as mentioned above.

The Credit Facility will be used, from time to time, for working capital needs including funding disaster relief, emergency response and recovery services and to fund fixed asset purchases, acquisitions and investments in joint ventures. During fiscal 2006, we have and we expect we will continue to periodically borrow under our Credit Facility for our working capital needs to fund the hurricane disaster recover work and general corporate purposes.

The interest rates for revolving credit loans under the Credit Facility may be in a range of (i) LIBOR plus 1.50% to 3.00% or (ii) the defined base rate plus 0.00% to 0.50%. The weighted-average interest rate on the Credit Facility was 6.68% and 6.96% for the three and six months ended February 28, 2006. As of February 28, 2006, we had outstanding letters of credit (inclusive of both domestic financial and domestic performance) of approximately $260.6 million under our Credit Facility as compared to $243.6 million as of August 31, 2005. The total amount of fees associated with these letters of credit were approximately $1.1 million and $2.1 million for the three and six months ended February 28, 2006 compared to $1.8 million and $3.7 million for the three and six months ended February 28, 2005.

As of February 28, 2006, we were in compliance with the covenants contained in the Credit Facility.

The following table sets forth the outstanding letters of credit and short-term revolving lines of credit for our foreign subsidiaries, excluding our VIEs (in thousands, except percentages):

	February 28,			August 31,
	2006			2005
Capacity of foreign letters of credit and short-term revolving lines of credit	$	6,096		$	6,253
Outstanding:
Letters of credit		3,436			4,072
Short-term revolving lines of credit		26			57
Total outstanding		3,462			4,129
Remaining availability for foreign letters of credit and short-term revolving lines of credit	$	2,634		$	2,124
Weighted-average interest rate		6.50	%		6.75	%

As of February 28, 2006, borrowings under the short-term revolving lines of credit and term loan of one of our consolidated VIEs were $9.7 million and $1.2 million, respectively, with no outstanding performance bonds. Interest rates under this credit facility vary and ranged from 6.9% to 7.2% as of February 28, 2006. We also have a 50% guarantee related to this credit facility. As of August 31, 2005, this VIE had borrowings under the short-term revolving line of credit and term loan of $6.3 million and $1.2 million, respectively, with no outstanding performance bonds. Interest rates under this credit facility vary and ranged from 6.25% to 6.50% as of August 31, 2005.

Liquidity

Our liquidity position is impacted by cash generated from operations, customer advances on contracts in progress and access to capital financial markets. As customer advances are reduced through project execution if not replaced by advances on new projects, our cash position will be reduced. We expect the level of cash advances as a percentage of total contract value on new EPC projects to be lower than the level that resulted in the significant advance payment received on our EPC power project in the Northeast area of the U.S. Cash is used to fund operations, capital expenditures, acquisitions, and debt service.

As of February 28, 2006, we had cash and cash equivalents of $163.8 million, which included $53.9 million of restricted and escrowed cash, and $207.9 million of availability under our $750.0 million Credit Facility to fund operations. We also have a shelf registration statement with $236.1 million available for the issuance of any combination of equity or debt securities if needed. In addition, the need

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for hurricane disaster recovery work have increased the amounts due from government agencies or entities owned by the U.S. Government, primarily FEMA and the U.S. Army Corps of Engineers. We anticipate that receipt of payment for these services will occur during the second half of fiscal 2006. Management believes cash generated from operations, the sale of certain non-core or under performing assets, available borrowings under our Credit Facility, and if necessary, available sales of equity or debt under our shelf registration will be sufficient to fund operations for the next twelve months.

Cash flow for Six Months ended February 28, 2006 versus Six Months ended February 28, 2005

The following table sets forth the cash flows for the six months ended February 28, (in thousands):

	2006			2005
Cash flow provided by (used in) operations	$	(182,642	)	$	35,630
Cash flow provided by (used in) investing		96,675			(74,654	)
Cash flow provided by (used in) financing		138,118			(3,368	)
Cash from consolidation of variable interest entities previously unconsolidated		1,565			—
Effect of foreign exchange rate changes on cash		(554	)		(1,855	)

Operating Cash Flow

Net operating cash flows decreased by $218.3 million during the six months ended February 28, 2006 compared to the same period in fiscal 2005. The decrease is due primarily to providing hurricane disaster recovery work. In executing our disaster relief work associated with Hurricanes Katrina and Rita, we have experienced payment terms with subcontractors generally shorter than historical levels reflecting a tight market for delivery of services and supplies into the disaster affected area. In contrast, we have experienced significantly slower than historical receipts for our services as final contract terms are resolved with customers and our state and local government customers await federal relief funds. The extended periods to collect payment for our services combined with a significant increase in the volume of work on these disaster relief efforts have resulted in a use of cash and reduction in operating cash flows during the fiscal year. The decrease in net operating cash flows in fiscal 2006 was also impacted by the disbursement of funds associated with one of our EPC project in the Northeast area of the U.S., which is scheduled for completion during our fiscal year 2006. Partially offsetting these decreases were cash receipts related to claims recovery of approximately $59.3 million.

Although cash flows from operations are negative through the first half of fiscal 2006, we expect operating cash flows will be positive for the full fiscal year as collections of amounts due from customers for our disaster relief, emergency response and recovery services will increase and as we begin new EPC projects which typically provide customer advances. We expect that the terms negotiated on new major EPC projects will include arrangements for significant retainage of amounts billed by us or significant other financial security in forms including performance bonds and letters of credit or a combination of retainage and other security. Our expectations may vary materially from what is actually received as the timing of these new projects is uncertain and a single or group of large projects could have a significant impact on sources and uses of cash

Investing Cash Flows

Cash provided by investing activities increased $171.3 million from the first half of fiscal 2005 to the first half of fiscal 2006. Significant cash was deposited into restricted and escrowed cash accounts, primarily to set aside funding for our EPC project to build a combined-cycle energy plant in the Northeast area of the U.S. during the first half of fiscal 2005 as compared to significant cash received from the withdrawal of funds from restricted and escrowed cash accounts associated with completion of our EPC project to build the combined-cycle energy plant in the Northeast area of the U.S. during the first half of fiscal 2006.

Financing Cash Flows

Net financing cash flows increased $141.5 million from the first half of fiscal 2005 to the first half of fiscal 2006. Higher amounts of cash were provided by net proceeds from our revolving credit agreements during the first half of fiscal 2006 as compared to the first half of fiscal 2005.

Off Balance Sheet Arrangements

On a limited basis, performance assurances are extended to customers that guarantee certain performance measurements upon completion of a project. If performance assurances are extended to customers, our maximum potential exposure would be the remaining cost of the work to be performed by or on behalf of third parties under engineering and construction contracts with potential recovery from third party vendors and subcontractors for work performed in the ordinary course of contract execution. As a result, the

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total costs of the project could exceed our original cost estimates and we could experience reduced gross profit or possibly a loss for that project. In some cases, where we fail to meet certain performance standards, we may be subject to contractual liquidated damages.

During the second quarter of fiscal 2005, we entered into a guarantee agreement with a third party to guarantee the performance of one of our unconsolidated entities, American Eagle Northwest, LLC, related to the development and construction phase of the Pacific Northwest Communities, LLC military housing privatization which is scheduled to be completed in calendar year 2009. Our maximum exposure under this performance guarantee at the time we entered into this guarantee was estimated to be $81.7 million. As of February 28, 2006, the maximum exposure amount has decreased to $70.1 million due to development and construction services already executed, and our exposure will continue to be reduced over the contract term as further project services are provided. We would also be able to recover a portion of this exposure through surety bonding provided by our general contractor. We have also committed to fund $6.0 million of the total project costs for which proceeds from the sale of real estate obtained in connection with the contract will be used to fulfill this guarantee. As of February 28, 2006 and August 31, 2005, we have recorded a $0.5 million liability and corresponding asset related to this guarantee.

During the third quarter of fiscal 2005, we entered into an agreement with a third party to guarantee a revolving line of credit for one of our unconsolidated entities, Shaw YPC Piping (Nanjing) Co. LTD, for its working capital needs. Our maximum exposure under this agreement at the time we entered into this guarantee was estimated at $1.8 million. As of February 28, 2006, we have recorded an immaterial liability and corresponding asset related to this guarantee.

Finally, during the fourth quarter of fiscal 2005, we entered into a guarantee with a third party to guarantee the payment of certain tax contingencies related to Roche Consulting, Group Limited, which was sold during the fourth quarter of fiscal 2005. Our maximum exposure under this guarantee at the time we entered into this guarantee was estimated at $2.3 million. As of February 28, 2006, we had recorded an immaterial liability and corresponding asset related to this guarantee.

Commercial Commitments

Our lenders issue letters of credit on our behalf to customers or sureties in connection with our contract performance and in limited circumstances, certain other obligations to third parties. We are required to reimburse the issuers of these letters of credit for any payments which they make pursuant to these letters of credit. At February 28, 2006, we had both letter of credit commitments and bonding obligations, which were generally issued to secure performance and financial obligations on certain of our construction contracts, which expire as follows (in millions):

	Amounts of Commitment Expiration by Period (In Millions)
			Less Than
	Total		1 Year		1-3 Years		4-5 Years		After 5 Years
Letters of Credit — Domestic and Foreign	$	264.1	$	52.2	$	138.7	$	36.7	$	36.5
Surety bonds		745.2		528.3		202.3		1.2		13.4
Total Commercial Commitments	$	1,009.3	$	580.5	$	341.0	$	37.9	$	49.9

Commercial Commitments above exclude any letters of credit or surety bonding obligations associated with outstanding bids or proposals or other work not awarded prior to February 28, 2006.

As of February 28, 2006 and August 31, 2005, we had total letters of credit of $264.1 million and $247.7 million, respectively. Of the amount of outstanding letters of credit at February 28, 2006, $217.0 million were issued to customers in connection with contracts. Of the $217.0 million, five customers held $146.1 million or 67% of the outstanding letters of credit. The largest letter of credit issued to a single customer on a single project is $53.0 million. There were no draws under these letters of credit for the three and six months ended February 28, 2006.

As of February 28, 2006 and August 31, 2005, we had total surety bonds of $745.2 million and $420.8 million, respectively. However, based on our percentage of completion on contracts covered by these surety bonds, our estimated potential liability as of February 28, 2006 and August 31, 2005 was $341.0 million and $123.1 million, respectively. The $217.9 million increase is due primarily to required surety bond coverage on one of our large projects during the second fiscal quarter of 2006 as well as additional required coverage for our disaster relief, emergency response and recovery services.

Fees related to these commercial commitments were $11.0 million and $12.8 million for the three and six months ended February 28, 2006 as compared to $2.5 million and $5.4 million for the same periods in fiscal 2005 and were recorded in the accompanying condensed consolidated statements of operations.

44

See Note 8 to our condensed consolidated financial statements for a discussion of long-term debt, and Note 13 for a discussion of contingencies and commitments.

Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140” (SFAS No. 155), which improves the financial reporting of certain hybrid financial instruments by eliminating exemptions to allow for a more uniform and simplified accounting treatment for these instruments. This Statement will be effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 16, 2006. SFAS No. 155 will be effective for our 2008 fiscal year. Adoption of this standard is not expected to have a material impact on our consolidated financial position or results of operations.

ITEM 3. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not enter into derivative financial instruments for trading, speculation or other purposes that would expose us to market risk. In the normal course of business, we have exposure to both interest rate risk and foreign currency risk.

Interest Rate Risk

We are exposed to interest rate risk due to changes in interest rates, primarily in the U.S. Our policy is to manage interest rates through the use of a combination of fixed and floating rate debt and short-term fixed rate investments. We currently do not use any derivative financial instruments to manage our exposure to interest rate risk.

Our Credit Facility provides that both revolving credit loans and letters of credit may be issued within the $750.0 million limit of this facility. At February 28, 2006, letters of credit of approximately $264.1 million were outstanding and long-term revolving credit loans outstanding under the Credit Facility were $173.5 million. At February 28, 2006, the interest rate on our primary Credit Facility was 6.88% with an availability of $207.9 million (see Note 8 to our condensed consolidated financial statements).

As of February 28, 2006, our variable rate debt was $171.4 million, including our outstanding borrowings under our Credit Facility with a weighted average interest rate of 6.88%. A change in the interest rate by a 1% increase or decrease would not have a material impact on the results of our operations or financial position.

The estimated fair value of our long-term debt, excluding capital leases and borrowings on our Credit Facility, as of February 28, 2006 and August 31, 2005 was approximately $25.1 million and $24.0 million, respectively, based generally on the current market prices of such debt.

Foreign Currency Risk

The majority of our transactions are in U.S. dollars; however, some of our subsidiaries conduct their operations in various foreign currencies. Currently, when considered appropriate, we use hedging instruments to manage the risk associated with our subsidiaries’ operating activities when they enter into a transaction in a currency that is different than their local currency. In these circumstances, we will frequently utilize forward exchange contracts to hedge the anticipated purchases and/or revenues. We attempt to minimize our exposure to foreign currency fluctuations by matching revenues and expenses in the same currency for our contracts. As of February 28, 2006, we had seventeen forward exchange contracts outstanding, ten of which were designated as hedges of certain commitments of foreign subsidiaries. The exposure from these commitments is not material to our results of operations or financial position.

ITEM 4. — CONTROLS AND PROCEDURES

Management’s Quarterly Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Such information is also accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding

45

required disclosure. Management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported on herein. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of February 28, 2006.

The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the second quarter of the fiscal year ending August 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

46

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 11 and Note 13 of our condensed consolidated financial statements in Part I, Item 1, “Financial Statements” for a detail of our legal proceedings.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K for Fiscal Year Ending August 31, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

								(d) Maximum Number (or
						(c) Total Number of		Approximate Dollar Value
				(b) Average Price		Shares (or Units)		of Shares or Units) that
	(a) Total			Paid per		Purchased as Part of		May Yet Be Purchased
	Number of Shares (or			Share		Publicly Announced Plans		Under the Plans or
Period	Units) Purchased			(or unit)		or Programs		Programs
December 1, 2005 to December 31, 2005		—		$	—		—		—
January 1, 2006 to January 31, 2006		138	(1)	$	26.80		—		—
February 1, 2006 to February 28, 2006		31	(1)	$	26.36		—		—
Total		169		$	26.58		—		—

(1) Represents shares of common stock surrendered to the Company by certain employees to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock previously awarded to such employees under the 2001 Employee Incentive Compensation Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fiscal quarter ended February 28, 2006, the following matters were submitted by the Company to a vote of its security holders at the 2006 Annual Meeting of the Shareholders of the Company held on January 27, 2006.

     (1) Election of eight members to our Board of Directors, each for a one-year term;

	FOR		WITHHELD
J. M. Bernhard, Jr.		74,052,023		4,601,499
James F. Barker		74,593,024		4,060,498
L. Lane Grigsby		74,408,943		4,244,579
Daniel A. Hoffler		74,431,043		4,222,579
David W. Hoyle		74,430,476		4,223,046
Albert D. McAlister		71,198,610		7,454,912
Charles E. Roemer, III		71,354,367		7,299,155
John W. Sinders, Jr.		74,432,043		4,221,479

     (2) A proposal to ratify the appointment of Ernst & Young LLP as our independent auditors;

For	78,544,416
Against	62,204
Abstain	46,902

47

     (3) A proposal to approve an amendment to our 2001 Employee Incentive Compensation Plan to increase by 4,000,000, the number of shares of our common stock reserved for issuance under the Plan; and

For	47,830,038
Against	20,994,515
Abstain	63,786

     (4) A proposal to approve the 2005 Non-Employee Director Stock Incentive Plan.

For	61,228,652
Against	7,584,737
Abstain	74,950

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits.
3.1	Composite of the Restatement of the Articles of Incorporation of The Shaw Group Inc. (the “Company”), as amended by (i) Articles of Amendment dated January 22, 2001 and (ii) Articles of Amendment dated July 31, 2001 (incorporated by reference to the designated Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001).
3.2	Articles of Amendment of the Restatement of the Articles of Incorporation of the Company dated January 22, 2001 (incorporated by reference to the designated Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001).
3.3	Articles of Amendment to Restatement of the Articles of Incorporation of the Company dated July 31, 2001 (incorporated by reference to the designated Exhibit to the Company’s Registration Statement on Form 8-A filed on July 30, 2001).
3.4	Composite of the Amended and Restated By-Laws of the Company, a composite including all amendments and supplements through October 16, 2003 (furnished herewith).
3.5	Supplement to Amended and Restated By-Laws of the Company dated October 16, 2003 (incorporated by reference to the designated Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003, as amended).
10.1	Amendment No. 1 dated October 3, 2005, to that certain $450,000,000 Credit Agreement dated April 25, 2005, by and among The Shaw Group Inc., BNP Paribas and The Other Lenders Signatory Thereto, BNP Paribas Securities Corp., Bank of Montreal, Credit Suisse First Boston, UBS Securities LLC, Regions Bank and Merrill Lynch Pierce, Fenner & Smith, Incorporated (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on October 4, 2005).
10.2	Amendment No. 2 dated February 27, 2006, to that certain $450,000,000 Credit Agreement dated April 25, 2005, by and among The Shaw Group Inc., BNP Paribas and The Other Lenders Signatory Thereto, BNP Paribas Securities Corp., Bank of Montreal, Credit Suisse First Boston, UBS Securities LLC, Regions Bank and Merrill Lynch Pierce, Fenner & Smith, Incorporated (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on February 28, 2006).
10.3	Employment Agreement of Gary P. Graphia dated October 14, 2005 (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on October 14, 2005).
10.4	Employment Agreement of David P. Barry effective as of March 13, 2006 (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 14, 2006).
10.5	2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.6	Form of Nonqualified Stock Option Agreement under the 2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.7	Form of Phantom Stock Agreement under the 2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.8	2001 Employee Incentive Compensation Plan (as amended and restated through January 27, 2006) (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).

48

Exhibits.
10.9	2005 Management Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 3, 2006).
10.10	Fiscal year 2006 target incentive awards established for executive officers of the Company under the 2005 Management Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 3, 2006).
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

49

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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 10, 2006	/s/ Robert L. Belk
	Robert L. Belk
	Chief Financial Officer (Authorized Officer and Principal Financial Officer)

50

EXHIBIT INDEX

THE SHAW GROUP INC.
EXHIBIT INDEX

     Form 10-Q Quarterly Report for the Quarterly Period ended February 28, 2006.

A. Exhibits.
3.1	Composite of the Restatement of the Articles of Incorporation of The Shaw Group Inc. (the “Company”), as amended by (i) Articles of Amendment dated January 22, 2001 and (ii) Articles of Amendment dated July 31, 2001 (incorporated by reference to the designated Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001).
3.2	Articles of Amendment of the Restatement of the Articles of Incorporation of the Company dated January 22, 2001 (incorporated by reference to the designated Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001).
3.3	Articles of Amendment to Restatement of the Articles of Incorporation of the Company dated July 31, 2001 (incorporated by reference to the designated Exhibit to the Company’s Registration Statement on Form 8-A filed on July 30, 2001).
3.4	Composite of the Amended and Restated By-Laws of the Company, a composite including all amendments and supplements through October 16, 2003 (furnished herewith).
3.5	Supplement to Amended and Restated By-Laws of the Company dated October 16, 2003 (incorporated by reference to the designated Exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003, as amended).
10.1	Amendment No. 1 dated October 3, 2005, to that certain $450,000,000 Credit Agreement dated April 25, 2005, by and among The Shaw Group Inc., BNP Paribas and The Other Lenders Signatory Thereto, BNP Paribas Securities Corp., Bank of Montreal, Credit Suisse First Boston, UBS Securities LLC, Regions Bank and Merrill Lynch Pierce, Fenner & Smith, Incorporated (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on October 4, 2005).
10.2	Amendment No. 2 dated February 27, 2006, to that certain $450,000,000 Credit Agreement dated April 25, 2005, by and among The Shaw Group Inc., BNP Paribas and The Other Lenders Signatory Thereto, BNP Paribas Securities Corp., Bank of Montreal, Credit Suisse First Boston, UBS Securities LLC, Regions Bank and Merrill Lynch Pierce, Fenner & Smith, Incorporated (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on February 28, 2006).
10.3	Employment Agreement of Gary P. Graphia dated October 14, 2005 (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on October 14, 2005).
10.4	Employment Agreement of David P. Barry effective as of March 13, 2006 (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 14, 2006).
10.5	2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.6	Form of Nonqualified Stock Option Agreement under the 2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.7	Form of Phantom Stock Agreement under the 2005 Non-Employee Director Stock Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.8	2001 Employee Incentive Compensation Plan (as amended and restated through January 27, 2006) (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on January 31, 2006).
10.9	2005 Management Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 3, 2006).
10.10	Fiscal year 2006 target incentive awards established for executive officers of the Company under the 2005 Management Incentive Plan (incorporated by reference to the designated Exhibit to the Company’s Current Report on Form 8-K filed on March 3, 2006).
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

EX-3.4

Exhibit 3.4

AMENDED AND RESTATED BY-LAWS

OF

THE SHAW GROUP INC.

A COMPOSITE INCLUDING ALL
AMENDMENTS AND SUPPLEMENTS
THROUGH OCTOBER 16, 2003

ARTICLE I.
OFFICES

     Section 1. Louisiana Office. The office of The Shaw Group Inc. (the Corporation) within the State of Louisiana shall be in the City of Baton Rouge.

     Section 2. Other Offices. The Corporation may also have an office or offices and keep the books and records of the Corporation, except as otherwise may be required by law, in such other place or places, either within or without the State of Louisiana, as the Board of Directors of the Corporation (the Board) may from time to time determine or the business of the Corporation may require.

ARTICLE II.
MEETINGS OF THE SHAREHOLDERS

     Section 1. Place of Meetings. All meetings of holders of shares of common stock of the Corporation shall be held at the office of the Corporation in the State of Louisiana or at such other place, within or without the State of Louisiana as may from time to time be fixed by the Board or specified or fixed in the respective notices or waivers of notice thereof.

     Section 2. Annual Meetings. An annual meeting of shareholders of the Corporation of the election of directors and for the transaction of such other business as may properly come before the meeting (an Annual Meeting) shall be held on such date, and at such time and place, as shall be determined by the Board of Directors. Failure to hold the Annual Meeting at the designated time shall not cause a forfeiture or dissolution of the Corporation.

     Section 3. Special Meetings. Special meetings of shareholders, unless otherwise provided by law, may be called at any time by the Board pursuant to a resolution adopted by a majority of the then authorized number of directors (as determined in accordance with Section 2 of Article III of these By-Laws), or by the Executive Committee, the Chairman, or the President. Any such call must specify the matter or matters to be acted upon at such meeting, and only such matter or matters shall be acted upon thereat.

     Section 4. Notice of Meetings. Except as otherwise may be required by law, notice of each meeting of shareholders, whether an Annual Meeting or a special meeting, shall be in writing, shall state the place, date, and hour of the meeting and, in the case of a special

meeting, shall state the purpose or purposes of the meeting and indicate that the notice is being issued by or at the direction of the person or persons calling the meeting, and a copy of such notice shall be delivered or sent by mail, not less than 10 nor more than 60 days before the date of said meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice shall be directed to such shareholder at his address as it appears on the stock records of the Corporation, unless he shall have filed with the Secretary a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address. Notice of an adjourned meeting need not be given if the time and place to which the meeting is to be adjourned was announced at the meeting at which the adjournment was taken, unless (i) adjournment is for more than 30 days, or (ii) the Board shall fix a new record date for such adjourned meeting after the adjournment.

     Section 5. Quorum. At each meeting of shareholders of the Corporation, the holders of shares having a majority of the voting power of the common stock of the Corporation issued and outstanding and entitled to vote thereat shall be present or represented by proxy to constitute a quorum for the transaction of business, except as otherwise provided by law.

     Section 6. Adjournments. In the absence of a quorum at any meeting of shareholders or any adjournment or adjournments thereof, holders of shares having a majority of the voting power of the common stock present or represented by proxy at the meeting may adjourn the meeting from time to time until a quorum shall be present or represented by proxy. At any such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present or represented by proxy thereat.

     Section 7. Order of Business.

          (a) At any Annual Meeting, only such business shall be conducted as shall have been brought before the Annual Meeting (i) by or at the direction of the Board, or (ii) by any shareholder who complies with the procedures set forth in this Section 7.

          (b) For business to be properly brought before an Annual Meeting by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the Annual Meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the Annual Meeting is given or made to shareholders, to be timely, notice by the shareholder must be received not later than the close of business on the tenth day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made. To be in proper written form, a shareholder’s notice to the Secretary shall set forth in writing as to each matter the shareholder proposes to bring before the Annual Meeting: (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting; (ii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business; (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder; and (iv) any material interest of the shareholder

- 2 -

in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an Annual Meeting except in accordance with the procedures set forth in this Section 7. The chairman of an Annual Meeting shall, if the facts warrant, determine and declare to the Annual Meeting, that business was not properly brought before the Annual Meeting in accordance with the provisions of this Section and, if he should so determine, he shall so declare to the Annual Meeting and any such business not properly brought before the Annual Meeting shall not be transacted. Notwithstanding anything in these By-Laws to the contrary, the Corporation shall include any such proposals in its proxy statement only if the shareholder has fully complied with all requirements of Rule 4a-8 of the Securities Exchange Act of 1934, as amended (as in effect as of the effective date of these By-Laws or as subsequently amended, including any successor regulation).

     Section 8. Voting.

          (a) Section IV(A) of the Articles of Incorporation shall set forth the terms and methods for determining the voting of shares of common stock.

          (b) Each outstanding share of Common Stock will entitle the holder thereof to five votes on each matter properly submitted to the shareholders of the Company for their vote, waiver, release, or other action; except that no holder of outstanding shares of Common Stock will be entitled to exercise more than one vote on any such matter in respect of any share of Common Stock with respect to which there has been a change in beneficial ownership during the four years immediately preceding the date on which a determination is made of the shareholders of the Company who are entitled to vote or to take any other action. A change in beneficial ownership of an outstanding share of Common Stock will be deemed to have occurred whenever a change occurs in any person or persons who, directly or indirectly, through any contract, agreement, arrangement, understanding, relationship, or otherwise has or shares any of the following:

               (i) voting power, which includes, without limitation, the power to vote or to direct the voting power of such share of Common Stock;

               (ii) investment power, which includes, without limitation, the power to direct the sale or other disposition of such share of Common Stock;

               (iii) the right to receive or to retain the proceeds of any sale or other disposition of such share of Common Stock; or

               (iv) the right to receive or to retain any distributions, including, without limitation, cash dividends, in respect of such share of Common Stock.

          (c) All determinations concerning changes in beneficial ownership, or the absence of any such change, are made by the Board of the Company or, at any time when the Company employs a transfer agent with respect to the shares of Common Stock, at the Company’s request, by such transfer agent on the Company’s behalf. Written procedures designated to facilitate such determinations are to be established and may be amended from time

- 3 -

to time by the Board. Such procedures will provide, among other things, the manner or proof of facts that will be accepted and the frequency with which such proof may be required to be renewed. The Company and any transfer agent will be entitled to rely on any and all information concerning beneficial ownership of the outstanding shares of Common Stock coming to their attention from any source and in any manner reasonably deemed by them to be reliable, but neither the Company nor any transfer agent shall be charged with any other knowledge concerning the beneficial ownership of outstanding shares of Common Stock.

          (d) At the meeting of shareholders, every shareholder of the Corporation shall be entitled to the number of votes for every share of Common Stock standing in his name on the stock records of the Corporation (i) at the time fixed pursuant to Section 6 of Article VII of these By-Laws as the record date for the determination of shareholders entitled to vote at such meeting, or (ii) if no such record date shall have been fixed, then at the close of business on the date next preceding the day on which notice thereof shall be given. At each meeting of shareholders, all matters (except in cases where a larger vote is required by law or by the Articles of the Corporation or these By-Laws) shall be decided by a majority of the votes cast at such meeting by the holders of shares of Common Stock present or represented by proxy and entitled to vote thereon, a quorum being present.

          (e) No share of Common Stock of the Corporation shall be voted at any meeting of shareholders or counted in determining the total number of outstanding shares at any given time if (i) the consideration for the shares has not been fully paid to the Corporation or (ii) if the shares are Treasury shares or are shares held directly or indirectly by another corporation if a majority of shares entitled to vote for the election of directors of such other corporation is held by the Corporation. Nothing contained herein shall be construed as limiting the right of any corporation to vote stock, including, but not limited to, its own stock, held in a fiduciary capacity.

          (f) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy, as the By-Laws of the other corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine; or, in the absence of such provision or determination, as the president or vice president, secretary or assistant secretary of the other corporation may, by proxy duly executed and sealed, designate.

          (g) Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. It shall not be necessary for the fiduciary to obtain a court order authorizing him to vote such shares. The general proxy of a fiduciary shall be given the same weight and effect as the general proxy of an individual or corporation.

          (h) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver

- 4 -

without the transfer thereof into his name if authority so to do is contained in an appropriate order of the court by which the receiver was appointed.

               (i) A shareholder whose shares are pledged shall be entitled to vote such shares until his shares have been transferred into the name of the pledgee, and thereafter only the pledgee shall be entitled to vote the shares so transferred.

     Section 9. Inspectors. For each election of directors by the shareholders and in any other case in which it shall be advisable, in the opinion of the Board, that the voting upon any matter shall be conducted by inspectors of election, the Board shall appoint two inspectors of election. If, for any such election of directors or the voting upon any such other matter, any inspector appointed by the Board shall be unwilling or unable to serve, or if the Board shall fail to appoint inspectors, the chairman of the meeting shall appoint the necessary inspector or inspectors. The inspectors so appointed, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors with strict impartiality and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors shall determine the number of shares of common stock of the Corporation outstanding and the voting power of each of the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count, and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the chairman of the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question, or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of election of directors. Inspectors need not be shareholders.

ARTICLE III.
DIRECTORS

     Section 1. Powers. The business of the Corporation shall be managed under the direction of the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law or otherwise directed or required to be exercised or done by the shareholders.

     Section 2. Number, Election, and Terms. The authorized number of directors may be determined from time to time by a vote of a majority of the then authorized number of directors or by the affirmative vote of the holders of more than 50% of the voting power of the then outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, that such number initially shall not be less than three nor more than 15; and provided, further, that such number and such minimum and maximum may be increased pursuant to vote of the Board. In the event that the number of the directors shall be fixed at twelve (12) or more, then, at the next meeting of shareholders at which directors are to be elected (the Classification Meeting), the directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the Board, one class initially to be elected

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for a term expiring at the first Annual Meeting to be held after the Classification Meeting, and another class initially to be elected for a term expiring at the second Annual Meeting to be held after the Classification Meeting, and another class initially to be elected for a term expiring at the third Annual Meeting to be held after the Classification Meeting, with the members of each class to hold office until their successors have been elected and qualified. At each Annual Meeting, the successors of the class of directors whose term expires at such Annual Meeting shall be elected to hold office for a term expiring at the Annual Meeting held in the third year following the year of their election. Except as otherwise provided in the Articles of Incorporation, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board resulting from death, resignation, disqualification, removal, or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum of the Board, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office until the Annual Meeting at which the term of office of such director or the class to which such director has been elected expires and until such director’s successor shall have been duly elected and qualified. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.

     Section 3. Nominations of Directors; Election. Nominations for the election of directors may be made by the Board or a committee appointed by the Board, or by any shareholder entitled to vote generally in the election of directors who complies with the procedures set forth in this Section 3. Directors shall be at least 21 years of age. Directors need not be shareholders. At each meeting of shareholders for the election of directors at which a quorum is present, the persons receiving a plurality of the votes cast shall be elected directors. All nominations by shareholders shall be made pursuant to timely notice in proper written form to the Secretary of the Corporation. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days, nor more than 60 days, prior to the meeting; provided, however, that in the event that less than 40 days notice or prior public disclosure of the date of the meeting is given or made to shareholders, to be timely, notice by the shareholder must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper written form, such shareholder’s notice shall set forth in writing (i) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (ii) as to the shareholder giving the notice, the (x) name and address, as they appear on the Corporation’s books, of such shareholder and (y) the class and number of shares of the Corporation which are beneficially owned by such shareholder. At the request of the Board, any person nominated by the Board for election as a director shall furnish to the Secretary of the Corporation the information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee. In the event that a shareholder seeks to nominate one or more directors, the Secretary shall appoint two inspectors, who shall not be affiliated with the Corporation, to determine whether a shareholder has complied with this Section 3. If the inspectors shall determine that a shareholder has not complied with this Section 3, the inspectors shall direct the chairman of the

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meeting to declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws of the Corporation; the chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Notwithstanding anything in these By-laws to the contrary, the Corporation shall include any such nomination in its proxy statement only if the shareholder has fully complied with all requirements of Rule 4a-8 of the Securities Exchange Act of 1934, as amended (as in effect as of the effective date of the By-Laws or as subsequently amended, including any successor regulation).

     Section 4. Place of Meetings. Meetings of the Board shall be held at the Corporation’s office in the State of Louisiana or at such other place, within or without such State, as the Board may from time to time determine or as shall be specified or fixed in the notice or waiver of notice of any such meeting.

     Section 5. Regular Meetings. Regular meetings of the Board shall be held in accordance with a yearly meeting schedule as determined by the Board; or such meetings may be held on such other days and at such other times as the Board may from time to time determine. Notice of regular meetings of the Board need not be given, except as otherwise required by these By-Laws.

     Section 6. Special Meetings. Special meetings of the Board may be called by the Chairman or President and shall be called by the Secretary at the request of any two of the other directors.

     Section 7. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required), stating the time, place, and purposes thereof, shall be mailed to each director, addressed to him at his residence or usual place of business, or shall be sent to him by telex, cable, or telegram so addressed, or shall be given personally or by telephone, on 24 hours’ notice.

     Section 8. Quorum and Manner of Acting. The presence of at least a majority of the authorized number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board. If a quorum shall not be present at any meeting of the Board, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Except where a different vote is required or permitted by law or these By-Laws or otherwise, the act of a majority of the directors present at any meeting at which a quorum shall be present shall be the act of the Board. Any action required or permitted to be taken by the Board may be taken without a meeting if all the directors consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the directors shall be filed with the minutes of the proceedings of the Board. Any one or more directors may participate in any meeting of the Board by means of a telephone conference or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall be deemed to constitute presence in person at a meeting of the Board.

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     Section 9. Resignation. Any director may resign at any time by giving written notice to the Corporation; provided, however, that written notice to the Board, the Chairman of the Board, the President, or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

     Section 10. Removal of Directors. Subject to the rights of the holders of any series of Preferred Stock, any director may be removed from office only for cause by the affirmative vote of the holders of more than 50% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

     Section 11. Compensation of Directors. The Board may provide for the payment to any of the directors, other than officers or employees of the Corporation, of a specified amount for services as director or member of a committee of the Board, or of a specified amount for attendance at each regular or special Board meeting or committee meeting, or of both, and all directors shall be reimbursed for expenses of attendance at any such meeting; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV.
COMMITTEES OF THE BOARD

     Section 1. Appointment and Powers of Executive Committee. The Board may, by resolution adopted by the affirmative vote of a majority of the authorized number of directors, designate an Executive Committee of the Board which shall consist of such number of members as the Board shall determine. Except as provided by Louisiana law, during the interval between the meetings of the Board, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of all the business and affairs of the Corporation (except the matters hereinafter assigned to any other Committee of the Board), in such manner as the Executive Committee shall deem in the best interest of the Corporation in all cases in which specific directions shall not have been given by the Board. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business by the committee and the act of a majority of the members of the committee present at a meeting at which a quorum shall be present shall be the act of the committee. Either the President or the Chairman of the Executive Committee may call the meetings of the Executive Committee.

     Section 2. Appointment and Powers of Audit Committee. The Board may, by resolution adopted by the affirmative vote of a majority of the authorized number of directors, designate an Audit Committee of the Board, which shall consist of such number of members as the Board shall determine. The Audit Committee shall (i) make recommendations to the Board as to the independent accountants to be appointed by the Board; (ii) review with

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the independent accountants the scope of their examination; (iii) receive the reports of the independent accountants and meet with representatives of such accountants for the purpose of reviewing and considering questions relating to their examination and such reports; (iv) review, either directly or through the independent accountants, the internal accounting and auditing procedures of the Corporation; and (v) perform such other functions as may be assigned to it from time to time by the Board. The Audit Committee may determine its manner of acting and fix the time and place of its meetings, unless the Board shall otherwise provide. A majority of the members of the Audit Committee shall constitute a quorum for the transaction of business by the committee and the act of a majority of the members of the committee present at a meeting at which a quorum shall be present shall be the act of the committee.

     Section 3. Compensation Committee, Other Committees. The Company’s Board shall establish a Compensation Committee. The duties of the Compensation Committee shall be to provide a general review of the Company’s compensation and benefit plans to ensure that they meet corporate objectives. In addition, the Compensation Committee shall review the Chief Executive Officer’s recommendations on (i) compensation of all officers of the Company, (ii) granting of awards under the Company’s Stock Option Plan and other benefit plans, and (iii) adopting and changing major Company compensation policies and practices. The Compensation Committee shall report its recommendations to the whole Board for approval.

     Section 4. Action by Consent; Participation by Telephone or Similar Equipment. Unless the Board shall otherwise provide, any action required or permitted to be taken by any committee may be taken without a meeting if all members of the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the committee shall be filed with the minutes of the proceedings of the committee. Unless the Board shall otherwise provide, any one or more members of any such committee may participate in any meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting of the committee.

     Section 5. Changes in Committees; Resignations; Removals. The Board shall have power, by the affirmative vote of a majority of the authorized number of directors, to at any time change the members of, to fill vacancies in, and to discharge any committee of the Board. The Chairman of the Board may designate one or more directors as alternative members of any committee who may act in the place and stead of members who temporarily cannot attend any such meeting. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the Board, the Chairman of the Board, the President, the chairman of such committee, or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote

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of a majority of the authorized number of directors at any meeting of the Board called for that purpose.

ARTICLE V.
OFFICERS

     Section 1. Number and Qualification. The Corporation shall have such officers as may be necessary or desirable for the business of the Corporation. Each officer of the Corporation shall have a title set forth below or as may be prescribed by the Board and shall hold his office for such term as may be prescribed by the Board; provided, however, that the term for the Chairman of the Board shall automatically terminate upon the termination of such officer’s term as a director of the Corporation. There shall be elected from among the officers of the Corporation persons having the titles and exercising the duties (as prescribed by the By-Laws or by the Board) of Chairman of the Board, President, one or more Executive Vice Presidents, one or more Vice Presidents, the Treasurer, and the Secretary, and such other persons having such other titles and such other duties as the Board may prescribe. The Chairman of the Board shall be elected from among the directors. The Chairman of the Board may appoint one or more deputies, associates or assistant officers or such other agents as may be necessary or desirable for the business of the Corporation. In case one or more deputies, associates, or assistant officers shall be appointed, the officer such appointee assists may delegate to the appointee the authority to perform such of the officer’s duties as the officer may determine.

     Section 2. Resignations. Any officer may resign at any time by giving written notice to the Corporation; provided, however, that notice to the Board, Chairman of the Board, the President, or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

     Section 3. Removal. Any officer or agent may be removed, either with or without cause, at any time, by the Board at any meeting called for that purpose; provided, however, that the Chairman of the Board and President may remove any agent appointed by him. Any removal shall be without prejudice to the contract rights, if any, of the person so removed.

     Section 4. Vacancies. Any vacancy among the officers, whether caused by death, resignation, removal, or any other cause, shall be filled in the manner prescribed for election or appointment to such office.

     Section 5. Chairman of the Board. The Chairman of the Board shall, if present, preside at all meetings of the Board and, if present, at all meetings of the shareholders. He shall perform the duties incident to the office of the Chairman of the Board and all such other duties as are specified in these By-Laws or as shall be assigned to him from time to time by the Board.

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     Section 6. President. The President shall, under the control of the Board, have active management of the operations, business, and affairs of the Corporation. In addition, he shall have such other powers and perform such duties as provided in these By-Laws or as the Board, the Chairman, or, in the absence of the Chairman, the Vice Chairman, may assign to him. He shall at all times see that all resolutions or determinations of the Board are carried into effect. He may from time to time appoint, remove, or change members of and discharge one or more advisory committees, each of which shall consist of such number of persons (who may, but need not, be directors or officers of the Corporation) and have such advisory duties as he shall determine. He shall perform the duties incident to the office of the President and all such other duties as are specified in these By-Laws or as shall be assigned to him from to time by the Board. In the event that there is a vacancy in the position of the President which shall not have been filled as provided in the By-Laws, the Board may designate one or more of the principal officers of the Corporation to perform such duties as may be required of the President by the By-Laws or by law. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board and all meetings of the shareholders.

     Section 7. Executive Vice-President and Vice President. There may be one or more Executive Vice-Presidents and as many Vice-Presidents as the Board or the Executive Committee may elect or appoint. Any Executive Vice-President and each Vice-President shall have such power and perform such duties as the Board or the Executive Committee may prescribe or as the President may delegate to him.

     Section 8. Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated pursuant to these By-Laws, shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever, shall disburse the funds of the Corporation and shall render to all regular meetings of the Board, or whenever the Board may require, an account of all of his transactions as Treasurer. He shall, in general, perform all the duties incident to the office of Treasurer and all such other duties as may be assigned to him from time to time by the President or such other officer to whom the Treasurer reports.

     Section 9. Secretary. The Secretary shall, if present, act as secretary of, and keep the minutes of, all meetings of the Board, the Executive Committee and other committees of the Board and the shareholders in one or more books provided for that purpose, shall see that all notices are duly given in accordance with these By-Laws and as required by law, shall be custodian of the seal of the Corporation, and shall affix and attest the seal to all documents to be executed on behalf of the Corporation under its seal. He shall, in general, perform all duties incident to the office of the Secretary and all such other duties as may be assigned to him from time to time by the President or such other officer to whom the Secretary reports.

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     Section 10. Bonds of Officers. If required by the Board, any officer of the Corporation shall give a bond for the faithful discharge of his duties in such amount and with such surety or sureties as the Board may require.

     Section 11. Compensation. The salaries of the officers shall be fixed from time to time by the Compensation Committee of the Board; provided; however, that the President may fix or delegate to others the authority to fix the salaries of any agents appointed by the President.

     Section 12. Officers of Operating Companies or Divisions. The President shall have the power to appoint, remove, and prescribe the terms of office, responsibilities, duties, and salaries of, the officers of the operating companies or divisions, or other than those who are officers of the Corporation.

ARTICLE VI.
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.

     Section 1. Contracts. The Board may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation, to enter into any contract or to execute and deliver any instrument, which authorization may be general or confined to specific instances; and, unless so authorized by the Board, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or for any amount.

     Section 2. Checks, etc. All checks, drafts, bills of exchange, or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation in such manner as shall from time to time be authorized by the Board, which authorization may be general or confined to specific instances.

     Section 3. Loans. No loan shall be contracted on behalf of the Corporation, and no negotiable paper shall be issued in its name, unless authorized by the Board, which authorization may be general or confined to specific instances. All bonds, debentures, notes, and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed, and delivered as the Board shall authorize.

     Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as may be selected by or in the manner designated by the Board. The Board or its designees may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of the Certificate of Incorporation or these By-Laws, as they may deem advisable.

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ARTICLE VII.
STOCK

     Section 1. Stock Certificates. Each shareholder shall be entitled to have, in such form as shall be approved by the Board, a certificate or certificates signed by the Chairman of the Board or President and by either the Treasurer or the Secretary (except that, when any such certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or an employee of the Corporation, the signatures of any such officers may be facsimiles, engraved, or printed), which may be sealed with the seal of the Corporation (which seal may be a facsimile, engraved, or printed), certifying the number of shares of common stock of the Corporation owned by such shareholder. In the event any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

     Section 2. Lists of Shareholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make or cause to be prepared or made, at least 10 days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares of common stock registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting for the duration thereof and may be inspected by any shareholder of the Corporation who is present.

     Section 3. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to which shareholders are entitled to examine the stock ledger or the books of the Corporation or to vote in person or by proxy at any meeting of shareholders.

     Section 4. Transfers of Common stock. Transfers of common stock of the Corporation shall be made only on the stock ledger of the Corporation by the holder of record thereof, by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, or by the transfer agent of the Corporation, and only on surrender of the certificate or certificates representing such shares, properly endorsed or accompanied by a duly executed stock transfer power. The Board may make such additional rules and regulations as it may deem advisable concerning the issue and transfer of certificates representing shares of the common stock of the Corporation.

     Section 5. Lost Certificates. The Board may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new

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certificate, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

     Section 6. Fixing of Record Date. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividends or other distributions or allotments of any rights, or entitled to exercise any rights in respect to any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

     Section 7. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law.

ARTICLE VIII.
SEAL

     The Corporation’s seal shall include the words The Shaw Group Inc. Corporate Seal.

ARTICLE IX.
WAIVER OF NOTICE

     Whenever any notice is required by law, the Articles of Incorporation, or these By-Laws to be given to any director, member of a committee, or shareholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether signed before or after the time stated in such written waiver, shall be deemed equivalent to such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when such person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice.

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ARTICLE X.
INDEMNIFICATION

     Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter, a proceeding), by reason of the fact that he or she, or the person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Louisiana Business Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent, and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that, except as provided in this Article XI, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of the Corporation. The right to indemnification conferred in this Article XI shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The Board may authorize the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, but shall have the option to require that any party requesting reimbursement deliver to the Corporation a written undertaking to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.

     Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceedings in advance of its final disposition where the required undertaking, if

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any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Louisiana Business Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification or the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Louisiana Business Corporation Law, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

     Section 3. Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article XI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Laws, agreement, vote of shareholders or disinterested directors, or otherwise.

     Section 4. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any such expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Louisiana Business Corporation Law.

ARTICLE XI.
AMENDMENTS

     These By-Laws, or any of them, may be amended or supplemented in any respect at any time, either (i) at any meeting of shareholders, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting; or (ii) at any meeting of the Board, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting or an announcement with respect thereto shall have been made at the last previous Board meeting, and provided further that no amendment or supplement adopted by the Board shall vary or conflict with any amendment or supplement adopted by the shareholders. Notwithstanding the preceding sentence, the affirmative vote of holders of more than 75% of the voting power of the then outstanding shares of common stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, these By-Laws. In the event of any conflict between these provisions and the Articles of Incorporation, the voting requirements of the Articles of Incorporation shall be controlling.

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ARTICLE XII.
CONTROL SHARE ACQUISITIONS

     Effective as of October 16, 2003, the provisions of Louisiana Revised Statutes 12:135 through 140.2 (inclusive), as the same may hereafter be amended (collectively and as so amended, the “Louisiana Control Share Statute”), shall not apply to acquisitions that have been approved by the Board of shares of capital stock of the Company (and/or other securities of the Company exercisable or exchangeable for, or convertible into, in each case with or without consideration, shares of capital stock of the Company) directly from the Company in a public or private offering by the Company, whether underwritten or not, of such shares or other securities (including any acquisitions of securities directly from the Company upon exchange, exercise or conversion of any such shares or securities so acquired), regardless of whether any shares or other securities so acquired are authorized but unissued shares or securities, treasury shares or securities, or a combination thereof. The provisions of this Article XII are included in these By laws solely as a precautionary measure and to avoid any doubt whether the Louisiana Control Share Statute applies to any such acquisition and shall not constitute an acknowledgment or be deemed an admission by the Company or the Board that the Louisiana Control Share Statute would, but for the provisions of this Article XII, apply to any such acquisition.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF THE SHAW GROUP INC.
PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, J.M. Bernhard, Jr., Chief Executive Officer of The Shaw Group Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2006 (the “Quarterly Report”) of The Shaw Group Inc.;
2.	Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3.	Based on my knowledge, the financial statements and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d.	disclosed in this Quarterly Report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 10, 2006	/s/ J. M. Bernhard, Jr.
	J. M. Bernhard, Jr.
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER OF THE SHAW GROUP INC.
PURSUANT TO 15 U.S.C. SECTION 7241, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

     I, Robert L. Belk, Executive Vice President and Chief Financial Officer of The Shaw Group Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2006 (the “Quarterly Report”) of The Shaw Group Inc.;
2.	Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3.	Based on my knowledge, the financial statements and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d.	disclosed in this Quarterly Report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

c.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
d.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 10, 2006	/s/ Robert L. Belk
	Robert L. Belk
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Shaw Group Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J.M. Bernhard, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 10, 2006	/s/ J. M. Bernhard, Jr.
	J. M. Bernhard, Jr.
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Shaw Group Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended February 28, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Belk, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 10, 2006	/s/ Robert L. Belk
	Robert L. Belk
	Executive Vice President and Chief Financial Officer