UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended February 28, 2009
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to .
Commission File Number: 1-12227
The Shaw Group Inc.
(Exact name of registrant as specified in its charter)
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Louisiana
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72-1106167
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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4171 Essen Lane, Baton Rouge, Louisiana
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70809
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(Address of principal executive offices)
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(Zip Code)
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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, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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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, 83,556,256 shares outstanding as of
April 1, 2009.
TABLE OF CONTENTS
EXPLANATORY NOTE
The comparative prior fiscal period financial statements of The Shaw Group Inc., a Louisiana
Corporation, (Shaw, we, us and our) for the three and six months ended February 29, 2008, included
in this Quarterly Report on Form 10-Q, reflect a restatement to correct accounting errors.
As reported in our Current Report on Form 8-K dated October 30, 2008, in connection with the
preparation of our Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (2008 Form
10-K), we determined that the net income for the three months ended February 29, 2008 should be
reduced due primarily to an error on a fixed-price coal power project in our Fossil & Nuclear
segment relating to the estimated cost at completion on that project. As a result, we restated the
three months ended February 29, 2008 and reflected this restatement in the quarterly information
provided in our 2008 Form 10-K. The restatement of the three and six month ended February 29, 2008
is reflected within this Form 10-Q. We did not amend any previously filed reports.
See
Notes 1 and 20 of our consolidated financial statement included in Part I, Item 1 —
Financial Statements of this Quarterly Report on Form 10-Q for additional information.
2
PART I
—
FINANCIAL INFORMATION
ITEM 1.
—
FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 28, 2009 AND AUGUST 31, 2008
(In thousands, except share amounts)
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February 28,
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2009
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August 31,
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(Unaudited)
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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887,945
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$
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927,756
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Restricted and escrowed cash
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13,284
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8,901
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Accounts receivable, including retainage, net
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849,210
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665,870
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Inventories
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272,407
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241,463
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Costs and estimated earnings in excess of billings on uncompleted contracts, including claims
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546,061
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488,321
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Deferred income taxes
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97,393
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93,823
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Prepaid expenses
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37,685
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25,895
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Other current assets
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46,685
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37,099
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Total current assets
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2,750,670
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2,489,128
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Investments in and advances to unconsolidated entities, joint ventures and limited partnerships
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19,190
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19,535
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Investment in Westinghouse
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965,430
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1,158,660
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Property and equipment, less accumulated depreciation of $233,896 and $233,755, respectively
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291,365
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285,550
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Goodwill
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503,124
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507,355
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Intangible assets
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22,436
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24,065
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Deferred income taxes
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126,403
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3,245
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Other assets
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97,994
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99,740
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Total assets
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$
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4,776,612
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$
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4,587,278
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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763,388
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$
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731,074
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Accrued salaries, wages and benefits
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126,517
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120,038
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Other accrued liabilities
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173,671
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187,045
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Advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts
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892,109
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748,395
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Short-term debt and current maturities of long-term debt
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2,501
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6,004
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Total current liabilities
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1,958,186
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1,792,556
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Long-term debt, less current maturities
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1,782
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3,579
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Japanese Yen-denominated long-term bonds secured by Investment in Westinghouse, net
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1,295,828
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1,162,007
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Interest rate swap contract on Japanese Yen-denominated bonds
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27,707
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8,802
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Other liabilities
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107,865
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101,522
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Minority interest
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21,943
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29,082
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Contingencies and commitments (Note 10)
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Shareholders’ equity:
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Preferred stock, no par value, 20,000,000 shares authorized; no shares issued and outstanding
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—
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—
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Common stock, no par value, 200,000,000 shares authorized; 89,249,456 and 89,195,901 shares
issued, respectively; and 83,544,658 and 83,535,441 shares outstanding, respectively
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1,220,265
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1,204,914
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Retained earnings
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405,794
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409,376
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Accumulated other comprehensive loss
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(146,776
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(9,609
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Treasury stock, 5,704,798 and 5,660,460 shares, respectively
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(115,982
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(114,951
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Total shareholders’ equity
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1,363,301
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1,489,730
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Total liabilities and shareholders’ equity
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$
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4,776,612
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$
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4,587,278
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The accompanying notes are an integral part of these consolidated financial statements.
3
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2009
AND FEBRUARY 29, 2008
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended
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Six Months Ended
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2009
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2008
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2009
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2008
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(Restated)
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(Restated)
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Revenues
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$
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1,667,517
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$
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1,644,561
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$
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3,567,950
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$
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3,356,721
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Cost of revenues
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1,565,159
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1,520,615
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3,277,499
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3,097,757
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Gross profit
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102,358
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123,946
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290,451
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258,964
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General and administrative expenses
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70,405
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71,663
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143,511
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140,551
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Operating income
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31,953
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52,283
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146,940
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118,413
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Interest expense
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(1,102
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(2,817
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(2,847
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(4,981
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Interest expense on Japanese Yen-denominated bonds including
accretion and amortization
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(10,858
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(9,252
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(20,720
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(18,144
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Interest income
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2,318
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6,528
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6,241
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11,343
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Foreign currency translation gains (losses) on Japanese
Yen-denominated bonds, net
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30,941
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(40,473
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(130,261
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)
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(97,711
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Other foreign currency transaction gains, net
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3,052
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6,572
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653
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7,736
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Other income (expense), net
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(885
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394
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(2,746
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99
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Income (loss)
before income taxes, minority interest and earnings
(loss) from unconsolidated entities
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55,419
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13,235
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(2,740
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)
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16,755
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Provision (benefit)
for income taxes
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22,678
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3,948
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(20
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)
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6,064
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Income (losses)
before minority interest and earnings (losses) from
unconsolidated entities
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32,741
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9,287
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(2,720
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)
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10,691
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Minority interest
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(2,332
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)
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(6,852
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(8,192
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)
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(11,834
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Income from 20% Investment in Westinghouse, net of income taxes
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5,455
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2,061
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6,998
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6,876
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Earnings (losses) from unconsolidated entities, net of income taxes
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471
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(546
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)
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332
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447
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Net income (loss)
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$
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36,335
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$
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3,950
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$
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(3,582
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)
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$
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6,180
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Net income (loss) per common share:
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Basic
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$
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0.44
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$
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0.05
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$
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(0.04
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$
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0.08
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Diluted
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$
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0.43
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$
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0.05
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$
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(0.04
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$
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0.07
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Weighted average shares outstanding:
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Basic
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83,255
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82,123
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83,179
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81,404
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Diluted
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84,138
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84,210
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83,179
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83,893
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The accompanying notes are an integral part of these consolidated financial statements.
4
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2009 AND FEBRUARY 29, 2008
(Unaudited)
(In thousands)
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2009
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2008
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(Restated)
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Cash flows from operating activities:
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Net income (loss)
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$
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(3,582
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)
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$
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6,180
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Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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Depreciation and amortization
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26,651
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22,492
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(Benefit from) deferred income taxes
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(49,183
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)
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(37,564
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)
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Stock-based compensation expense
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16,398
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9,178
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(Earnings) from unconsolidated entities, net of taxes
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(7,330
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)
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(6,573
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)
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Distributions from unconsolidated entities
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28,746
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13,195
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Foreign currency transaction losses, net
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129,608
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89,975
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Minority interest
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8,192
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11,835
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Impairment of investments in unconsolidated entities
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—
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1,073
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Impairment of goodwill and fixed assets
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1,041
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1,000
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Other noncash items
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(22,201
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)
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(18,933
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)
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Changes in assets and liabilities, net of effects of acquisitions and consolidation of
variable interest entities:
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(Increase) decrease in receivables
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(215,139
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)
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68,941
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(Increase) in costs and estimated earnings in excess of billings on uncompleted
contracts, including claims
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(79,910
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)
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(30,229
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)
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(Increase) in inventories
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(31,274
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)
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(9,536
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)
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(Increase) decrease in other current assets
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(7,390
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)
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9,427
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Increase in accounts payable
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41,267
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11,938
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(Decrease) increase in accrued liabilities
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(5,207
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)
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(3,360
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)
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Increase in advanced billings and billings in excess of costs and estimated earnings
on uncompleted contracts
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162,419
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144,229
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Net change in other assets and liabilities
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20,693
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18,674
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Net cash provided by operating activities
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13,799
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301,942
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Cash flows from investing activities:
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Purchases of property and equipment
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(56,698
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)
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(70,301
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)
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Proceeds from sale of businesses and assets
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24,218
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15,551
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Investments in and advances to unconsolidated entities and joint ventures
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|
|
(2,522
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)
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(480
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)
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Change in restricted and escrowed cash, net
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|
|
(4,323
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)
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|
|
7,694
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|
|
|
|
|
|
|
|
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Net cash (used in) investing activities
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|
|
(39,325
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)
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|
|
(47,536
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)
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|
Cash flows from financing activities:
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|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,030
|
)
|
|
|
(9,161
|
)
|
|
Repayment of debt, deferred financing costs and capital leases
|
|
|
(7,469
|
)
|
|
|
(6,868
|
)
|
|
Issuance of common stock
|
|
|
181
|
|
|
|
35,139
|
|
|
Excess tax benefits from exercise of stock options and vesting of restricted stock
|
|
|
169
|
|
|
|
31,001
|
|
|
Proceeds from revolving credit agreements
|
|
|
—
|
|
|
|
10,094
|
|
|
Repayments of revolving credit agreements
|
|
|
—
|
|
|
|
(9,351
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(8,149
|
)
|
|
|
50,854
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
(6,136
|
)
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(39,811
|
)
|
|
|
306,084
|
|
|
Cash and cash equivalents — beginning of year
|
|
|
927,756
|
|
|
|
341,359
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents — end of period
|
|
$
|
887,945
|
|
|
$
|
647,443
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 — General Information
Principles of Consolidation and Presentation
The unaudited consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission (SEC) including interim reporting
requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Financial information and disclosures
normally included in financial statements prepared annually in accordance with United States (U.S.)
Generally Accepted Accounting Principles (GAAP) have been condensed or omitted pursuant to these
rules and regulations. Readers of these financial statements should, therefore, refer to the
consolidated financial statements and the notes in our Annual 2008 Form 10-K. In the opinion of
management, all adjustments have been made (consisting of normal recurring adjustments) that are
necessary to fairly present our financial position and our results of operations as of and for
these periods.
The consolidated financial statements include the accounts of Shaw and its majority owned
subsidiaries. In accordance with Financial Accounting Standards Board (FASB) Interpretation No.
46R, “Consolidation of Variable Interest Entities” (FIN 46R), we also consolidate any variable
interest entities (VIEs) of which we are the primary beneficiary, as defined therein. All
significant intercompany balances and transactions have been eliminated in consolidation. When we
do not have a controlling interest in an entity, but exert a significant influence over the entity,
we apply the equity method of accounting.
Restatement of Certain Fiscal Year 2008 Comparative Amounts
As reported in our 2008 Form 10-K, our previously reported financial statements for the three
and six months ended February 29, 2008 were restated to adjust for certain items. The previously
reported net income for the three and six months ended February 29, 2008 was reduced by $4.9
million. See Note 20 — Restatement of Prior Fiscal Year Quarterly Consolidated Statements for a
discussion of the amounts and accounts that were restated.
Use of Estimates
In order to prepare financial statements in conformity with GAAP, our management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, revenues and expenses during the periods reported and
disclosures. Actual results could differ from those estimates. Areas requiring significant
estimates by our management are listed in our 2008 Form 10-K. In addition, the current economic
conditions may require the use of additional estimates, and certain estimates may be subject to a
greater degree of uncertainty as a result of the current economic conditions.
Goodwill
Goodwill is reviewed at least annually for impairment by comparing the fair value of each
reporting unit with its carrying value (including attributable goodwill). The estimated fair value
for our reporting units is calculated based on projected discounted cash flows as of the date we
perform the impairment tests (implied fair value). We then compare the resulting estimated implied
fair values, by reporting unit, to the respective book values, including goodwill. If the book
value of a reporting unit exceeds its fair value, we measure the amount of the impairment loss by
comparing the implied fair value (which is a reasonable estimate of the value of goodwill for the
purpose of measuring an impairment loss) of the reporting unit’s goodwill to the carrying amount of
that goodwill. To the extent that the carrying amount of a reporting unit’s goodwill exceeds its
implied fair value, we recognize an impairment loss on the goodwill at that time. Unless
circumstances otherwise dictate, we perform our annual impairment testing in the third quarter of
our fiscal year. For additional information, See Note 6 — Goodwill and Other Intangible Assets.
Recently Adopted Accounting Pronouncements
On September 1, 2008, we adopted the provisions of FASB Statement of Financial Accounting
Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157) which defines fair value,
establishes a framework for measuring fair value under U.S. GAAP and expands disclosures about fair
value measurements. In accordance with FASB Staff Position 157-2, “Effective Date of FASB Statement
No. 157” (FSP 157-2), we elected to defer the adoption of the provisions of SFAS 157 for our
non-financial assets and non-
6
financial liabilities. Such assets and liabilities, which include our costs and estimated
earnings in excess of billings on uncompleted contracts, advanced billings and billings in excess
of costs and estimated earnings on uncompleted contracts, deferred contract costs, property and
equipment (net) and goodwill, will be subject to the provisions of SFAS 157 on September 1, 2009.
For additional information, see
Note 17 — Fair
Value Measurements.
On September 1, 2008, we adopted and elected not to apply the provisions of SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits
entities to choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported
in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
On December 1, 2008, we adopted SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 was intended to
enhance the current disclosure framework in Statement 133. The Statement requires that objectives
of using derivative instruments be disclosed in terms of underlying risk and accounting
designation. The adoption of SFAS 161 did not have a material impact on our financial statements.
Reclassifications
Certain fiscal year 2008 amounts have been reclassified to conform to the fiscal year 2009
presentation.
Note 2 — Restricted and Escrowed Cash
At February 28, 2009 and August 31, 2008, we had restricted and escrowed cash of $13.3 million
and $8.9 million, respectively. At February 28, 2009 and August 31, 2008, our restricted cash
consisted of: $0.4 million and $0.7 million, respectively, related to deposits designated to fund
remediation costs associated with a sold property; $0.4 million and $1.0 million, respectively,
related to insurance loss reserves; and $12.5 million and $7.2 million, respectively, related to
amounts contractually required by various other projects and primarily dedicated to the payment of
suppliers or the securing of letters of credit.
In March, 2009, we voluntarily elected to cash collateralize an outstanding performance letter
of credit of approximately $56.4 million which was previously issued under our credit facility in
support of our project execution activities.
Note 3 — Accounts Receivable and Concentrations of Credit Risk
Our accounts receivable, net, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
Trade accounts receivable, net
|
|
$
|
723,555
|
|
|
$
|
556,711
|
|
|
Unbilled accounts receivable
|
|
|
8,819
|
|
|
|
11,770
|
|
|
Retainage
|
|
|
116,836
|
|
|
|
97,389
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, including retainage, net
|
|
$
|
849,210
|
|
|
$
|
665,870
|
|
|
|
|
|
|
|
|
|
Analysis of the change in the allowance for doubtful accounts follows (in thousands):
|
|
|
|
|
|
|
Beginning balance, August 31, 2008
|
|
$
|
27,390
|
|
|
Provision
|
|
|
13,246
|
|
|
Write offs
|
|
|
(12,785
|
)
|
|
Other
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
Ending balance, February 28, 2009
|
|
$
|
26,625
|
|
|
|
|
|
|
Included in our trade accounts receivable at February 28, 2009 and August 31, 2008 were
approximately $9.0 million of outstanding invoices due from a local government entity resulting
from revenues earned in providing disaster relief, emergency response and recovery services. The
local government entity has raised issues with our invoiced amounts, and we are currently in
litigation with the government entity. The amount we ultimately collect from this trade receivable
could differ from amount noted above.
7
Concentration of Credit
Amounts due from U.S. Government agencies or entities were $118.9 million and $66.9 million at
February 28, 2009 and August 31, 2008, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts include $209.5
million and $157.9 million at February 28, 2009 and August 31, 2008, respectively, related to U.S.
Government agencies and related entities.
Note 4 — Inventories
Major components of inventories were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Average
|
|
|
FIFO
|
|
|
Total
|
|
|
Raw Materials
|
|
$
|
14,072
|
|
|
$
|
129,581
|
|
|
$
|
143,653
|
|
|
$
|
11,778
|
|
|
$
|
129,716
|
|
|
$
|
141,494
|
|
|
Work in process
|
|
|
4,614
|
|
|
|
44,014
|
|
|
|
48,628
|
|
|
|
3,831
|
|
|
|
20,242
|
|
|
|
24,073
|
|
|
Finished goods
|
|
|
80,126
|
|
|
|
—
|
|
|
|
80,126
|
|
|
|
75,896
|
|
|
|
—
|
|
|
|
75,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,812
|
|
|
$
|
173,595
|
|
|
$
|
272,407
|
|
|
$
|
91,505
|
|
|
$
|
149,958
|
|
|
$
|
241,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 — Equity Method Investments and Variable Interest Entities
We execute certain contracts with third parties through joint ventures, limited partnerships
and limited liability companies. If a joint venture is determined to be a VIE as defined by FIN
46(R), the joint venture is consolidated in accordance with FIN 46(R). If consolidation of the VIE
or joint venture is not required, we generally account for these joint ventures using the equity
method of accounting with our share of the earnings (losses) from these investments reflected on
one line in the consolidated statement of operations.
Equity Method Investments
Our significant unconsolidated subsidiary that is accounted for using the equity method of
accounting is our Investment in Westinghouse. On October 16, 2006, we acquired a 20% equity
interest (Westinghouse Equity) in Westinghouse Group (Westinghouse) and entered into various
agreements that are described in Note 2 of our 2008 Form 10-K.
In connection with our Investment in Westinghouse, we entered into a Japanese Yen (JPY)
denominated Put Option Agreement (Put Option) providing us the option to sell all or part of our
Westinghouse Equity to Toshiba Corporation (Toshiba). If we were to sell 100% of our Westinghouse
Equity, Toshiba is required to pay us 124.7 billion JPY (approximately 97% of our original
JPY-equivalent purchase price, which we financed partially through JPY-denominated long-term bonds
(Westinghouse Bonds)). We can exercise the Put Option from March 31, 2010 to March 15, 2013, and
the proceeds can only be used to repay the Westinghouse Bonds.
Because the Westinghouse Bonds are JPY-denominated, the risk to bondholders of a possible
proceeds shortfall due to currency fluctuations is substantially mitigated. However, we would
remain at risk for the estimated 3% difference (equal to 4.3 billion JPY, or approximately $43.6
million using exchange rates at February 28, 2009) between the anticipated proceeds from the
exercise of the Put Option and the amount owed on the Westinghouse Bonds. If we allow the Put
Option to expire unexercised, we will be required to repay the Westinghouse Bonds using some
combination of internally generated cash flows, additional or new borrowings or proceeds from the
issuance of equity. We may not be able to obtain credit in the future on terms similar to the terms
reflected in the Westinghouse Bonds.
Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, on
a calendar quarter basis with a March 31 fiscal year end. Financial information about
Westinghouse’s operations is available to us for Westinghouse’s calendar quarter periods. As a
result, we record our 20% interest of the equity earnings (loss) and other comprehensive income
(loss) reported to us by Westinghouse based upon Westinghouse’s calendar quarterly reporting
periods, or two months in arrears of our current periods. Under this policy, Westinghouse’s
operating results for the three and six months ended December 31, 2008 and December 31, 2007 are
included in our financial results for the three and six months ended February 28, 2009 and February
29, 2008, respectively.
8
Summarized unaudited income statement information for Westinghouse before applying our
Westinghouse Equity Interest was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenues
|
|
$
|
695,484
|
|
|
$
|
650,073
|
|
|
$
|
1,438,504
|
|
|
$
|
1,311,179
|
|
|
Gross profit
|
|
|
142,589
|
|
|
|
159,300
|
|
|
|
307,688
|
|
|
|
320,407
|
|
|
Income before income taxes
|
|
|
10,726
|
|
|
|
25,412
|
|
|
|
28,297
|
|
|
|
38,662
|
|
|
Net (loss) income
|
|
|
(1,166
|
)
|
|
|
16,912
|
|
|
|
11,498
|
|
|
|
56,447
|
|
As part of our Investment in Westinghouse, we entered into shareholder agreements on October
4, 2006, that set a targeted minimum dividend of approximately $24.0 million annually for the first
six years we hold our Westinghouse Equity. Under the shareholder agreements, the shareholders are
due to receive as dividends agreed percentages no less than 65%, but not to exceed 100%, of
Westinghouse’s net income. If the shareholders receive less than the target minimum dividend
amount in any year during the first six years, we retain the right to receive this shortfall to the
extent Westinghouse earns net income in the future. Our right to receive any shortfalls between the
target minimum dividend amount and the dividends actually paid by Westinghouse during the first six
years of our investment (or such shorter period in the event of earlier termination) survives the
sale of our Westinghouse Equity, although this right is dependent upon Westinghouse earning net
income at some future time. On January 2, 2009, we received a dividend of $29.1 million from
Westinghouse, and have received total dividends to date of $32.4 million.
Our investments in and advances to unconsolidated entities, joint ventures and limited
partnerships and our overall percentage ownership of those ventures that are accounted for under
the equity method (in thousands, except percentages) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
February 28,
|
|
|
August 31,
|
|
|
|
|
Percentage
|
|
|
2009
|
|
|
2008
|
|
|
Investment in Westinghouse
|
|
|
20
|
%
|
|
$
|
965,430
|
|
|
$
|
1,158,660
|
|
|
Other
|
|
|
23% - 50
|
%
|
|
|
19,190
|
|
|
|
19,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in and
advances to unconsolidated
entities, joint ventures and
limited partnerships
|
|
|
|
|
|
$
|
984,620
|
|
|
$
|
1,178,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 4, 2008 we sold our interests in Little Rock Family Housing LLC, Hanscom Family
Housing LLC and Patrick Family Housing LLC. With this sale we have sold all remaining interests in
our housing privatization projects. We received no proceeds as part of the sale transaction but
were released from certain liabilities, obligations and funding of further equity.
Earnings (losses) from unconsolidated entities, net of income taxes, for the three and six
months ended February 28, 2009 and February 29, 2008, are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Investment in Westinghouse
|
|
$
|
5,455
|
|
|
$
|
2,061
|
|
|
$
|
6,998
|
|
|
$
|
6,876
|
|
|
Other
|
|
|
471
|
|
|
|
(546
|
)
|
|
|
332
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
earnings from unconsolidated
entities, net of income
taxes
|
|
$
|
5,926
|
|
|
$
|
1,515
|
|
|
$
|
7,330
|
|
|
$
|
7,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees Related to Military Housing Privatization Construction Entities
Although we sold our interests in the Pacific Northwest Communities, LLC military housing
privatization project in November of 2007, one of our wholly-owned subsidiaries, Shaw
Infrastructure, Inc., provided indemnity to the buyer for certain potential claims or lawsuits up
to a maximum of $5.9 million. No amounts have been paid or are pending to be paid under the terms
of this indemnification obligation. In February 2009, Pacific Northwest Communities, LLC was
dismissed from the lawsuit to which this indemnity liability applies. As such, no exposure to
liability under this indemnification obligation currently exists.
We also entered into an indemnity agreement with a third party to guarantee the payment and
performance bonds issued on behalf of construction entities performing services on another series
of military housing privatization projects that were being built by us and
9
our joint venture partner. This indemnity agreement supports surety bonds issued on our behalf
at the following military sites: Hanscom Air Force Base, Patrick Air Force Base, Little Rock Air
Force Base and Fort Leonard Wood. Under this indemnity agreement, the parent of our joint venture
partner and we were jointly and severally liable for the performance of the bonded construction
work up to a maximum of $30.0 million. However, each partner’s individual maximum liability was
capped at $15.0 million. In February 2007, we recorded a liability for the maximum exposure of
$15.0 million. We have paid $13.8 million under this indemnity agreement, and while the indemnity
agreement remains in full force and effect, no amounts are outstanding, due or payable.
Note 6 — Goodwill and Other Intangible Assets
The following table reflects the changes in the carrying value of goodwill by segment from
August 31, 2008 to February 28, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E&I
|
|
|
E&C
|
|
|
Nuclear
|
|
|
Maintenance
|
|
|
F&M
|
|
|
Total
|
|
|
Balance at August 31, 2008
|
|
$
|
194,174
|
|
|
$
|
114,015
|
|
|
$
|
139,177
|
|
|
$
|
42,027
|
|
|
$
|
17,962
|
|
|
$
|
507,355
|
|
|
Currency translation adjustment
|
|
|
—
|
|
|
|
(2,939
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,292
|
)
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2009
|
|
$
|
194,174
|
|
|
$
|
111,076
|
|
|
$
|
139,177
|
|
|
$
|
42,027
|
|
|
$
|
16,670
|
|
|
$
|
503,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had tax deductible goodwill of approximately $99.6 million and $107.2 million at February
28, 2009 and August 31, 2008, respectively. The difference between the carrying value of goodwill
and the amount deductible for taxes is primarily due to the amortization of goodwill allowable for
tax purposes.
During the three months ended February 28, 2009, our market capitalization temporarily fell
below our net book value due to the steep decline in the value of equity securities occurring
primarily as a result of the significant deterioration in global economic conditions and the credit
crisis. We do not believe that this temporary event made it more likely than not that the fair
value of our reporting units was below their carrying value, and we determined that we were not
required to accelerate our impairment tests.
The gross carrying values and accumulated amortization of amortizable intangible 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, 2008
|
|
$
|
44,526
|
|
|
$
|
(21,200
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,277
|
)
|
|
Adjustments
|
|
|
(400
|
)
|
|
|
356
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization
|
|
|
—
|
|
|
|
(1,485
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2009
|
|
$
|
44,126
|
|
|
$
|
(22,329
|
)
|
|
$
|
2,016
|
|
|
$
|
(1,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the scheduled future annual amortization for our customer
relationships and intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary Technologies,
|
|
|
Customer
|
|
|
|
|
Patents and Tradenames
|
|
|
Relationships
|
|
|
Remainder of fiscal 2009
|
|
$
|
1,462
|
|
|
$
|
101
|
|
|
2010
|
|
|
2,772
|
|
|
|
202
|
|
|
2011
|
|
|
2,772
|
|
|
|
202
|
|
|
2012
|
|
|
2,769
|
|
|
|
134
|
|
|
2013
|
|
|
2,766
|
|
|
|
—
|
|
|
Thereafter
|
|
|
9,256
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,797
|
|
|
$
|
639
|
|
|
|
|
|
|
|
|
|
10
Note 7 — Long-Term Debt and Revolving Lines of Credit
Long-term debt (including capital lease obligations) as of February 28, 2009 and August 31,
2008, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Notes payable on purchase of Gottlieb,
Barnett & Bridges (GBB); 0% interest; due
and paid on January 10, 2009
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,716
|
|
|
$
|
—
|
|
|
Notes payable of Liquid Solutions LLC, a
VIE; interest payable monthly at an
average interest rate of 8.2% and 8.3%
and monthly payments of $0.02 million and
$0.08 million, through May and June 2011,
respectively
|
|
|
1,278
|
|
|
|
1,672
|
|
|
|
946
|
|
|
|
2,466
|
|
|
Other notes payable
|
|
|
833
|
|
|
|
—
|
|
|
|
833
|
|
|
|
833
|
|
|
Capital lease obligations
|
|
|
390
|
|
|
|
110
|
|
|
|
1,509
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,501
|
|
|
|
1,782
|
|
|
|
6,004
|
|
|
|
3,579
|
|
|
Westinghouse Bonds (see description below)
|
|
|
—
|
|
|
|
1,295,828
|
|
|
|
—
|
|
|
|
1,162,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,501
|
|
|
$
|
1,297,610
|
|
|
$
|
6,004
|
|
|
$
|
1,165,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westinghouse Bonds
The Westinghouse Bonds (issued in the first quarter of fiscal year 2007) are non-recourse to
us and our subsidiaries, except Nuclear Energy Holdings LLC (NEH), and are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
August 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Westinghouse Bonds, face value 50.98 billion JPY due March 15, 2013; interest only payments; coupon
rate of 2.20%;
|
|
$
|
426,875
|
|
|
$
|
426,875
|
|
|
Westinghouse Bonds, face value 78 billion JPY due March 15, 2013; interest only payments; coupon
rate of 0.70% above the six-month JPY LIBOR rate (0.80% and 0.96% at February 28, 2009 and August
31, 2008, respectively)
|
|
|
653,125
|
|
|
|
653,125
|
|
|
Original discount on Westinghouse Bonds
|
|
|
(30,535
|
)
|
|
|
(30,535
|
)
|
|
Accumulated discount accretion
|
|
|
12,260
|
|
|
|
9,323
|
|
|
Increase in net long-term debt due to foreign currency translation adjustments since date of issuance
|
|
|
234,103
|
|
|
|
103,219
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion of debt
|
|
$
|
1,295,828
|
|
|
$
|
1,162,007
|
|
|
|
|
|
|
|
|
|
On October 16, 2006, we entered into an interest rate swap agreement through March 15, 2013 in
the aggregate notional amount of 78 billion JPY. We designated the swap as a hedge against changes
in cash flows attributable to changes in the benchmark interest rate. Under the agreement, we make
fixed interest payments at a rate of 2.398%, and we receive a variable interest payment equal to
the six-month JPY London Interbank Offered Rate (LIBOR) plus a fixed margin of 0.7%, effectively
fixing our interest rate on the floating rate portion of the 78 billion JPY Westinghouse Bonds at
2.398%. At February 28, 2009 and August 31, 2008, the fair value of the swap totaled approximately
$27.7 million and $8.8 million, respectively, and is included as a non-current liability and in
accumulated other comprehensive loss, net of deferred taxes, in the accompanying consolidated
balance sheets. There was no material ineffectiveness of our interest rate swap for the period
ended February 28, 2009.
Credit Facility
On December 30, 2008, we received a commitment from an existing lender to extend $45.0 million
of its commitment until April 25, 2011. As a result, the aggregate amount effective under
our Credit Facility (Facility)
remains at $1.053 billion until April 25, 2010 and reduces to $874.0 million during the
period from April 26, 2010 to April 25, 2011.
On October 15, 2008, we received a new incremental commitment through the original maturity
date of the Facility of $3.0 million, which increased the amount effective under the Facility to
$1.053 billion until April 25, 2010. On October 15, 2008, we also entered into Amendment No. 6 to
the Facility to, among other things, extend the maturity from April 25, 2010 to April 25, 2011 for
$829 million of the then existing commitments. We also retained our ability to seek additional
commitments from lenders to increase the Facility up to a total capacity of $1.25 billion through
April 25, 2011 subject only to the consent of lenders who actually issued
11
letters of credit on our behalf. With Amendment No. 6, we also received consent to pledge up
to $200.0 million of our unrestricted cash on hand to collateralize additional letters of credit,
incremental to the letters of credit available under the Facility, provided that at the time we
pledge such cash and immediately thereafter, we have at least $500.0 million in unrestricted cash
on hand. The amended Facility retained other substantive terms that were applicable to the Facility
prior to the effectiveness of Amendment No. 6.
On
January 14, 2008, we entered into Amendment No. 5 to our Facility to
increase, among other things, the approved capacity under the Facility from $1.0 billion to $1.25
billion and increase the amount effective under the Facility at that time from $850.0 million to
$1.0 billion. The amended Facility retained its original maturity date of April 25, 2010, as well
as other substantive terms that were applicable to the Facility prior to the effectiveness of
Amendment No. 5. On January 30, 2008, in accordance with the Facility increase provisions set forth
in Amendment No. 5, we received an additional commitment of $50.0 million, which increased the
overall aggregate amount effective under the Facility to $1.05 billion.
The following table presents the outstanding and available amounts under our Facility at
February 28, 2009 (in millions):
|
|
|
|
|
|
|
Total Facility
|
|
$
|
1,053.0
|
|
|
Less: outstanding performance letters of credit
|
|
|
546.2
|
|
|
Less: outstanding financial letters of credit
|
|
|
210.3
|
|
|
Less: outstanding revolving credit loans
|
|
|
—
|
|
|
|
|
|
|
|
Remaining availability under the Facility
|
|
$
|
296.5
|
|
|
|
|
|
|
At February 28, 2009, the portion of the Facility available for financial letters of credit
and/or revolving credit loans is limited to the lesser of: (1) $506.8 million at February 28, 2009,
representing the total Facility ($1.053 billion at February 28, 2009) less outstanding performance
letters of credit ($546.2 million at February 28, 2009); or (2) $214.7 million at February 28,
2009, representing $425.0 million less the current outstanding amount of financial letters of
credit ($210.3 million at February 28, 2009). Total fees associated with these letters of credit
under the Facility were approximately $3.2 million and $6.4 million for the three and six months
ended February 28, 2009, respectively, as compared to $3.4 million and $6.7 million for the three
and six months ended February 29, 2008, respectively.
The interest rate margins for revolving credit loans under the Facility are in the range of:
(1) LIBOR plus 1.50% to 3.00%; or (2) the defined base rate plus 0.00% to 0.50%. Although there
were no borrowings at February 28, 2009, the interest rate that would have applied to any
borrowings under the Facility was 3.5%.
For the three and six months ended February 28, 2009, we recognized $0.7 million and $1.5
million, respectively, of interest expense associated with the amortization of financing fees
related to our Facility, as compared to $0.7 million and $1.4 million for the three and six months
ended February 29, 2008, respectively. At February 28, 2009 and August 31, 2008, unamortized
deferred financing fees related to our Facility were approximately $6.6 million and $5.3 million,
respectively.
At February 28, 2009, we were in compliance with the covenants contained in the Facility.
Other Revolving Lines of Credit
Shaw Nass, a consolidated VIE, has an available credit facility with a total capacity of 3.0
million Bahraini Dinars (BHD) or approximately $8.0 million, of which BHD 1.5 million is
available for bank guarantees and letters of credit. At February 28, 2009, this VIE had no
borrowings under its revolving line of credit and approximately $0.4 million in outstanding bank
guarantees under the facility. The interest rate applicable to any borrowings is variable (2.19% at
February 28, 2009) plus 2.25% per annum. We have provided a 50% guarantee related to this credit
facility.
We have an uncommitted, unsecured standby letter of credit facility with a bank. Fees under
this facility are paid quarterly. At February 28, 2009 and August 31, 2008, there were $27.8
million and $27.3 million of letters of credit outstanding under this facility, respectively.
On March 12, 2008, a bank extended to us a $25.0 million uncommitted, unsecured bilateral line
of credit for the issuance of performance letters of credit in Saudi Arabia. On May 21, 2008, the
bank increased its uncommitted line of credit from $25.0 million
12
to $50.0 million. Fees under this facility are paid quarterly. At February 28, 2009 and August
31, 2008, there were $49.0 million of letters of credit outstanding under this facility.
Note 8 — Income Taxes
Our consolidated effective tax rate for the three months ended February 28, 2009 was 41% while
the consolidated effective rate for the six months ended February 28, 2009 was a 1% benefit as
applied to the pre-tax loss. In determining the quarterly provision for income taxes, we use an
estimated annual effective tax rate based on forecasted annual pre-tax income, permanent items,
statutory tax rates and tax planning opportunities in the various jurisdictions in which we
operate.
The impact of significant discrete items is recognized separately in the quarter in which they
occur. The foreign currency gains and losses associated with our Japanese Yen-denominated
Westinghouse Bonds are recognized as discrete items in each reporting period due to their
volatility and the difficulty in estimating such gains and losses reliably. For the three months
ended February 28, 2009, we recorded other discrete items totaling $3.2 million, primarily as a
provision for uncertain tax positions. The six months of fiscal 2009 includes net discrete items of
$5.6 million relating to provisions for uncertain tax positions as well as a benefit for the
retroactive effect of the renewal of the Work Opportunity Tax Credit.
We expect the fiscal 2009 annual effective tax rate, excluding discrete items, applicable to
forecasted pre-tax income to be approximately 38%. Significant factors that could impact the annual
effective tax rate include management’s assessment of certain tax matters, the location and amount
of our taxable earnings, changes in certain non-deductible expenses and expected credits.
We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes,” (FIN 48) effective September 1, 2007. Under FIN 48, we provide for uncertain tax positions,
and the related interest, and adjust unrecognized tax benefits and accrued interest accordingly. We
recognize potential interest and penalties related to unrecognized tax benefits in income tax
expense.
During the second quarter of fiscal 2009, unrecognized tax benefits increased by $9.5 million
relating to temporary positions (a deferred tax asset was recorded in the same amount) and an
additional tax provision of $3.0 million along with accrued interest of $0.4 million. For the six
months of fiscal 2009, unrecognized tax benefits increased by $9.5 million relating to temporary
positions as well as an additional tax provision of $8.7 million and accrued interest of $1.2
million and decreased by $8.1 million for a position that has not been claimed in amended returns
(a deferred tax asset was reduced by the same amount). As of February 28, 2009, our unrecognized
tax benefits were $41.4 million, of which $31.0 million would, if recognized, affect our effective
tax rate.
Our subsidiaries file income tax returns in numerous tax jurisdictions, including the U.S.,
most U.S. states and certain non-U.S. jurisdictions. Tax returns are also filed in certain
jurisdictions where our subsidiaries execute project-related work. The statute of limitations
varies by the various jurisdictions in which we operate. With few exceptions, we are no longer
subject to U.S. (including federal, state and local) or non-U.S. income tax examinations by tax
authorities for years before fiscal year 2002. Although we believe our calculations for our tax
returns are correct and the positions taken thereon are reasonable, the final outcome of tax audits
could be materially different either favorable or unfavorable and, consequently, materially impact
our future results.
Certain tax years are under audit by relevant tax authorities including the current ongoing
examination of the fiscal year 2004 and 2005 U.S. federal tax returns by the Internal Revenue
Service (IRS). We have extended the statute of limitations on our U.S. federal returns for the 2004
and 2005 years being audited and for the 2002 and 2003 fiscal years involved in the IRS Appeal (see
Note 10 — Contingencies and Commitments). In addition, many U.S. states suspend the state statute
of limitations for any year for which the U.S. federal statute has been extended.
While certain of the audits and the IRS appeal may be concluded in the foreseeable future,
including in fiscal year 2009, it is not possible at this time to estimate the impact of changes
over the next 12 months in unrecognized tax benefits.
Note 9 — Share-Based Compensation
On January 28, 2009, our shareholders approved our 2008 Omnibus Incentive Plan (Omnibus Plan).
The Omnibus Plan is a comprehensive incentive compensation plan that provides for various
stock-based awards, as well as cash awards. The total number of
13
shares reserved for issuance under the Omnibus Plan is 4,500,000 shares. The Compensation
Committee of our Board of Directors, or another committee if designated by our Board of Directors,
will administer the Omnibus Plan. The Omnibus Plan terminates ten years from January 28, 2009.
Upon the Omnibus Plan’s approval by our shareholders, our existing equity compensation plans
including The Shaw Group Inc. 2001 Employee Incentive Compensation Plan and 2005 Director Plan
(collectively the Prior Plans) terminated. No new awards will be granted under the Prior Plans, and
there is no longer any authority to issue the remaining shares of common stock available under the
Prior Plans. All awards granted under the Prior Plans that were outstanding as of January 28, 2009
remain outstanding and continue to be governed by the Prior Plans. Additionally, as a result of
shareholder approval of the Omnibus Plan, 1,281,512 restricted stock units with an average market
value of $17.95 per share previously classified as liability awards were modified for accounting
purposes to be equity awards. Awards classified as liabilities result in variable compensation
expense based upon the closing price of our stock at the date of each reporting period while equity
awards result in fixed compensation expense based upon the weighted-average price per share on the
date of grant. On January 28, 2009, the price used to re-measure the liability awards was our
closing stock price of $29.39, and the modified equity awards have a weighted-average price per
share of $29.39
Restricted stock units totaling 2,374,632 shares were granted during the six months ended
February 28, 2009 at a weighted-average per share price of $17.96 vesting over approximately three
to four years. Of the 2,374,632 shares of restricted stock units granted, 1,281,512 shares were modified and regranted on January 28, 2009 under the Omnibus Plan. Restricted
stock awards and restricted stock units totaling 231,526 shares were granted in the six months
ended February 29, 2008 at a weighted-average per share price of $65.93, vesting over approximately
four years.
During the six months ended February 28, 2009 and February 29, 2008, options for the purchase
of 1,184,709 shares at a weighted-average price of $18.10 per share and 392,602 shares at a
weighted-average price of $66.35 per share, respectively, were awarded, with vesting over
approximately four years. The contractual lives of the awards during the six months ended February
28, 2009 are consistent with those of prior years. Since the year ended August 31, 2008, the
expected term assumption used in our valuation of options awarded was changed to 3.7 years.
During the six months ended February 28, 2009 and February 29, 2008, options for the purchase
of 20,381 shares at a weighted-average exercise price of $8.89 per share and 1,819,833 shares at a
weighted-average exercise price of $19.25 per share, respectively, were exercised.
For additional information related to these share-based compensation plans, see Note 11 —
Share-Based Compensation of our consolidated financial statements in our 2008 Form 10-K.
Note 10 — Contingencies and Commitments
Tax Matters
In connection with the IRS examinations of our U.S. federal tax returns for the 2002 through
2005 fiscal years, the IRS has proposed certain adjustments relating to the sourcing of procurement
income to one of our overseas entities and the dividend of such income to our U.S. parent company.
We disagree with these adjustments and the related penalties that have been proposed and have
protested such matters to the Appeals level within the IRS for fiscal years 2002 and 2003 and plan
to make a similar protest to the Appeals level for fiscal years 2004 and 2005. Discussions are
underway at the Appeals level that may lead to a resolution of the amount of procurement income to
be recognized by our U.S. parent company. A penalty may, however, be assessed separate from the
settlement of the procurement income amount. We may litigate the penalty amount that may be
assessed.
In
a separate matter, the Louisiana Department of Revenue (LDR) has filed a collection suit
against our Louisiana domiciled parent corporation for franchise taxes in the amount of $1.7
million for fiscal years 2001 and 2002 plus interest of $1.6 million (computed through June 15,
2008). The LDR’s lawsuit sets forth their theory that cash pooled by our parent corporation and
invested on behalf of our operating subsidiaries creates additional asset and revenue apportionment
to Louisiana. We plan to make the appropriate filings in opposition to such lawsuit and also
provide evidence that, if we were permitted a unitary or consolidated franchise filing covering all
of our U.S. entities, the resulting tax liability would be similar in the 2001, 2002 and subsequent
fiscal years to the total of the tax liabilities on all our Louisiana franchise tax returns as
filed. We are also under audit by the LDR for fiscal years 2003-2006.
14
While management cannot predict the ultimate outcome of either the IRS or LDR matters, provisions
have been made in our financial statements where appropriate. The matters if decided adversely to
us or settled by us, individually or in the aggregate, could have a material adverse effect on our
financial statements.
Military Housing Privatization Entities
See Note 5 — Equity Method Investments and Variable Interest Entities for discussion of
commitments and contingencies related to privatization entities.
Liabilities Related to Contracts
Our contracts often contain provisions relating to the following matters:
|
|
•
|
|
warranties, requiring achievement of acceptance and performance testing levels;
|
|
|
|
|
•
|
|
liquidated damages, if the project does not meet predetermined completion dates; and
|
|
|
|
|
•
|
|
penalties or liquidated damages for failure to meet other cost or project performance
measures.
|
We attempt to limit our exposure under these penalty or liquidated damage provisions and
attempt to pass certain cost exposure for craft labor and/or commodity-pricing risk to customers.
We also have claims from customers as well as vendors, subcontractors and others that are subject
to negotiation or the contractual dispute resolution processes defined in the contracts (see Note
15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims,
Unapproved Change Orders and Incentives for further discussion).
Other 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 that
they make pursuant to these letters of credit. The aggregate amount of outstanding financial and
performance letters of credit (including foreign and domestic, secured and unsecured) was $834.2
million and $805.1 million at February 28, 2009 and August 31, 2008, respectively. Of the amount of
outstanding letters of credit at February 28, 2009, $623.8 million are performance letters of
credit issued to our customers. Of the $623.8 million, five customers held $339.2 million or 54% of
the outstanding letters of credit. The largest letter of credit issued to a single customer on a
single project is $114.2 million.
In the ordinary course of business, we enter into various agreements providing financial or
performance assurances to customers on behalf of certain unconsolidated partnerships, joint
ventures or other jointly executed contracts. These agreements are entered into primarily to
support the project execution commitments of these entities and are generally a guaranty of our own
performance. These assurances have various expiration dates ranging from mechanical completion of
the facilities being constructed to a period extending beyond contract completion. The maximum
potential payment amount of an outstanding performance guarantee is the remaining cost of work to
be performed by or on behalf of third parties under engineering and construction contracts. Amounts
that may be required to be paid in excess of our estimated cost to complete contracts in progress
are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to
guarantee provisions are normally recoverable from the client for work performed under the
contract. For fixed price contracts, this amount is the cost to complete the contracted work less
amounts remaining to be billed to the client under the contract. Remaining billable amounts could
be greater or less than the cost to complete. In those cases where cost exceeds the remaining
amounts payable under the contract we may have recourse to third parties such as owners,
co-venturers, subcontractors or vendors.
Legal Proceedings
During fiscal year 2005, the U.S. District Court for the District of Delaware rendered a
judgment against us and in favor of Saudi American Bank (SAB) in the amount of $11.4 million
inclusive of interest and attorneys’ fees but exclusive of post-judgment legal interest while
pending appeal. In the suit against us (and others), SAB claimed that as part of our July 2000
Stone & Webster Incorporated asset acquisition, we assumed certain liabilities under an existing
loan agreement and guarantee. We appealed the
15
decision to the U.S. Court of Appeals for the Third Circuit, which issued its decision on
December 30, 2008. In that decision, the Third Circuit reversed the District Court’s summary
judgment ruling, vacated the District Court’s awards to SAB and remanded the matter to the District
Court for further consideration consistent with the Third Circuit’s findings. On January 13, 2009,
SAB filed a petition for rehearing. On February 24, 2009, the Third Circuit granted that petition
and that same day issued a new, broader opinion that again reversed, vacated and remanded the
District Court’s decision. Consistent with those findings, we expect to prevail upon the District
Court’s consideration; however, in the event that 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.
We currently have pending before the American Arbitration Association (AAA) the case of Stone
& Webster, Inc. (S&W) v. Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems, Inc.
(collectively, Mitsubishi). In that matter, S&W seeks approximately $38.0 million in damages from
Mitsubishi. Mitsubishi denies liability and has asserted a counterclaim totaling approximately
$29.0 million. On November 16, 2007, a majority of the AAA Tribunal transmitted a “Partial Final
Award” granting certain relief to S&W contingent upon further proceedings with the Tribunal.
Mitsubishi filed in U.S. District Court for the Southern District of New York a petition to vacate
the award. On November 14, 2008, S&W filed with the S.D.N.Y. a petition and motion to confirm the
Tribunal’s Partial Final Award. We anticipate the District Court will address the parties’ motions,
while the Tribunal simultaneously moves forward with its further proceedings. We previously made
provisions in our financial statements based on management’s judgment about the probable outcome of
this case. If Mitsubishi prevails on its counterclaim and/or its petition to vacate as described
above, we may not receive our claim for liquidated damages. In such an event, the individual or
combined rulings could have a material adverse effect on our financial statements for the period in
which any judgment becomes final.
In connection with a services contract signed in 2000 for the construction of two nuclear
power plants in Asia, we asserted claims against our customer before the host country’s arbitration
association. In that arbitration, we sought an approximate $49.6 million increase in the contract
target price that, if awarded, would eliminate potential penalties associated with cost
incentive/penalty provisions set forth in the contract. If the arbitration association failed to
award the target cost increase or it awarded an increase less than the requested amount, we faced
an assessment of up to approximately $12.8 million in such penalties. Further, we sought from the
customer approximately $22.2 million for reimbursement of severance and pension payments, unpaid
invoices, increased overhead and outstanding fixed fee amounts. The client presented a counterclaim
asserting $4.3 million in damages relating to alleged defective work and an additional $23.6
million for completion damages, though the contract limits such damages to $20.0 million. The
customer further sought to keep $7.2 million in cash drawn on a previously issued letter of credit
against the claims asserted. On September 3, 2008, the arbitration association rendered an award
granting most of our claims and dismissing all of the customer’s counterclaims. We have initiated
proceedings to enforce the award in both the host country and in the U.S. District Court for the
Middle District of Louisiana. The customer has initiated proceedings in the host country to contest
the award’s validity, oppose our enforcement actions and overturn the award. We have made
provisions in our financial statements based on management’s judgment about the probable outcome of
this case. If the customer prevails on its counterclaim for defective work and completion damages
and/or its challenge of the existing award to us to increase the target contract price and other
claims for compensation, the individual or combined rulings could have a material adverse effect on
our financial statements.
In connection with an international fixed price contract executed by our Fossil & Nuclear
segment that is subject to a schedule of rates for changes and where our services include
fabrication, erection and construction, we filed a Request for Arbitration with the London Court of
International Arbitration. In the request, we currently seek claims of approximately $22 million in
additional compensation from our client, the prime contractor on the project, related to delay and
disruption, loss of profit on descoped areas and changed labor practices. In addition, we have
requested additional compensation relative to remeasurements of quantities and scope variations
from our client of approximately $14.5 million. On February 5, 2009, the client, who holds a $3.8
million performance letter of credit from us, filed a response that denied our claims and stated it
had counterclaims totaling approximately $56.5 million related to certain alleged costs associated
with completing work that the client removed from our scope and damages suffered because of our
alleged failure to complete work in a timely manner. We have evaluated our claims and our client’s
counterclaims and made provisions in our financial statements based on management’s judgment about
the probable outcome of this arbitration. While we expect a favorable resolution to these matters,
the dispute resolution process could be lengthy, and if the client were to prevail completely or
substantially in this matter, the outcome could have a material adverse effect on our statement of
operations and statement of cash flows. The value of the claims and our letter of credit stated
herein in U.S. dollars do fluctuate because of changes in the exchange rate of the Pound Sterling
(GBP).
16
See Note 15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition
Including Claims, Unapproved Change Orders and Incentives for additional information related to our
claims on major projects
.
Environmental Liabilities
LandBank, a subsidiary of our Environmental and Infrastructure (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 $26.5 million of such real estate assets recorded in other
assets on the accompanying balance sheet at February 28, 2009 as compared to $27.5 million at
August 31, 2008. 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. At February 28,
2009, our E&I segment had $5.1 million of environmental liabilities recorded in other liabilities
in the accompanying balance sheets as compared to $5.7 million at August 31, 2008.
Employment Contracts
We have entered into employment agreements with each of our senior corporate executives and
certain other key employees. In the event of termination, these individuals may be entitled to
receive their base salaries, bonuses and certain other benefits for the remaining term of their
agreement and all options and similar awards may become fully vested. Additionally, for certain
executives, in the event of death, their estates are entitled to certain payments and benefits.
Note 11 — Supplemental Disclosure to Earnings (Loss) Per Common Share
Weighted average shares outstanding for the three and six months ended February 28, 2009 and
February 29, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Basic
|
|
|
83,255
|
|
|
|
82,123
|
|
|
|
83,179
|
|
|
|
81,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
567
|
|
|
|
1,746
|
|
|
|
—
|
|
|
|
2,130
|
|
|
Restricted stock
|
|
|
316
|
|
|
|
341
|
|
|
|
—
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,138
|
|
|
|
84,210
|
|
|
|
83,179
|
|
|
|
83,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table includes weighted-average shares excluded from the calculation of diluted
income per share for the three and six months ended February 28, 2009 and February 29, 2008 because
they were anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Stock options
|
|
|
2,422
|
|
|
|
379
|
|
|
|
3,860
|
|
|
|
379
|
|
|
Restricted stock
|
|
|
611
|
|
|
|
5
|
|
|
|
1,478
|
|
|
|
5
|
|
Note 12 — Comprehensive Income (Loss)
The components of comprehensive income for the three and six months ended February 28, 2009
and February 29, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
(Restated)
|
|
|
Net income (loss)
|
|
$
|
36,335
|
|
|
$
|
3,950
|
|
|
$
|
(3,582
|
)
|
|
$
|
6,180
|
|
|
Unrealized translation adjustment (losses) gains, net
|
|
|
(4,645
|
)
|
|
|
4,221
|
|
|
|
(19,904
|
)
|
|
|
5,645
|
|
|
Equity in Westinghouse’s pre-tax other comprehensive income
(loss), net of Shaw’s tax
|
|
|
(74,169
|
)
|
|
|
(3,506
|
)
|
|
|
(101,379
|
)
|
|
|
2,425
|
|
|
Interest rate swap contract on JPY-denominated bonds, net of taxes
|
|
|
(4,240
|
)
|
|
|
(3,239
|
)
|
|
|
(11,513
|
)
|
|
|
(4,236
|
)
|
|
Pension liability adjustment
|
|
|
(4,951
|
)
|
|
|
1,183
|
|
|
|
(4,372
|
)
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(51,670
|
)
|
|
$
|
2,609
|
|
|
$
|
(140,750
|
)
|
|
$
|
11,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The foreign currency translation adjustments relate primarily to changes in the value of the
U.S. dollar in relation to British pounds, Mexican pesos, Canadian dollars and the Euro.
17
Note 13 — Employee Benefit Plans
The following table sets forth the net periodic pension expense for the three foreign defined
benefit plans we sponsor for the three and six months ended February 28, 2009 and February 29, 2008
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service cost
|
|
$
|
453
|
|
|
$
|
562
|
|
|
$
|
973
|
|
|
$
|
1,141
|
|
|
Interest cost
|
|
|
1,892
|
|
|
|
2,374
|
|
|
|
4,051
|
|
|
|
4,817
|
|
|
Expected return on plan assets
|
|
|
(1,608
|
)
|
|
|
(2,394
|
)
|
|
|
(3,440
|
)
|
|
|
(4,858
|
)
|
|
Amortization of net loss
|
|
|
501
|
|
|
|
581
|
|
|
|
1,077
|
|
|
|
1,184
|
|
|
Curtailment (gain)
|
|
|
(2,725
|
)
|
|
|
—
|
|
|
|
(2,929
|
)
|
|
|
—
|
|
|
Other
|
|
|
9
|
|
|
|
10
|
|
|
|
18
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net pension expense (credit)
|
|
$
|
(1,478
|
)
|
|
$
|
1,133
|
|
|
$
|
(250
|
)
|
|
$
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2009, we amended the terms and conditions of one of our pension plans and ceased
future service and benefit accruals for all plan participants. This action meets the definition of
a curtailment under FASB Statement No. 88 and resulted in a curtailment gain of approximately $2.7
million during the second quarter.
We expect to contribute $16.7 million to our pension plans in the fiscal year 2009 calculated
at the February 28, 2009 foreign currency exchange rates. At February 28, 2009, we have made $3.9
million in contributions to these plans.
Note 14 — Related Party Transactions
We subcontracted a portion of our work with a company owned by an individual who, at the time,
was one of our directors. Our Board had previously determined that this individual was considered
non-independent. We had a balance of $0.2 million due to this company at February 28, 2009. We
believe this subcontracted work was performed under similar terms as would have been negotiated
with an unrelated party.
On May 31, 2008, our interest in Shaw Waste Solutions, LLC (SWS) was purchased by an entity
created by a former employee of ours and two minority shareholders of SWS who were also employees
of SWS in exchange for cash of approximately $0.1 million and a promissory note for $2.25 million.
Interest on the note is due semi-annually with a balloon payment due at the end of the five-year
term.
At February 28, 2009 and August 31, 2008, the amounts due to our Chief Executive Officer for a
non-compete agreement associated with his employment contract, including interest earned, were
$18.1 million and $18.0 million, respectively, and are included in current assets and current
liabilities.
|
|
|
|
|
Note 15 —
|
|
Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including
Claims, Unapproved Change Orders and Incentives
|
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 amounts is probable and
the costs can be reasonably estimated. As a result, the recording of claims increases gross profit
or reduces gross loss on the related projects in the periods the claims are reported. Profit
recognition on claims is deferred until the change order has been approved or the disputed amounts
have been settled. Claims receivable are included in costs and estimated earnings in excess of
billings on uncompleted contracts, including claims on the accompanying consolidated balance
sheets.
18
We enter into cost-reimbursable arrangements in which the final outcome or overall estimate at
completion may be materially different than the original contract value. While the terms of such
contracts indicate costs are to be reimbursed by our customers, we typically process change notice
requests to document agreement as to scope and price. Due to the nature of these items, we have not
classified and disclosed the amounts as unapproved change orders. While we have no history of
significant losses on this type of work, potential exposure exists relative to costs incurred in
excess of agreed upon contract value.
Unapproved Change Orders and Claims
Our consolidated revenues include amounts for unapproved change orders and claims on projects
recorded on a percentage-of-completion basis. For the three and six months ended February 28, 2009,
our revenues were increased by approximately $2.1 million and $20.2 million, respectively, related
to unapproved change orders and claims.
The table below (in millions) summarizes information related to our significant unapproved
change orders and claims from project owners that we have recorded on a total project basis at
February 28, 2009 and February 29, 2008, respectively, and excludes all unrecorded amounts and
individually small-unapproved change orders and claims.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Amounts included in project estimates-at-completion at September 1, 2008
|
|
$
|
63.6
|
|
|
$
|
15.1
|
|
|
Changes in estimates-at-completion
|
|
|
53.6
|
|
|
|
60.6
|
|
|
Approved by customer
|
|
|
(32.6
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
Amounts included in project estimates-at-completion at February 28, 2009
|
|
$
|
84.6
|
|
|
$
|
70.9
|
|
|
|
|
|
|
|
|
|
|
Amounts accrued in revenues (or reductions to contract costs) on a
total project basis at February 28, 2009
|
|
$
|
64.3
|
|
|
$
|
50.6
|
|
|
|
|
|
|
|
|
|
The difference between the amounts included in project estimates-at-completion (EAC) used in
determining contract profit or loss and the amounts recorded in revenues (or reductions to contract
costs) on uncompleted contracts are the forecasted costs for work which have not yet been incurred
(i.e. remaining percentage-of-completion revenue recognition on the related project).
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.
We have recorded $24.6 million in claim revenues in the current period’s financial results
associated with recovery of our expected costs resulting from schedule delays and productivity
impacts caused by owner-responsible contractors who are working on the same site as one of our
on-going projects. The expected recovery was based on our assessment of the claim(s) and
its probable resolution.
Also included in unapproved change orders and claims is the matter currently in arbitration
disclosed in additional detail in Note 10 — Contingencies and Commitments.
In
addition to the unapproved change orders and claims discussed above,
we have recorded as a reduction to costs approximately $15.1 million, based on percentage
completion accounting, in expected recoveries for backcharges, liquidated damages and other cost
exposures resulting from supplier or subcontractor caused impediments to our work. Such
impediments may be caused by the failure of suppliers or subcontractors to provide services,
materials, or equipment compliant with provisions of our agreements, resulting in delays to our
work or additional costs to remedy.
Should we not prevail in these matters, the outcome could have an adverse effect on our
statement of operations and statement of cash flows.
Project Incentives
Our contracts contain certain incentive and award fees that provide for increasing or
decreasing our revenue based on some measure of contract performance in relation to agreed upon
performance targets. The recognition of revenues on contracts containing
19
provisions for incentive and award fees follows Statement of Position (SOP) 81-1, which
provides that all components of contract revenues, including probable incentive payments such as
performance incentives and award fees, should be considered in determining total estimated
revenues.
Our revenue estimates-at-completion include an estimate of amounts which we expect to earn if
we achieve a number of agreed upon criteria. At February 28, 2009 and August 31, 2008, our project
estimates included $40.6 million and $68.2 million, respectively, related to estimated achievement
of these criteria. On a percentage-of-completion basis, we have recorded $15.3 million and $31.4
million of these estimated amounts in revenues for the related contracts and equal amounts in costs
and estimated earnings in excess of billings on uncompleted contracts in the accompanying balance
sheet based on our progress as of February 28, 2009, and August 31, 2008, respectively. If we do
not achieve the criteria at the amounts we have estimated, project revenues and profit may be
materially reduced. These incentive revenue are being recognized using the percentage-of-completion
method of accounting.
Note 16 — Business Segments
Our reportable segments are Energy and Chemicals (E&C); Fossil & Nuclear; Maintenance; E&I;
Pipe Fabrication and Manufacturing (F&M); Corporate and Investment in Westinghouse.
The E&C segment provides a range of project-related services, including design, engineering,
construction, procurement, technology and consulting services, primarily to the oil and gas,
refinery, petrochemical and chemical industries.
The Fossil & Nuclear segment provides a range of project-related services, including design,
engineering, construction, procurement, technology and consulting services, primarily to the global
fossil and nuclear power generation industries.
The Maintenance segment performs routine and outage/turnaround maintenance, predictive and
preventative maintenance, as well as construction and major modification services, to customers’
facilities in the industrial markets primarily in North America.
The E&I segment designs and executes remediation solutions including the identification of
contaminants in soil, air and water and provides integrated engineering, design and construction,
regulatory, scientific and program management services for government and private-sector clients
worldwide.
The F&M segment provides integrated piping systems and services for new construction, site
expansion and retrofit projects for energy and chemical plants. We operate several pipe fabrication
facilities in the U.S. and abroad. We also operate two manufacturing facilities that provide
products for our pipe fabrication services operations, as well as to third parties. In addition, we
operate several distribution centers in the U.S., which distribute our products to our customers.
The Corporate segment includes the corporate management and expenses associated with managing
the overall company. These expenses include compensation and benefits of corporate management and
staff, legal and professional fees and administrative and general expenses that are not allocated
to the business units. Our Corporate assets primarily include cash and cash equivalents held by the
corporate entities, property and equipment related to the corporate facility and certain information
technology costs.
The
Investment in Westinghouse segment includes our Westinghouse Equity and
the Westinghouse Bonds. Westinghouse serves the domestic and international nuclear
electric power industry by supplying advanced nuclear plant designs and equipment, fuel and a wide
range of other products and services to the owners and operators of nuclear power plants.
20
Our segments’ revenues, gross profit and income (loss) before income taxes, minority interest
and earnings (losses) from unconsolidated entities for the three and six months ended February 28,
2009 and February 29, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(In thousands, except percentages)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
(Restated)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
552,043
|
|
|
$
|
639,101
|
|
|
$
|
1,228,592
|
|
|
$
|
1,237,630
|
|
|
E&I
|
|
|
449,912
|
|
|
|
344,416
|
|
|
|
851,342
|
|
|
|
734,334
|
|
|
E&C
|
|
|
331,237
|
|
|
|
273,534
|
|
|
|
652,972
|
|
|
|
569,602
|
|
|
Maintenance
|
|
|
172,691
|
|
|
|
244,767
|
|
|
|
506,794
|
|
|
|
535,118
|
|
|
F&M
|
|
|
161,219
|
|
|
|
142,059
|
|
|
|
325,892
|
|
|
|
278,635
|
|
|
Corporate
|
|
|
415
|
|
|
|
684
|
|
|
|
2,358
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,667,517
|
|
|
$
|
1,644,561
|
|
|
$
|
3,567,950
|
|
|
$
|
3,356,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues (not included in revenues above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
1,680
|
|
|
$
|
685
|
|
|
$
|
3,200
|
|
|
$
|
1,134
|
|
|
E&I
|
|
|
6,264
|
|
|
|
496
|
|
|
|
10,407
|
|
|
|
703
|
|
|
E&C
|
|
|
326
|
|
|
|
(392
|
)
|
|
|
1,153
|
|
|
|
(381
|
)
|
|
Maintenance
|
|
|
8,812
|
|
|
|
302
|
|
|
|
15,198
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment revenues
|
|
$
|
17,082
|
|
|
$
|
1,091
|
|
|
$
|
29,958
|
|
|
$
|
2,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
(31,102
|
)
|
|
$
|
34,273
|
|
|
$
|
20,662
|
|
|
$
|
77,180
|
|
|
E&I
|
|
|
40,274
|
|
|
|
23,541
|
|
|
|
74,797
|
|
|
|
48,601
|
|
|
E&C
|
|
|
60,641
|
|
|
|
15,585
|
|
|
|
113,068
|
|
|
|
32,035
|
|
|
Maintenance
|
|
|
(1,471
|
)
|
|
|
11,835
|
|
|
|
10,206
|
|
|
|
26,614
|
|
|
F&M
|
|
|
33,670
|
|
|
|
37,695
|
|
|
|
69,356
|
|
|
|
72,824
|
|
|
Corporate
|
|
|
346
|
|
|
|
1,017
|
|
|
|
2,362
|
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
102,358
|
|
|
$
|
123,946
|
|
|
$
|
290,451
|
|
|
$
|
258,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
|
(5.6
|
)%
|
|
|
5.4
|
%
|
|
|
1.7
|
%
|
|
|
6.2
|
%
|
|
E&I
|
|
|
9.0
|
|
|
|
6.8
|
|
|
|
8.8
|
|
|
|
6.6
|
|
|
E&C
|
|
|
18.3
|
|
|
|
5.7
|
|
|
|
17.3
|
|
|
|
5.6
|
|
|
Maintenance
|
|
|
(0.9
|
)
|
|
|
4.8
|
|
|
|
2.0
|
|
|
|
5.0
|
|
|
F&M
|
|
|
20.9
|
|
|
|
26.5
|
|
|
|
21.3
|
|
|
|
26.1
|
|
|
Corporate
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
|
Total gross profit percentage
|
|
|
6.1
|
%
|
|
|
7.5
|
%
|
|
|
8.1
|
%
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest
and earnings (losses) from unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
(45,659
|
)
|
|
$
|
24,112
|
|
|
$
|
(9,784
|
)
|
|
$
|
57,302
|
|
|
E&I
|
|
|
25,107
|
|
|
|
5,437
|
|
|
|
43,708
|
|
|
|
15,226
|
|
|
E&C
|
|
|
53,083
|
|
|
|
11,708
|
|
|
|
94,925
|
|
|
|
20,344
|
|
|
Maintenance
|
|
|
(4,080
|
)
|
|
|
9,232
|
|
|
|
4,217
|
|
|
|
20,492
|
|
|
F&M
|
|
|
26,051
|
|
|
|
32,026
|
|
|
|
56,412
|
|
|
|
59,151
|
|
|
Investment in Westinghouse
|
|
|
20,017
|
|
|
|
(50,433
|
)
|
|
|
(151,143
|
)
|
|
|
(116,609
|
)
|
|
Corporate items and eliminations
|
|
|
(19,100
|
)
|
|
|
(18,847
|
)
|
|
|
(41,075
|
)
|
|
|
(39,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes, minority
interest and earnings (losses) from
unconsolidated entities
|
|
$
|
55,419
|
|
|
$
|
13,235
|
|
|
$
|
(2,740
|
)
|
|
$
|
16,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM — Not Meaningful.
21
Our segments’ assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
August 31,
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
1,119.8
|
|
|
$
|
1,019.9
|
|
|
E&I
|
|
|
886.7
|
|
|
|
784.7
|
|
|
E&C
|
|
|
723.7
|
|
|
|
714.0
|
|
|
Maintenance
|
|
|
184.0
|
|
|
|
175.2
|
|
|
F&M
|
|
|
621.7
|
|
|
|
533.6
|
|
|
Investment in Westinghouse
|
|
|
1,127.8
|
|
|
|
1,167.9
|
|
|
Corporate
|
|
|
887.2
|
|
|
|
966.9
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
5,550.9
|
|
|
|
5,362.2
|
|
|
Elimination of investment in consolidated subsidiaries
|
|
|
(412.1
|
)
|
|
|
(412.1
|
)
|
|
Elimination of intercompany receivables
|
|
|
(298.4
|
)
|
|
|
(299.1
|
)
|
|
Income taxes not allocated to segments
|
|
|
(63.8
|
)
|
|
|
(63.7
|
)
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
4,776.6
|
|
|
$
|
4,587.3
|
|
|
|
|
|
|
|
|
|
Major Customers
Revenues related to U.S. government agencies or entities owned by the U.S. government were
$377.8 million and $702.4 million for the three and six months ended February 28, 2009,
respectively, representing approximately 23% and 20%, respectively, of our total revenues for each
period. For the three and six months ended February 29, 2008, we recorded revenues related to the
U.S. government of approximately $259.2 million and $535.6 million, respectively, representing
approximately 16% of our total revenues for each period. These revenues were primarily related to
work performed in our E&I segment.
Note 17 — Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). We
adopted SFAS for our fiscal year beginning August 31, 2008. SFAS 157 establishes a three-tier
value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described
as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs
other than the quoted prices in active markets that are observable either directly or indirectly;
and (Level 3) unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities-including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159
allows an entity the irrevocable option to elect fair value for the initial and subsequent
measurement of certain financial assets and liabilities under an instrument-by-instrument election.
We did not elect the fair value option and continue measuring those assets and liabilities at
historical cost.
At February 28, 2009, our financial assets and liabilities measured at fair value on a
recurring basis were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
Location on
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
Balance Sheet
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Derivatives Designated as Hedging
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liability
|
|
Non-current liabilities
|
|
$
|
27,707
|
|
|
$
|
—
|
|
|
$
|
27,707
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward assets
|
|
Other current assets
|
|
$
|
691
|
|
|
$
|
—
|
|
|
$
|
691
|
|
|
$
|
—
|
|
|
Foreign currency forward liabilities
|
|
Other accrued liabilities
|
|
$
|
3,610
|
|
|
$
|
—
|
|
|
$
|
3,610
|
|
|
$
|
—
|
|
22
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss)
|
|
|
|
Recognized in Income on Derivatives
|
|
|
|
Six months Ended
|
|
|
|
February 28, 2009
|
|
Derivatives Designated as
Hedging Instruments
|
|
|
|
|
|
Interest rate swap liability
|
|
Other comprehensive
income
|
|
See Note 12 -
Comprehensive
Income (Loss)
|
|
|
|
Derivatives Not Designated as
Hedging Instruments
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Other foreign
currency
transaction gains,
net
|
|
$(1.5) million
|
We value the interest rate swap liability utilizing a discounted cash flow model that takes
into consideration forward interest rates observable in the market and the firm’s credit risk. Our
counterparty to this instrument is a major U.S. bank. As discussed in Note 7 — Long-Term Debt and
Revolving Lines of Credit, we designated the swap as a hedge against changes in cash flows
attributable to changes in the benchmark interest rate related to our Westinghouse Bonds.
We manage our currency exposures through the use of foreign currency derivative instruments
denominated in our major currencies, which are generally the currencies of the countries for which
we do the majority of our international business. We utilize derivative instruments to manage the
foreign currency exposures related to specific assets and liabilities that are denominated in
foreign currencies and to manage forecasted cash flows denominated in foreign currencies generally
related to engineering and construction projects. Our counterparties to these instruments are major
U.S. banks. These currency derivative instruments are carried on the consolidated balance sheet at
fair value and are based upon market observable forward exchange rates and forward interest rates.
We value derivative assets by discounting future cash flows based on currency forward rates.
The discount rate used for valuing derivative assets incorporates counterparty credit risk, as well
as the firm’s cost of capital. Derivative liabilities are valued using a discount rate which
incorporates the firm’s credit risk.
Note 18 — New Accounting Pronouncements
In June 2008, the FASB Staff Position ratified the consensuses of Emerging Issues Task Force
(EITF) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities” (EITF 03-6-1). EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior to vesting and
therefore, need to be included in the earnings allocation in computing earnings per share (EPS).
This consensus is effective for our fiscal year beginning September 1, 2009. We are currently
evaluating the impact of EITF 03-6-1 on our consolidated financial statements. We do not anticipate
that the adoption of this pronouncement will have a material effect on our consolidated financial
statements.
In June 2008, the FASB ratified the consensuses of Emerging Issues Task Force (EITF) Issue No.
08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (EITF 08-3). This consensus is
effective for our fiscal year beginning September 1, 2009. We are currently evaluating the impact
of EITF 08-3 on our consolidated financial statements. We do not anticipate that the adoption of
this pronouncement will have a material effect on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements — an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires that ownership
interests in subsidiaries held by parties other than the parent, and the amount of consolidated net
income, be clearly identified, labeled and presented in the consolidated financial statements. It
also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary be initially measured at fair value. Sufficient disclosures are required to
clearly identify and distinguish between the interests of the
23
parent and the interests of the noncontrolling owners. It is effective for our fiscal year
beginning September 1, 2009 and requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests. All other requirements shall be applied
prospectively. We are currently evaluating the impact of adopting SFAS 160 on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R). SFAS
141R amends SFAS 141 and provides revised guidance for recognizing and measuring identifiable
assets and goodwill acquired, liabilities assumed and any noncontrolling interest in the acquired
business. It also provides disclosure requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. It is effective for our
fiscal year beginning September 1, 2009 and will be applied prospectively. We do not believe that
adopting SFAS 141R will have a material impact on our historical consolidated financial statements
but will impact our financial presentation to the extent we complete material acquisitions on or
after September 1, 2009.
In December 2007, the FASB ratified the consensus of Emerging Issues Task Force (EITF) Issue
No. 07-1, “Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 applies to
participants in collaborative arrangements that are conducted without the creation of a separate
legal entity for the arrangement. EITF 07-1 is effective for our fiscal year beginning September 1,
2009, and the effects of applying the consensus should be reported as a change in accounting
principle through retrospective application to all prior periods presented for all arrangements in
place at the effective date unless it is impracticable. We do not believe that adopting SFAS 141R
will have a material impact on our consolidated financial statements.
Note 19 — Supplemental Cash Flow Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Six Months Ended
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest)
|
|
$
|
15,484
|
|
|
$
|
17,025
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
58,173
|
|
|
$
|
2,647
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Financed insurance premiums
|
|
$
|
—
|
|
|
$
|
12,784
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract on Japanese
Yen-denominated bonds, net of deferred
tax of $7,392 and $2,666 respectively
|
|
$
|
11,513
|
|
|
$
|
4,236
|
|
|
|
|
|
|
|
|
|
|
Equity in Westinghouse accumulated other
comprehensive income, net of deferred
tax of $(65,089) and $1,557,
respectively
|
|
$
|
(101,379
|
)
|
|
$
|
2,425
|
|
|
|
|
|
|
|
|
|
24
Note 20 — Restatement of Prior Fiscal Year Quarterly Consolidated Statements
As reported in our Current Report on Form 8-K dated October 30, 2008, in connection with the
preparation of our 2008 Form 10K, we determined that the net income for the three and six months ended
February 29, 2008 should be reduced by $4.9 million, due primarily to an error on a coal power
project in our Fossil & Nuclear segment with respect to the estimated cost at completion on a
fixed-price contract. The adjustments to the three and six months ended February 29, 2008 include the
correction of this error as well as other accumulated errors pursuant to Staff Accounting Bulletin
108 (SAB 108). The adjustments are consistent with those addressed in Note 21 — Quarterly
Financial Data (Unaudited) and Current Year Corrections of Errors in Part II, Item 8 of our 2008
Form 10-K.
The tables below provide the impact of the errors on our previously reported consolidated
financial statements (dollars in thousands):
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended February 29, 2008
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues
|
|
$
|
1,653,222
|
|
|
$
|
(8,661
|
)
|
|
$
|
1,644,561
|
|
|
Cost of revenues
|
|
|
1,518,205
|
|
|
|
2,410
|
|
|
|
1,520,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
135,017
|
|
|
|
(11,071
|
)
|
|
|
123,946
|
|
|
General and administrative expenses
|
|
|
73,798
|
|
|
|
(2,135
|
)
|
|
|
71,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
61,219
|
|
|
|
(8,936
|
)
|
|
|
52,283
|
|
|
Interest expense
|
|
|
(2,379
|
)
|
|
|
(438
|
)
|
|
|
(2,817
|
)
|
|
Interest expense on Japanese Yen-denominated bonds including accretion and
amortization
|
|
|
(9,195
|
)
|
|
|
(57
|
)
|
|
|
(9,252
|
)
|
|
Interest income
|
|
|
6,399
|
|
|
|
129
|
|
|
|
6,528
|
|
|
Foreign currency translation (losses) on Japanese Yen-denominated bonds, net
|
|
|
(40,559
|
)
|
|
|
86
|
|
|
|
(40,473
|
)
|
|
Other foreign currency transaction gains, net
|
|
|
5,612
|
|
|
|
960
|
|
|
|
6,572
|
|
|
Other income, net
|
|
|
334
|
|
|
|
60
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and earnings (losses) from
unconsolidated entities
|
|
|
21,431
|
|
|
|
(8,196
|
)
|
|
|
13,235
|
|
|
Provision for income taxes
|
|
|
7,184
|
|
|
|
(3,236
|
)
|
|
|
3,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and earnings (losses) from unconsolidated entities
|
|
|
14,247
|
|
|
|
(4,960
|
)
|
|
|
9,287
|
|
|
Minority interest
|
|
|
(6,883
|
)
|
|
|
31
|
|
|
|
(6,852
|
)
|
|
Income from 20% Investment in Westinghouse, net of income taxes
|
|
|
2,061
|
|
|
|
—
|
|
|
|
2,061
|
|
|
Earnings (losses) from unconsolidated entities, net of income taxes
|
|
|
(546
|
)
|
|
|
—
|
|
|
|
(546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,879
|
|
|
$
|
(4,929
|
)
|
|
$
|
3,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.11
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
82,123
|
|
|
|
—
|
|
|
|
82,123
|
|
|
Diluted
|
|
|
84,210
|
|
|
|
—
|
|
|
|
84,210
|
|
25
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended February 29, 2008
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Revenues
|
|
$
|
3,365,382
|
|
|
$
|
(8,661
|
)
|
|
$
|
3,356,721
|
|
|
Cost of revenues
|
|
|
3,095,347
|
|
|
|
2,410
|
|
|
|
3,097,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
270,035
|
|
|
|
(11,071
|
)
|
|
|
258,964
|
|
|
General and administrative expenses
|
|
|
142,686
|
|
|
|
(2,135
|
)
|
|
|
140,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
127,349
|
|
|
|
(8,936
|
)
|
|
|
118,413
|
|
|
Interest expense
|
|
|
(4,543
|
)
|
|
|
(438
|
)
|
|
|
(4,981
|
)
|
|
Interest expense on Japanese Yen-denominated bonds including accretion and
amortization
|
|
|
(18,087
|
)
|
|
|
(57
|
)
|
|
|
(18,144
|
)
|
|
Interest income
|
|
|
11,214
|
|
|
|
129
|
|
|
|
11,343
|
|
|
Foreign currency translation (losses) on Japanese Yen-denominated bonds, net
|
|
|
(97,797
|
)
|
|
|
86
|
|
|
|
(97,711
|
)
|
|
Other foreign currency transaction gains, net
|
|
|
6,776
|
|
|
|
960
|
|
|
|
7,736
|
|
|
Other income, net
|
|
|
39
|
|
|
|
60
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interest and earnings from
unconsolidated entities
|
|
|
24,951
|
|
|
|
(8,196
|
)
|
|
|
16,755
|
|
|
Provision for income taxes
|
|
|
9,300
|
|
|
|
(3,236
|
)
|
|
|
6,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and earnings from unconsolidated entities
|
|
|
15,651
|
|
|
|
(4,960
|
)
|
|
|
10,691
|
|
|
Minority interest
|
|
|
(11,865
|
)
|
|
|
31
|
|
|
|
(11,834
|
)
|
|
Income from 20% Investment in Westinghouse, net of income taxes
|
|
|
6,876
|
|
|
|
—
|
|
|
|
6,876
|
|
|
Earnings from unconsolidated entities, net of income taxes
|
|
|
447
|
|
|
|
—
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,109
|
|
|
$
|
(4,929
|
)
|
|
$
|
6,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,404
|
|
|
|
—
|
|
|
|
81,404
|
|
|
Diluted
|
|
|
83,893
|
|
|
|
—
|
|
|
|
83,893
|
|
The adjustments for the three and six months ended February 29, 2008 include errors in the
accounting for:
|
|
•
|
|
Adjustments in revenue and gross profit due primarily to an $8.2 million reduction for
the percent completion revenue amount related to a $9.8 million error in the estimated at
completion cost for a fixed-price coal fired power project; and a $0.5 million reduction
for other adjustments of varying amounts.
|
|
|
|
|
•
|
|
Adjustments to cost of revenues and gross profit include a $0.9 million reduction in
management incentives due to an error on the fixed-price coal fired power project mentioned
above; a $1.3 million increase for workers’ compensation and other claims on a project; a
$1.1 million increased accrual for vacation and other employee related benefits; and an
increase of $0.9 million for other adjustments of varying amounts.
|
|
|
|
|
•
|
|
Adjustments to general and administrative expenses include a $1.1 million reduction due
to adjustments to various incentive plans; and a $1.0 million reduction for other
adjustments of varying amounts.
|
|
|
|
|
•
|
|
Adjustments to foreign translation/transaction gain/(loss) include a gain of $1.0
million related to foreign currency transactions not previously recorded.
|
|
|
|
|
•
|
|
An adjustment to the provision for income taxes related to the impact of the items noted
above.
|
26
Statement of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended February 29, 2008
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
Reported (1)
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,109
|
|
|
$
|
(4,929
|
)
|
|
$
|
6,180
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
22,238
|
|
|
|
254
|
|
|
|
22,492
|
|
|
(Benefit from) deferred income taxes
|
|
|
(34,328
|
)
|
|
|
(3,236
|
)
|
|
|
(37,564
|
)
|
|
Stock-based compensation expense
|
|
|
9,178
|
|
|
|
—
|
|
|
|
9,178
|
|
|
(Earnings) from unconsolidated entities, net of taxes
|
|
|
(6,573
|
)
|
|
|
—
|
|
|
|
(6,573
|
)
|
|
Distributions from unconsolidated entities
|
|
|
13,195
|
|
|
|
—
|
|
|
|
13,195
|
|
|
Foreign currency transaction losses, net
|
|
|
91,021
|
|
|
|
(1,046
|
)
|
|
|
89,975
|
|
|
Minority interest
|
|
|
11,865
|
|
|
|
(30
|
)
|
|
|
11,835
|
|
|
Impairment of investments in unconsolidated entities
|
|
|
1,073
|
|
|
|
—
|
|
|
|
1,073
|
|
|
Impairment
of fixed assets
|
|
|
1,000
|
|
|
|
—
|
|
|
|
1,000
|
|
|
Other noncash items
|
|
|
(19,224
|
)
|
|
|
291
|
|
|
|
(18,933
|
)
|
|
Changes in assets and liabilities, net of effects of acquisitions and
consolidation of variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in receivables
|
|
|
68,940
|
|
|
|
1
|
|
|
|
68,941
|
|
|
(Increase) in costs and estimated earnings in excess of billings on
uncompleted contracts, including claims
|
|
|
(29,069
|
)
|
|
|
(1,160
|
)
|
|
|
(30,229
|
)
|
|
(Increase) in inventories
|
|
|
(9,964
|
)
|
|
|
428
|
|
|
|
(9,536
|
)
|
|
Decrease in other current assets
|
|
|
12,509
|
|
|
|
(3,082
|
)
|
|
|
9,427
|
|
|
Increase in accounts payable
|
|
|
10,927
|
|
|
|
1,011
|
|
|
|
11,938
|
|
|
(Decrease) in accrued liabilities
|
|
|
(3,359
|
)
|
|
|
(1
|
)
|
|
|
(3,360
|
)
|
|
Increase in advanced billings and billings in excess of costs and estimated
earnings on uncompleted contracts
|
|
|
135,191
|
|
|
|
9,038
|
|
|
|
144,229
|
|
|
Net change in other assets and liabilities
|
|
|
18,994
|
|
|
|
(320
|
)
|
|
|
18,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
304,723
|
|
|
|
(2,781
|
)
|
|
|
301,942
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(70,748
|
)
|
|
|
447
|
|
|
|
(70,301
|
)
|
|
Proceeds from sale of businesses and assets
|
|
|
15,551
|
|
|
|
—
|
|
|
|
15,551
|
|
|
Investments in, advances to, and return of capital from unconsolidated entities
and joint ventures
|
|
|
(480
|
)
|
|
|
—
|
|
|
|
(480
|
)
|
|
Change in restricted and escrowed cash, net
|
|
|
7,694
|
|
|
|
—
|
|
|
|
7,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(47,983
|
)
|
|
|
447
|
|
|
|
(47,536
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(9,161
|
)
|
|
|
—
|
|
|
|
(9,161
|
)
|
|
Repayment of debt, deferred financing costs and capital leases
|
|
|
(6,812
|
)
|
|
|
(56
|
)
|
|
|
(6,868
|
)
|
|
Issuance of common stock
|
|
|
35,037
|
|
|
|
102
|
|
|
|
35,139
|
|
|
Excess tax benefits from exercise of stock options and vesting of restricted stock
|
|
|
31,001
|
|
|
|
—
|
|
|
|
31,001
|
|
|
Proceeds from revolving credit agreements
|
|
|
10,094
|
|
|
|
—
|
|
|
|
10,094
|
|
|
Repayments of revolving credit agreements
|
|
|
(9,351
|
)
|
|
|
—
|
|
|
|
(9,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
50,808
|
|
|
|
46
|
|
|
|
50,854
|
|
|
Effects of foreign exchange rate changes on cash
|
|
|
824
|
|
|
|
—
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
308,372
|
|
|
|
(2,288
|
)
|
|
|
306,084
|
|
|
Cash and cash equivalents — beginning of year
|
|
|
341,359
|
|
|
|
—
|
|
|
|
341,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents — end of period
|
|
$
|
649,731
|
|
|
$
|
(2,288
|
)
|
|
$
|
647,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The previously reported amounts have been condensed to conform to the current year’s
presentation.
|
In connection with the presentation of February 29, 2008 restated cash flow statement in this
February 28, 2009 Form 10-Q, we identified errors in the compilation of the February 29, 2008
condensed cash flow information presented in the restatement footnote included in the 2008 Form
10-K. We previously reported no changes in our originally reported net cash provided by operations,
investing, or financing amounts as a result of the restatement. The effects of these errors from
the previously presented restated cash flow statement in the 2008 Form 10-K are a decrease in net
cash provided by operating activities of $2.8 million and an increase in net cash provided by
investing activities of approximately $0.4 million to properly reflect the effects of the changes
to the balance sheet accounts as a result of the restatement adjustments.
27
Balance Sheet (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2008
|
|
|
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
649,730
|
|
|
$
|
(2,288
|
)(a)
|
|
$
|
647,442
|
|
|
Restricted and escrowed cash
|
|
|
15,389
|
|
|
|
87
|
|
|
|
15,476
|
|
|
Accounts receivable, including retainage, net
|
|
|
700,208
|
|
|
|
(73
|
)
|
|
|
700,135
|
|
|
Inventories
|
|
|
194,472
|
|
|
|
(428
|
)
|
|
|
194,044
|
|
|
Costs and estimated earnings in excess of billings on
uncompleted contracts, including claims
|
|
|
425,581
|
|
|
|
1,160
|
(b)
|
|
|
426,741
|
|
|
Deferred income taxes
|
|
|
103,441
|
|
|
|
3,348
|
(c)
|
|
|
106,789
|
|
|
Prepaid expenses
|
|
|
36,064
|
|
|
|
(1,341
|
)(d)
|
|
|
34,723
|
|
|
Other current assets
|
|
|
36,102
|
|
|
|
2,308
|
(a)
|
|
|
38,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,160,987
|
|
|
|
2,773
|
|
|
|
2,163,760
|
|
|
Investments in and advances to unconsolidated entities,
joint ventures and limited partnerships
|
|
|
25,825
|
|
|
|
—
|
|
|
|
25,825
|
|
|
Investment in Westinghouse
|
|
|
1,138,578
|
|
|
|
—
|
|
|
|
1,138,578
|
|
|
Property and equipment
|
|
|
483,019
|
|
|
|
(426
|
)
|
|
|
482,593
|
|
|
Less: accumulated depreciation
|
|
|
(217,344
|
)
|
|
|
(201
|
)
|
|
|
(217,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant, and equipment
|
|
|
265,675
|
|
|
|
(627
|
)(e)
|
|
|
265,048
|
|
|
Goodwill
|
|
|
508,858
|
|
|
|
—
|
|
|
|
508,858
|
|
|
Intangible assets
|
|
|
25,860
|
|
|
|
—
|
|
|
|
25,860
|
|
|
Deferred income taxes
|
|
|
17,341
|
|
|
|
—
|
|
|
|
17,341
|
|
|
Other assets
|
|
|
94,429
|
|
|
|
20
|
|
|
|
94,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,237,553
|
|
|
$
|
2,166
|
|
|
$
|
4,239,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
564,180
|
|
|
$
|
932
|
(f)
|
|
$
|
565,112
|
|
|
Accrued salaries, wages and benefits
|
|
|
120,399
|
|
|
|
—
|
|
|
|
120,399
|
|
|
Other accrued liabilities
|
|
|
192,012
|
|
|
|
110
|
|
|
|
192,122
|
|
|
Advanced billings and billings in excess of costs and
estimated earnings on uncompleted contracts
|
|
|
706,416
|
|
|
|
9,039
|
(g)
|
|
|
715,455
|
|
|
Short-term debt and current maturities of long-term debt
|
|
|
14,748
|
|
|
|
(1,760
|
)(d)
|
|
|
12,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,597,755
|
|
|
|
8,321
|
|
|
|
1,606,076
|
|
|
Long-term debt, less current maturities
|
|
|
4,571
|
|
|
|
35
|
|
|
|
4,606
|
|
|
Japanese Yen-denominated long-term bonds secured by
Investment in Westinghouse, net
|
|
|
1,187,797
|
|
|
|
—
|
|
|
|
1,187,797
|
|
|
Interest rate swap contract on Japanese Yen-denominated bonds
|
|
|
13,569
|
|
|
|
—
|
|
|
|
13,569
|
|
|
Other liabilities
|
|
|
72,119
|
|
|
|
(2,506
|
)(h)
|
|
|
69,613
|
|
|
Minority interest
|
|
|
26,411
|
|
|
|
37
|
|
|
|
26,448
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Common stock
|
|
|
1,182,932
|
|
|
|
102
|
|
|
|
1,183,034
|
|
|
Retained earnings
|
|
|
279,768
|
|
|
|
(4,929
|
)
|
|
|
274,839
|
|
|
Accumulated other comprehensive loss
|
|
|
(13,160
|
)
|
|
|
1,106
|
(h)
|
|
|
(12,054
|
)
|
|
Treasury stock
|
|
|
(114,209
|
)
|
|
|
—
|
|
|
|
(114,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,335,331
|
|
|
|
(3,721
|
)
|
|
|
1,331,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
4,237,553
|
|
|
$
|
2,166
|
|
|
$
|
4,239,719
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustments for the balance sheet at February 29, 2008 include errors in accounting for:
|
|
(a)
|
|
Adjustments to reduce our cash and increase our other current assets to reflect the
assignment of a bank account to a trustee for liquidation of a dormant foreign subsidiary and properly classify interest receivable.
|
|
|
|
|
(b)
|
|
Adjustments to properly reflect foreign exchange gain/loss impact on costs and
estimated earnings in excess of billings.
|
|
|
|
|
(c)
|
|
An adjustment to income taxes related to the impact of the restatement adjustments.
|
|
|
|
|
(d)
|
|
An adjustment to properly reflect a payment on the current portion of long-term debt as
a reduction of current maturities of long-term debt.
|
|
|
|
|
(e)
|
|
Adjustments to properly reflect tenant improvement allowances as other liabilities.
|
|
|
|
|
(f)
|
|
Adjustments to properly accrue for worker’s compensation and general liability claims.
|
|
|
|
|
(g)
|
|
Adjustments for reduction for the percent complete revenue amount related to an error
in the estimated at completion cost for a fixed price coal fired power plant; and an
increase for other adjustments of varying amounts.
|
|
|
|
|
(h)
|
|
Adjustments to decrease the net pension liability and accumulated other comprehensive
loss for the proper application of pension accounting; adjustment to properly classify
tenant improvements allowances; and a decrease for other adjustments of varying amounts.
|
28
The following table presents corrected information concerning segment revenues, gross profit
and income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities for the three and six months ended February 29, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
February 29, 2008 (Unaudited)
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
647,396
|
|
|
$
|
(8,295
|
)
|
|
$
|
639,101
|
|
|
E&I
|
|
|
344,459
|
|
|
|
(43
|
)
|
|
|
344,416
|
|
|
E&C
|
|
|
273,291
|
|
|
|
243
|
|
|
|
273,534
|
|
|
Maintenance
|
|
|
244,446
|
|
|
|
321
|
|
|
|
244,767
|
|
|
F&M
|
|
|
142,946
|
|
|
|
(887
|
)
|
|
|
142,059
|
|
|
Corporate and other
|
|
|
684
|
|
|
|
—
|
|
|
|
684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,653,222
|
|
|
$
|
(8,661
|
)
|
|
$
|
1,644,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues (not included
in revenues above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
685
|
|
|
$
|
—
|
|
|
$
|
685
|
|
|
E&I
|
|
|
496
|
|
|
|
—
|
|
|
|
496
|
|
|
E&C
|
|
|
(392
|
)
|
|
|
—
|
|
|
|
(392
|
)
|
|
Maintenance
|
|
|
302
|
|
|
|
—
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment revenues
|
|
$
|
1,091
|
|
|
$
|
—
|
|
|
$
|
1,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
43,522
|
|
|
$
|
(9,249
|
)
|
|
$
|
34,273
|
|
|
E&I
|
|
|
23,217
|
|
|
|
324
|
|
|
|
23,541
|
|
|
E&C
|
|
|
16,214
|
|
|
|
(629
|
)
|
|
|
15,585
|
|
|
Maintenance
|
|
|
11,985
|
|
|
|
(150
|
)
|
|
|
11,835
|
|
|
F&M
|
|
|
39,020
|
|
|
|
(1,325
|
)
|
|
|
37,695
|
|
|
Corporate and other
|
|
|
1,059
|
|
|
|
(42
|
)
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
135,017
|
|
|
$
|
(11,071
|
)
|
|
$
|
123,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
|
6.7
|
%
|
|
|
|
|
|
|
5.4
|
%
|
|
E&I
|
|
|
6.7
|
%
|
|
|
|
|
|
|
6.8
|
%
|
|
E&C
|
|
|
5.9
|
%
|
|
|
|
|
|
|
5.7
|
%
|
|
Maintenance
|
|
|
4.9
|
%
|
|
|
|
|
|
|
4.8
|
%
|
|
F&M
|
|
|
27.3
|
%
|
|
|
|
|
|
|
26.5
|
%
|
|
Corporate and other
|
|
NM
|
|
|
|
|
|
|
NM
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
February 29, 2008 (Unaudited)
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
8.2
|
%
|
|
|
|
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes, minority interest and
earnings (losses) from
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
32,813
|
|
|
$
|
(8,701
|
)
|
|
$
|
24,112
|
|
|
E&I
|
|
|
5,120
|
|
|
|
317
|
|
|
|
5,437
|
|
|
E&C
|
|
|
11,842
|
|
|
|
(134
|
)
|
|
|
11,708
|
|
|
Maintenance
|
|
|
9,297
|
|
|
|
(65
|
)
|
|
|
9,232
|
|
|
F&M
|
|
|
33,157
|
|
|
|
(1,131
|
)
|
|
|
32,026
|
|
|
Investment in Westinghouse
|
|
|
(50,462
|
)
|
|
|
29
|
|
|
|
(50,433
|
)
|
|
Corporate and other
|
|
|
(20,336
|
)
|
|
|
1,489
|
|
|
|
(18,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes,
minority interest and earnings
(losses) from unconsolidated
entities
|
|
$
|
21,431
|
|
|
$
|
(8,196
|
)
|
|
$
|
13,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
February 29, 2008 (Unaudited)
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
1,245,925
|
|
|
$
|
(8,295
|
)
|
|
$
|
1,237,630
|
|
|
E&I
|
|
|
734,377
|
|
|
|
(43
|
)
|
|
|
734,334
|
|
|
E&C
|
|
|
569,359
|
|
|
|
243
|
|
|
|
569,602
|
|
|
Maintenance
|
|
|
534,797
|
|
|
|
321
|
|
|
|
535,118
|
|
|
F&M
|
|
|
279,522
|
|
|
|
(887
|
)
|
|
|
278,635
|
|
|
Corporate and other
|
|
|
1,402
|
|
|
|
—
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,365,382
|
|
|
$
|
(8,661
|
)
|
|
$
|
3,356,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues (not included
in revenues above):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
1,134
|
|
|
$
|
—
|
|
|
$
|
1,134
|
|
|
E&I
|
|
|
702
|
|
|
|
1
|
|
|
|
703
|
|
|
E&C
|
|
|
(381
|
)
|
|
|
—
|
|
|
|
(381
|
)
|
|
Maintenance
|
|
|
878
|
|
|
|
—
|
|
|
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment revenues
|
|
$
|
2,333
|
|
|
$
|
1
|
|
|
$
|
2,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
86,429
|
|
|
$
|
(9,249
|
)
|
|
$
|
77,180
|
|
|
E&I
|
|
|
48,277
|
|
|
|
324
|
|
|
|
48,601
|
|
|
E&C
|
|
|
32,664
|
|
|
|
(629
|
)
|
|
|
32,035
|
|
|
Maintenance
|
|
|
26,764
|
|
|
|
(150
|
)
|
|
|
26,614
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
Previously
|
|
|
Restatement
|
|
|
|
|
|
February 29, 2008 (Unaudited)
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
(in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F&M
|
|
|
74,149
|
|
|
|
(1,325
|
)
|
|
|
72,824
|
|
|
Corporate and other
|
|
|
1,752
|
|
|
|
(42
|
)
|
|
|
1,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
270,035
|
|
|
$
|
(11,071
|
)
|
|
$
|
258,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
|
6.9
|
%
|
|
|
|
|
|
|
6.2
|
%
|
|
E&I
|
|
|
6.6
|
%
|
|
|
|
|
|
|
6.6
|
%
|
|
E&C
|
|
|
5.7
|
%
|
|
|
|
|
|
|
5.6
|
%
|
|
Maintenance
|
|
|
5.0
|
%
|
|
|
|
|
|
|
5.0
|
%
|
|
F&M
|
|
|
26.5
|
%
|
|
|
|
|
|
|
26.1
|
%
|
|
Corporate and other
|
|
NM
|
|
|
|
|
|
|
NM
|
|
|
Total gross profit percentage
|
|
|
8.0
|
%
|
|
|
|
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes, minority interest and
earnings (losses) from
unconsolidated entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
66,003
|
|
|
$
|
(8,701
|
)
|
|
$
|
57,302
|
|
|
E&I
|
|
|
14,909
|
|
|
|
317
|
|
|
|
15,226
|
|
|
E&C
|
|
|
20,478
|
|
|
|
(134
|
)
|
|
|
20,344
|
|
|
Maintenance
|
|
|
20,557
|
|
|
|
(65
|
)
|
|
|
20,492
|
|
|
F&M
|
|
|
60,282
|
|
|
|
(1,131
|
)
|
|
|
59,151
|
|
|
Investment in Westinghouse
|
|
|
(116,638
|
)
|
|
|
29
|
|
|
|
(116,609
|
)
|
|
Corporate and other
|
|
|
(40,640
|
)
|
|
|
1,489
|
|
|
|
(39,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes,
minority interest and earnings
(losses) from unconsolidated
entities
|
|
$
|
24,951
|
|
|
$
|
(8,196
|
)
|
|
$
|
16,757
|
|
|
|
|
|
|
|
|
|
|
|
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Form 10-Q may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Act of 1995. The words
“believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other
similar expressions are intended to identify forward-looking statements, which are generally not
historical in nature. However, the absence of these words does not mean that the statements are
not forward-looking. These forward-looking statements are based on our current expectations and
beliefs concerning future developments and their potential effect on us. While management believes
that these forward-looking statements are reasonable as and when made, there can be no assurance
that future developments affecting us will be those that we anticipate. All comments concerning our
expectations for future revenues and operating results are based on our forecasts for our existing
operations and do not include the potential impact of any future acquisitions. Our forward-looking
statements involve significant risks and uncertainties (some of which are beyond our control) and
assumptions that could cause actual results to differ materially from our historical experience and
from present expectations or projections. Important factors that could cause actual results to
differ materially from those in the forward-looking statements include, but are not limited to:
|
|
•
|
|
the recent significant deterioration in global economic conditions;
|
|
|
|
|
•
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|
changes in demand for our products and services;
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31
|
|
•
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|
our ability to obtain new contracts for large-scale domestic and international projects
and the timing of the performance of these contracts;
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|
|
|
|
•
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|
changes in the nature of the individual markets in which our customers operate;
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|
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•
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|
project management risks, including additional costs, reductions in revenues, claims,
disputes and the payment of liquidated damages;
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|
|
|
|
•
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|
the nature of our contracts, particularly fixed-price contracts, and the impact of
possible misestimates and/or cost escalations associated with our contracts;
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|
|
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•
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|
ability of our customers to unilaterally terminate our contracts;
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|
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|
•
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|
our ability to collect funds on work performed for governmental agencies and private
sector customers that are facing financial challenges;
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•
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|
delays and/or defaults in customer payments;
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|
|
•
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|
unexpected adjustments and cancellations to our backlog as a result of current economic
conditions or otherwise;
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•
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|
the failure to meet schedule or performance requirements of our contracts;
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|
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•
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our dependence on one or a few significant customers, partners, subcontractors and
equipment manufacturers;
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|
|
|
|
•
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|
potential contractual and operational costs related to our environmental and
infrastructure operations;
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|
|
|
|
•
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|
risks associated with our integrated environmental solutions businesses;
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|
|
|
|
•
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|
reputation and financial exposure due to the failure of our partners to perform their
contractual obligations;
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|
|
|
|
•
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|
the presence of competitors with greater financial resources and the impact of
competitive technology, products, services and pricing;
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|
|
|
|
•
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|
weakness in our stock price might indicate a decline in our fair value requiring us to
further evaluate whether our goodwill has been impaired;
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|
|
|
|
•
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|
our failure to attract and retain qualified personnel, including key members of our
management;
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|
|
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|
•
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|
work stoppages and other labor problems;
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|
•
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|
potential professional liability, product liability, warranty and other potential
claims, which may not be covered by insurance;
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|
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•
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|
unavoidable delays in our project execution due to weather conditions, including
hurricanes and other natural disasters;
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|
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•
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|
changes in environmental factors and laws and regulations that could increase our costs
and liabilities and affect the demand for our services;
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|
•
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|
the limitation or the modification of the Price-Anderson Act’s indemnification
authority;
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|
•
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|
our dependency on technology in our operations and the possible impact of system and
information technology interruptions;
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|
|
|
•
|
|
protection and validity of patents and other intellectual property rights;
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|
|
|
|
•
|
|
risks related to our Investment in Westinghouse;
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32
|
|
•
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|
changes in the estimates and assumptions we use to prepare our financial statements;
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•
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|
our use of the percentage-of-completion accounting method;
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•
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|
changes in our liquidity position, and/or our ability to maintain or increase our
letters of credit and surety bonds or other means of credit support of projects;
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|
|
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|
•
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|
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;
|
|
|
|
|
•
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|
covenants in our credit facility agreements that restrict our ability to pursue our
business strategies;
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•
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|
our indebtedness, which could adversely affect our financial condition and impair our
ability to fulfill our obligations under our credit facility;
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•
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outcomes of pending and future litigation and regulatory actions;
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•
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downgrades of our debt securities by rating agencies;
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•
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foreign currency fluctuations;
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•
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our ability to successfully identify, integrate and complete acquisitions;
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•
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unexpected liabilities associated with various acquisitions, including the Stone &
Webster and IT Group acquisitions;
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•
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a determination to write-off a significant amount of intangible assets or long-lived
assets;
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•
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changes in the political and economic conditions of the foreign countries where we
operate;
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•
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significant changes in the market price of our equity securities;
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•
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provisions in our articles of incorporation, by-laws and shareholder rights agreement
that could make it more difficult to acquire us and may reduce the market price of our
common stock;
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•
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|
the ability of our customers to obtain financing to fund their projects;
|
|
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•
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|
the ability of our customers to receive or the possibility of our customers being
delayed in receiving the applicable regulatory and environmental approvals, particularly
with projects in our Fossil & Nuclear segment; and
|
|
|
|
|
•
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|
the U.S. administration’s support of the nuclear power option and loan
guarantee program.
|
Other factors that could cause our actual results to differ from our projected results are
described in (1) Part II, Item 1A and elsewhere in this Form 10-Q, (2) our 2008 Form 10-K, (3) our
reports and registration statements filed and furnished from time to time with the SEC and (4)
other announcements we make from time to time.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as a result of new information,
future events or otherwise.
33
ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discusses our financial position at February 28, 2009, and the results of our
operations for the three and six months ended February 28, 2009, and should be read in conjunction
with: (1) the unaudited consolidated financial statements and notes contained herein, and (2) the
consolidated financial statements and accompanying notes to our 2008 Form 10-K.
General Overview
We are a diverse engineering, technology, construction, fabrication, environmental and
industrial services organization. We provide our services to a diverse customer base that includes
regulated utilities, independent and merchant power producers, multinational oil companies and
industrial corporations, government agencies and other equipment manufacturers. Through organic
growth and a series of strategic acquisitions, we have significantly expanded our expertise and the
breadth of our service offerings.
Currently, we are organized under the following reportable segments:
|
|
•
|
|
Fossil & Nuclear;
|
|
|
|
|
•
|
|
Environmental & Infrastructure (E&I);
|
|
|
|
|
•
|
|
Energy & Chemicals (E&C);
|
|
|
|
|
•
|
|
Maintenance;
|
|
|
|
|
•
|
|
Fabrication & Manufacturing (F&M);
|
|
|
|
|
•
|
|
Investment in Westinghouse; and
|
|
|
|
|
•
|
|
Corporate.
|
Fossil & Nuclear Segment
Our Fossil & Nuclear segment provides a range of project-related services, including design,
engineering, construction, procurement, technology and consulting services, primarily to the global
fossil and nuclear power generation industries.
Nuclear
. We support the
U.S. domestic nuclear power industry with engineering,
procurement and construction services. We hold a leadership position in the nuclear power industry
for improving the efficiency, output and reliability of existing plants (also known as uprates),
having brought in excess of 2,200 megawatts (MW) of new nuclear generation to the electric power
transmission grid in the U.S. between 1984 and the present. In addition, we are currently serving
as architect-engineer for the National Enrichment Facility and are providing engineering services
in support of new nuclear units in South Korea and the People’s Republic of China. We have also
been awarded engineering, procurement and construction (EPC) contracts for six AP1000 units, two
each, for Georgia Power, South Carolina Electric & Gas and Progress Energy. We anticipate long-term
growth in the global nuclear power sector, driven in large part by the U.S., United Kingdom, China,
India, Brazil, United Arab Emirates and Canada. Our support of existing U.S. utilities, combined
with our 20% equity investment in Westinghouse, is expected to result in increased levels of
activity in this sector for us. Safe and reliable operation of existing plants, concerns about
carbon emissions and climate change and incentives under the Energy Policy Act of 2005 have
prompted significant interest in new nuclear construction in the U.S. Several domestic utilities
are developing plans for new baseload nuclear generation. According to the Nuclear Energy Institute
and the Nuclear Regulatory Commission, in the U.S. there are plans for at least 31 new units under
development as of February 2009, with the Westinghouse AP1000 design being considered for at least
14 of them. While it is unclear what impact current economic conditions might have on the timing or
financing of such projects, we expect that our existing base of nuclear services work, combined
with our collaboration with Westinghouse and Toshiba on new plant work, should position us to
capitalize on the long-term growth within this industry.
Clean Coal-Fired Generation
. The wide fluctuations in oil and natural gas prices have prompted
electric power companies in the U.S. to pursue construction of new coal-fired power plants
utilizing advanced combustion and emission control technologies. Coal-fired capacity is typically
capital intensive to build but has relatively lower operating costs when compared to other fossil
fuels. We
34
continue to observe demand for new opportunities in this market, primarily in the United
Kingdom, but recognize that potential future regulations targeting carbon emissions as well as
current market conditions could slow future development of coal and other fossil fuel-fired power
plants. Nevertheless, we believe we are well-positioned to capture a significant market share of
future coal-fired power plants as they develop.
Air Quality Control (AQC)
. Our AQC business includes domestic and selected international
markets for flue gas desulfurization (FGD) retrofits, installation of mercury emission controls,
projects related to controlling fine particle pollution, carbon capture and selective catalytic
reduction (SCR) processes used at existing coal-fired power plants. We believe that we are the
market leader for EPC FGD projects.
Environmental regulations and related air quality concerns have increased the need to retrofit
existing coal-fired power plants with modern pollution control equipment. On July 11, 2008, the
D.C. Circuit Court of Appeals (the Court) vacated the Clear Air Interstate Rule (CAIR) in its
entirety in its decision North Carolina v. EPA (Case No. 05-1244). On December 23, 2008, in
response to a petition filed by the Environmental Protection Agency (EPA), the Court reversed its
decision to vacate CAIR until a new rule is put in place. The immediate effect of this action on
the AQC market is positive as it provides some stability for the short term. We expect its
long-term effect is likely to be positive as the new rule is expected to be more stringent than the
current one.
There is also a market for installation of mercury emission controls at existing coal-fired
power plants. We have several EPC projects under execution that were partially or fully driven by
mercury control requirements. We believe the domestic market for these services could increase in
the future as more states establish new rules or as federal regulations become more stringent.
The selective catalytic reduction process to reduce nitrogen oxides (SCR) market continues to
be fairly active, and we expect to continue executing and pursuing EPC SCR and particulate control
work both domestically and in select international markets.
Gas-Fired Generation
. We continue to observe renewed interest in gas-fired generation as
electric utilities and independent power producers look to diversify their generation options and
take advantage of reduced natural gas prices. Recent initiatives in many states to reduce emissions
of carbon dioxide and other “greenhouse gases,” and utilities’ desire to fill demand for additional
power prior to new nuclear power plants being completed, are also stimulating renewed demand for
gas-fired power plants. Gas-fired plants are less expensive to construct than coal-fired and
nuclear plants but tend to have comparatively higher and potentially more volatile operating costs.
While it is unclear what the impact of current economic conditions might have on the timing or
financing of such projects, we expect that gas-fired power plants will continue to be an important
component of long-term power generation development in the U.S. and believe our capabilities and
expertise position us well to address this market.
Renewable Energy
. We are also actively pursuing renewable energy technology projects, such as
geothermal, both domestically and internationally.
E&I Segment
The E&I segment designs and executes remediation solutions including the identification of
contaminants in soil, air and water and provides integrated engineering, design and construction,
regulatory, scientific and program management services for government and private-sector clients
worldwide. Our team of professionals is strategically located throughout the U.S. and abroad to
provide innovative solutions to complex environmental and infrastructure challenges. We also
provide project and facilities management and related logistics support for non-environmental
construction, emergency response and watershed restoration. Infrastructure services include program
management, construction management and operations and maintenance (O&M) solutions to support and
enhance domestic and global land, water and air transportation systems. We believe we are well
positioned to capture opportunities generated by the American Recovery and Reinvestment Act
recently passed by the U.S. Congress.
Federal Markets.
Our core services include design and construction, environmental restoration,
regulatory compliance, facilities management and emergency response services to U.S. government
agencies, such as the Department of Energy (DOE), the U.S. Army Corps of Engineers (USACE), the
Department of Defense (DOD), the EPA and the Federal Emergency Management Agency (FEMA).
Environmental restoration activities are centered on engineering and construction services to
support customer compliance with the requirements of the Comprehensive Environmental Response, the
Compensation and Liability Act and the Resource Conservation and Recovery Act . Additionally, we
provide regulatory compliance support for the requirements of the Clean Water Act, Clean Air Act
and Toxic Substances Control Act. For the DOE, we are currently working at several former nuclear
weapons
35
production sites including the mixed oxide project (MOX) at Savannah River, South Carolina
where we provide engineering, construction and construction management services for a facility that
will produce fuel rods for nuclear power plants. The E&I segment also has contracts with the DOE to
develop the Next Generation Nuclear Plant and the Global Nuclear Energy Program as a conceptual
design engineering service provider.
For the DOD, we are involved in projects at several Superfund sites and Formerly Utilized
Sites Remedial Action Program sites managed by the USACE. We will also continue execution of
design-build efforts associated with the Inner Harbor Navigation Canal Hurricane Protection project
in Louisiana. For the U.S. Army, we are working on the Army’s chemical demilitarization program at
several sites.
Our Mission Support and Facilities Management business provides integrated planning and O&M
services to federal customers. These services traditionally include operating logistics facilities
and equipment, providing public works maintenance services, operating large utilities systems,
managing engineering organizations, supervising construction and maintaining public safety services
including police, fire and emergency services. Our customers include the DOE, the National
Aeronautics and Space Administration, the U.S. Army and the U.S. Navy.
We foresee that a significant portion of future DOD and DOE environmental expenditures will
continue to be directed to cleaning up domestic and international military bases and to restoring
former nuclear weapons facilities. The DOD has determined that there is a need to ensure that the
hazardous wastes present at these sites, often located near population centers, do not pose a
threat to the surrounding population. We believe that we are well-positioned to assist the DOD with
decontamination and remediation activities at these sites. Similarly, the DOE has long recognized
the need to stabilize and safely store nuclear weapons materials and to remediate areas
contaminated with hazardous and radioactive waste, and we believe that we are well-positioned to
assist DOE with these efforts.
Commercial, State and Local Markets.
Our core services to these markets include environmental
consulting, engineering, construction management and O&M services to private-sector and state and
local government customers. Full service environmental capabilities include site selection,
permitting, design-build, operation, decontamination, demolition, remediation and redevelopment. We
provide complete life cycle solid waste management services with capabilities that range from site
investigation through landfill design and construction to post-closure O&M or site redevelopment.
We also provide sustainability services on a national basis. We assist commercial clients in
defining what sustainability means to them and in designing and developing operational concepts to
integrate sustainability into their businesses.
Coastal and Natural Resource Restoration.
We have performed wetland construction, mitigation,
restoration and related work in the Everglades, the Chesapeake Bay area and other areas throughout
the U.S. New opportunities for these types of projects are present in both the governmental and
commercial markets. The Coastal Wetlands Planning Protection and Restoration Act provides federal
funds to conserve, restore and create coastal wetlands and barrier islands, and we believe our E&I
segment is positioned to participate in wetlands and coastal restoration work in Louisiana and
other locations throughout the U.S.
Transportation and General Infrastructure.
We believe opportunities for our
infrastructure-related services will continue with our state and local clients, stimulated by the
need for restoration of aging transportation, water, wastewater and other infrastructure systems.
By leveraging our capabilities across several business segments, we believe that we can participate
in large scale and localized infrastructure projects by partnering with government agencies and
with private entities for design and build services to meet our clients’ needs arising from aging
infrastructure, congestion and expansion requirements.
Ports and Marine Facilities.
We continue to pursue opportunities in maritime engineering and
design services, including navigation, sediment management, port and waterway development, coastal
engineering, environmental services, shoreline protection and marine security capabilities. Our
portfolio includes capabilities for services to government and commercial port and marine facility
clients offering a full range of infrastructure planning services, design, engineering and project
management services to our domestic and international maritime clients.
E&C Segment
Our E&C segment provides a range of project related services, including design, engineering,
construction, procurement, technology and consulting services, primarily to the oil and gas,
refinery, petrochemical and chemical industries. Volatility to our
36
business is possible in the short-medium term as a result of the global economic downturn. To
the extent our clients markets are impacted by the current economic conditions, we could expect a
negative impact on E&C’s services. In the long-term as the global economy recovers, we expect
expenditures by major oil and petrochemical customers to continue.
Chemicals.
During fiscal year 2008, demand in the chemical industry remained strong, fueled by
the growth in the economies of China and India, as well as the rising standard of living in other
developing economies. In the medium-term, we expect the number of new petrochemical projects to
flatten as the global economy continues to slow. Internationally, we expect delays to the
implementation of projects as pressure increases on the global financial markets. We expect Middle
Eastern customers to focus on long-term capacity plans and investments as long-term fundamentals
appear to remain solid. Middle Eastern projects, which are still in planning phases, may benefit
from decreasing commodity prices and low cost feedstock. In Asia, we believe the demand for
chemicals will remain robust, and investment by domestic and international firms is expected to
remain high, particularly in the Chinese chemical industry
We expect that major oil and petrochemical companies will integrate refining and petrochemical
facilities in order to improve profits, providing additional opportunities for us. In
petrochemicals, we have extensive expertise in the construction of ethylene plants, which convert
gas and/or liquid hydrocarbon feedstock into ethylene, and derivative facilities, which provide the
source of many higher value chemical products, including packaging, pipe, polyester, antifreeze,
electronics, tires and tubes. We also perform services related to gas processing including propane
dehydrogenation facilities, gas treatment facilities and liquefied natural gas plants.
Refining.
We believe that refiners are searching for new products that can be produced from
petroleum and are considering integration of those products into petrochemical facilities. We
believe the demand for our services in the refining industry has been driven by refiners’ needs to
process a broader spectrum of heavier and traditionally less expensive crude oils and to produce a
greater number of products. Over the last 2 years the refining sector has experienced considerable
investment, mainly in the Middle East and Asia. In 2009 we expect refining expenditures to continue
at a stable pace in the Middle East. We believe refinery capacity constraints and the demand
stimulated by clean fuels and clean air legislation are contributing to increasing opportunities,
primarily in the U.S and also the Middle East. In Europe, we expect diesel demand to drive
investment, and in addition, we believe conversion processes such as deep catalytic cracking (DCC)
and catalytic pyrolysis process will increase due to the trend for refinery and petrochemical
integration. While the refining process is largely a commodity activity, refinery configuration
depends primarily on the grade of crude feedstock available, desired mix of end-products and
considerations of capital and operating costs.
Fluid catalytic cracking (FCC) remains a key refining technology. We have an exclusive
agreement with an international customer to license a key FCC-derived technology called DCC that
encourages the refiner’s entry into the petrochemical arena. We believe this technology is
emerging because of its ability to produce propylene, a base chemical that is in short supply and
for which demand is growing faster than that of ethylene.
Ethylene.
Ethylene is an olefin, which is used as a building block for other petrochemicals
and polymers. It is produced by the steam cracking of hydrocarbon feedstocks. Ethylene is used in
the manufacture of polymers such as polyethylene, polyester, polyvinyl chloride and polystyrene.
Ethylene represents one of our core technologies. It is possible that global economic slowdown and
financial turbulence, coupled with the surplus ethylene supply in 2009, could result in ethylene
projects being delayed. Despite the anticipated slowing of further investment, we believe
additional projects are being slated in the Middle East, where project financing is not as likely
to impact the implementation of grassroots facilities. Further, we expect owners to focus on the
maximizing the productivity of existing assets which could increase the number of debottlenecking
and revamp projects. We believe that these projects will provide additional opportunities for us.
We believe ethylene production from petroleum derived naphtha is declining due to the
availability of alternative low-cost ethane feedstock in the Middle East. This change impacts the
economic viability of gas feed steam crackers in North America where the natural gas prices are
more volatile as a result of commodity market trading conditions. We expect new facilities to
favor primarily gas feed crackers based ethane extracted from natural gas. We estimate our market
share to be approximately 35% of the market during the last 15 years. We are aware of only four
ethylene technology licensor competitors and are well positioned to compete for new opportunities
in this market.
37
Maintenance Segment
Our Maintenance segment is a market leader, providing a full range of integrated asset life
cycle capabilities that compliment our power and process industrial EPC services. We provide
clients with reliability engineering, plant engineering, turnaround maintenance, refueling outage
maintenance, routine maintenance, modifications, capital construction, off-site modularization,
offshore fabrication, support and specialty services. We perform services to restore, rebuild,
repair, renovate and modify industrial facilities, as well as offer predictive and preventative
maintenance. We offer comprehensive services to clients in combinations that increase capacity,
reduce expenditures and optimize cost, ensuring the highest return on critical production assets
within their facilities. Maintenance segment services are provided at client work sites located
primarily in North America.
Nuclear Plant Maintenance and Modifications.
There are currently 104 operating nuclear
reactors in the U.S. requiring engineering, maintenance, and modification services to support
operations, plant refueling outages, extend life/license, upgrade materials, increase capacity
uprates and improve performance. We provide system-wide maintenance and modification services to 36
of the 104 operating domestic nuclear reactors. We concentrate on complicated, non-commodity
projects in which our historical expertise and project management skills add value.
In addition to supporting operations and improving performance at existing commercial nuclear
power plants, we believe we can further expand in plant restarts, uprate-related modifications and
new plant construction. We also believe we can expand our in-plant support services.
Fossil Plant Maintenance and Modifications.
We provide fossil plant maintenance services for
energy generation facilities in North America. Our expertise, developed in the nuclear industry
through our refueling outages and construction planning/execution, is valuable and recognized in
the fossil power sector. Opportunities exist to expand this market as energy demand continues to
increase and customers seek longer run times, higher reliability and outage performance.
Chemical Plant/Refinery Maintenance and Capital Construction.
We have a continuous presence in
approximately 90 U.S. field locations serving alternative energy, petrochemicals, specialty
chemicals, oil and gas, manufacturing and refining markets. We believe that specialty chemicals,
clean fuel programs and refining markets provide us with the best long-term growth opportunities.
Expansion of these markets has been enhanced by governmental regulations supporting cleaner burning
fuels and impending infrastructure and stimulus programs. Our Maintenance segment also includes a
capital construction component serving existing chemicals and petrochemicals clients, which
includes an array of grassroots green-field projects. Our construction scope includes
constructability reviews, civil and concrete work, structural steel erection, electrical and
instrumentation, mechanical and piping system erection.
In addition to our varied spectrum of maintenance and construction work, we continue executing
a strong resume of substantial rebuild projects. We successfully mobilize resources under demanding
client deadlines to rebuild and restore facilities damaged by natural disasters or catastrophes.
Our successful project completions include major petrochemicals, nuclear power, natural gas
processing and refining facilities in the Gulf Coast region.
F&M Segment
Our F&M segment is among the largest worldwide suppliers of fabricated piping systems. Demand
for our F&M segment’s products is typically driven by capital projects in the electric power,
chemical and refinery industries. Typically, we contemporaneously invoice our clients when we
purchase materials for our pipe, steel and modular fabrication contracts. Our invoices generally do
not include extended payment terms nor do we offer significant rights of return. These contracts
typically represent the majority of the business volume of our F&M segment. We maintain limited
amounts of stock inventory primarily relating to our manufacturing and distribution businesses.
Pipe Fabrication.
We believe our expertise and proven capabilities to furnish complete piping
systems in a global market have positioned us among the largest suppliers of fabricated piping
systems for power generation facilities in the U.S. We are also a leading supplier worldwide,
serving both our other business segments and third parties. Piping systems are normally a critical
path item in heavy industrial plants that convert raw or feedstock materials to products. Piping
system integration accounts for a significant portion of the total man-hours associated with
constructing power generation, chemical and other processing facilities. We manufacture
fully-integrated piping systems for heavy industrial customers around the world.
38
We provide fabrication of complex piping systems from raw materials, including carbon and
stainless steel and other alloys, such as nickel, titanium and aluminum. We fabricate pipe by
cutting it to specified lengths, welding fittings on the pipe and bending the pipe to precise
customer specifications. We currently operate pipe fabrication facilities in Louisiana, Arkansas,
Oklahoma, South Carolina, Utah, Mexico and Venezuela and through a joint venture in Bahrain. Our
South Carolina facility is authorized to fabricate piping for nuclear energy plants and maintains a
nuclear piping American Society of Mechanical Engineers certification.
We believe our induction pipe bending technology is one of the most advanced, sophisticated
and efficient technologies available. We utilize this technology and related equipment to bend pipe
made of carbon steel and alloy items for industrial, commercial and architectural applications.
Pipe bending can provide significant savings in labor, time and material costs, as well as product
strengthening. In addition, we have commenced a robotics program that we believe may result in
increased productivity and quality levels. By utilizing robotics, as well as new welding processes
and production technology, we are able to provide our customers a complete range of fabrication
services.
Structural Steel Fabrication.
We produce custom fabricated steel components and structures
used in the architectural and industrial markets. These steel fabrications are used for supporting
piping and equipment in buildings, chemical plants, refineries and power generation facilities. Our
fabrication lines utilize standard mill produced steel shapes that are cut, drilled, punched and
then welded into the configurations and to the exact specifications required by our customers. We
have fabrication facilities operating in Louisiana, as well as our newest location in Mexico, which
offers the latest in advanced technology and efficiency for structural steel fabrication.
Manufacturing and Distribution.
We operate manufacturing facilities in Louisiana and New
Jersey where products are ultimately sold to operating plants, engineering and construction firms
as well as to our other business segments. Manufacturing our own pipe fittings and maintaining
inventories of fittings and pipe enables us to realize greater efficiencies in the purchase of raw
materials, reduces overall lead times and lowers total costs. We operate distribution centers in
Louisiana, Oklahoma, Texas, Georgia and New Jersey that distribute our products and products
manufactured by third parties.
Module Fabrication Facility.
We are in the process of constructing a major fabrication
facility in Lake Charles, Louisiana that is expected to supply major equipment assemblies to be
used primarily in the construction of AP1000 nuclear power plants.
Investment in Westinghouse Segment
Our Investment in Westinghouse segment includes our
Westinghouse Equity, which
we acquired on October 16, 2006 (the first quarter of our fiscal year 2007) from Toshiba.
Westinghouse serves the domestic and international nuclear electric power
industry by supplying advanced nuclear plant designs, licensing, engineering services, equipment,
fuel and a wide range of other products and services to the owners and operators of nuclear power
plants to help keep nuclear power plants operating safely and competitively worldwide. We believe
that Westinghouse products and services are being utilized in over 60 of the 104 operating domestic
nuclear reactors and approximately 50% of the reactors operating internationally. We are aware of
plans for at least 31 new domestic reactors, with the Westinghouse advanced passive AP1000 design
being considered for at least 14 of them. Internationally, Westinghouse technology is currently
being used for six reactors being constructed in South Korea and four reactors in China and is
being considered for numerous new reactors in multiple countries.
Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, on
a calendar quarter basis with a March 31 fiscal year end. Financial information about
Westinghouse’s operations is available to us for Westinghouse’s calendar quarter periods. As a
result, we record our 20% interest of the equity earnings (loss) and other comprehensive income
(loss) reported to us by Westinghouse based upon Westinghouse’s calendar quarterly reporting
periods, or two months in arrears of our current periods.
Corporate Segment
Our Corporate segment includes our corporate management and expenses associated with managing
our company as a whole. These expenses include compensation and benefits of corporate management
and staff, legal and professional fees and administrative and general expenses, which are not
allocated to other segments. Our Corporate segment’s assets primarily include cash and cash
39
equivalents held by the corporate entities, property and equipment related to our corporate
facility and certain information technology costs.
Comments Regarding Future Operations
Historically, we have used acquisitions to pursue market opportunities and to augment or
increase existing capabilities, and we may 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 impact of future acquisitions. In addition, the financial crisis
that adversely impacted U.S. equity markets throughout 2008 and 2009,
weighed heavily on the share prices of
many engineering and construction companies, including ours. It is uncertain what impact these
reduced share prices may have on the engineering and construction industry and us. At the time of
this filing, it is uncertain what impact the financial/credit crisis may have on our business.
Nevertheless, we remain optimistic about our long-term growth opportunities as we are focused on
expanding our position in the growing power markets where investments by regulated electric
utilities tend to be based on electricity demand forecasts covering decades into the future.
Overview of Results and Outlook
Our financial results for the quarter ended February 28, 2009 were mixed with our E&C and E&I
segments generating significant operating income while our Fossil & Nuclear segment suffered an
operating loss due primarily to a $73.9 million pre-tax charge related to an increase in the
projected construction labor cost in the
estimated cost to complete on an EPC contract for a coal fired power project. Our F&M segment
continued to perform well and delivered solid earnings while our Maintenance segment suffered a
loss due primarily to a $3.9 million pre-tax charge from a settlement related to a domestic power
project. The quarter also included a $30.9 million non-cash foreign exchange translation gain
related to the limited recourse Japanese Yen-denominated debt associated with our investment in
Westinghouse. The non-cash foreign exchange translation gain resulted from the yen’s depreciation
against the dollar during the quarter thereby decreasing the dollar equivalent of this
Yen-denominated debt.
Our E&C segment’s results were driven primarily by good execution of existing higher margin
engineering projects and from a $2.7 million gain associated with the curtailment of a foreign
pension plan. We expect to continue working off the existing projects over the next two quarters,
however, we expect the volume and thus the quarterly profits to decline from the level generated
during the first half of our fiscal year.
Our E&I segment’s operating income was driven by strong operating performances from our
federal market primarily resulting from a hurricane protection project with the U.S. Army Corps of
Engineers in southeast Louisiana, our MOX project for the DOE in South Carolina and our federal
environmental remediation and consulting services.
Our Fossil & Nuclear segment suffered a decline in revenue and an operating loss for the
quarter. The operating loss was due primarily to the impact of a $73.9 million increase in the
projected construction labor cost in the
estimated costs to complete an EPC contract for a coal fired power project. Substantially all of
these costs are forecast to be incurred in the future.
Our F&M segment continued to perform well and generated strong earnings but experienced a
decrease in gross profit and operating income from the previous quarter. The decrease in F&M’s
gross profit and operating income were the result of changes in the mix of contracts currently
being executed as well as a decline in pricing in the in the domestic markets we serve from what we
believe are attributable to declines in competitors’ workloads.
Our Maintenance segment experienced a decline in revenue from the prior year as well an
operating loss for the quarter. The revenue reduction was due primarily to a reduction in the
number of capital construction projects. The operating loss was due primarily to $3.9 million in
credits granted to a client resulting from a settlement of a dispute relating to a major domestic
power project completed during the quarter as well as from lower volume of work in this segment.
During
the quarter, we generated $112.7 million in operating cash flow. The increase in our
cash flow was due primarily to earnings generated during the quarter prior to recording the
forecasted increase in costs to complete the coal power project noted in the Fossil & Nuclear segment
above as well as from the receipt of a $29.1 million dividend from our investment in Westinghouse.
40
We forecast our results for fiscal year 2009 to be largely dependent on the successful
execution of the contracts already in backlog and are less dependent on new bookings. The three EPC
contracts for the AP1000 nuclear power plants currently in the early phases of execution have all
received state regulatory approvals. We have included in our backlog at February 28, 2009 the
two nuclear power units located in Florida and a portion of our nuclear EPC contract in South
Carolina. Subsequent to our fiscal quarter end, we received full notice to proceed for
the two nuclear power units located in Georgia. These
nuclear contracts are forecast to begin having a more significant impact on our revenues during our
fiscal year 2010 and beyond.
The current global economic conditions and the reduced availability of credit pose risks to
our businesses as clients may defer or cancel capital intensive energy and industrial projects. We
believe our strong backlog and our focus on working for high quality credit clients such as
regulated electric utilities, the U.S. government, and national and international oil companies
should help to mitigate this risk although we can provide no assurance in this regard. To the
extent our clients’ ability to access the debt and equity markets are substantially constrained,
their ability to finance project development would be adversely affected, which, in turn, could
have a material adverse affect on our results of operations. In addition, our growing nuclear
project portfolio will require us to make commitments to third party vendors or suppliers
significantly greater than has been typical of our other projects to date. Any delays or failure to
receive reimbursement for such commitments could materially adversely affect our business. We are
positioning ourselves to take advantage of additional work that may become available from the
recently enacted U.S. Government stimulus bill but we are unable to predict how, when or to what
extent they may impact our operating results. For additional information about the risks and
uncertainties that could impact our business, please see Part I, Item 1A — Risk Factors and Part
II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
located in our 2008 Form 10-K.
Consolidated Results of Operations
Consolidated Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
1,667.5
|
|
|
$
|
1,644.6
|
|
|
$
|
22.9
|
|
|
|
1.4
|
%
|
|
Six months ended
|
|
$
|
3,568.0
|
|
|
$
|
3,356.7
|
|
|
$
|
211.3
|
|
|
|
6.3
|
%
|
The increase in consolidated revenues during the three and six months ended February 28, 2009
compared to the prior fiscal year was due primarily to record revenue in our E&C segment. Our E&C
segment experienced increased revenues during the quarter due to high demand for petrochemicals and
refined products. Our E&I segment experienced increased revenues due to higher volumes of U.S.
Federal Government work primarily a result of our work on a hurricane protection project with the
U.S. Army Corps of Engineers in southeast Louisiana.
Consolidated Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
102.4
|
|
|
$
|
123.9
|
|
|
$
|
(21.5
|
)
|
|
|
(17.4
|
)%
|
|
Six months ended
|
|
$
|
290.5
|
|
|
$
|
258.9
|
|
|
$
|
31.6
|
|
|
|
12.2
|
%
|
The decrease in our consolidated gross profit for the three months ended February 28, 2009
compared to February 29, 2008 was due primarily to the $73.9 million increase in the
forecasted estimated cost
at completion on a coal power project. Offsetting this were increases in gross profits for our E&I
and E&C segments resulting from increases in the volumes and margins in those segments. Included in
E&C revenues were customer furnished materials of $99.6 million and $202.8 million for the three
months and six months ended February 28, 2009, respectively, and $109.0 million and $243.4 million
for the three and six months ended February 29, 2008, respectively, for which we recognize no gross
profit.
See Segment Results of Operation for additional information describing the performance of each
of our reportable segments.
41
Consolidated General & Administrative Expenses (G&A):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
70.4
|
|
|
$
|
71.7
|
|
|
$
|
(1.3
|
)
|
|
|
(1.8
|
)%
|
|
Six months ended
|
|
$
|
143.5
|
|
|
$
|
140.6
|
|
|
$
|
2.9
|
|
|
|
2.1
|
%
|
Consolidated general and administrative expenses remained relatively flat for the three and
six months ended February 28, 2009 as compared to the same periods in the prior fiscal year. During
2009, we have increased the number of permanent staff and have correspondingly reduced the number
of external consultants as compared to 2008. Areas that contributed to the increase in the
year-to-date general and administrative expenses are primarily associated with non-income related
taxes. We expect our quarterly G&A to increase for the remainder of the fiscal year due to
anticipated additional costs resulting from increased sales proposal costs.
Consolidated Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
12.0
|
|
|
$
|
12.1
|
|
|
$
|
(0.1
|
)
|
|
|
(0.8
|
)%
|
|
Six months ended
|
|
$
|
23.6
|
|
|
$
|
23.1
|
|
|
$
|
0.5
|
|
|
|
2.2
|
%
|
Consolidated interest expense for the three and six months ended February 28, 2009 was
comparable to the same periods in the prior fiscal year and consists primarily of interest on our
Yen-denominated bonds associated with our investment in Westinghouse.
Consolidated Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
22.7
|
|
|
$
|
3.9
|
|
|
$
|
18.8
|
|
|
|
482.1
|
%
|
|
Six months ended
|
|
$
|
—
|
|
|
$
|
6.1
|
|
|
$
|
(6.1
|
)
|
|
|
(100.0
|
)%
|
Our consolidated tax rate, based on income before income taxes, minority interest and earnings
from unconsolidated entities, for the three and six months ended February 28, 2009, was a provision
of 41% and a benefit of 1%, respectively. In comparison, our consolidated tax rate for the three
and six months ended February 29, 2008 was a provision of 30% and 36%, respectively. We treat
unrealized foreign currency gains and losses on the Japanese Yen-denominated Westinghouse Bonds as
discrete in each reporting period due to their volatility and the difficulty in estimating such
gains and losses reliably. For the three months ended February 28, 2009, we recorded other discrete
items totaling $3.2 million, primarily as a provision for uncertain tax positions. The six
months
ended February 28, 2009 includes net discrete items of $5.6 million relating to provisions for uncertain tax
positions as well as a benefit for the retroactive effect of the renewal of the Work Opportunity
Tax Credit. Our effective tax rate is dependent on the location and amount of our taxable earnings.
Changes in the effective tax rate are due primarily to unrealized foreign currency gains, earnings
in the respective tax jurisdictions, decreases in certain non-deductible expenses and an increase
in the provision for uncertain taxes. We expect our fiscal 2009 annual effective tax rate,
excluding discrete items, to be approximately 38%.
Consolidated Earnings (Losses) from Unconsolidated Entities, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
Three months ended
|
|
$
|
5.9
|
|
|
$
|
1.5
|
|
|
$
|
4.4
|
|
|
|
293.3
|
%
|
|
Six months ended
|
|
$
|
7.3
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
|
—
|
%
|
The increase in earnings from unconsolidated entities for the three months ended February 28, 2009, as compared to the same
period in the prior fiscal year, was primarily due to a $5.7 million gain related to foreign tax credits associated with the dividend
we received from our Investment in Westinghouse. For the six months ended February 28, 2009, earnings from unconsolidated entities
was comparable to the same period in the prior year. In the first quarter of fiscal year 2008, we recorded a $2.3 million gain on the sale
of one of our investments in military housing privatization. Our
earnings from our Westinghouse Equity were $5.5 million
and $7.0 million, net of tax, for the three and six months ended February 28, 2009, respectively, as compared to $2.1 million and
$7.0 million, net of tax, respectively, for the same periods in the previous fiscal year.
42
Consolidated Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
February 28, 2009
|
|
February 29, 2008
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
$
|
36.3
|
|
|
$
|
4.0
|
|
|
$
|
32.3
|
|
|
|
807.5
|
%
|
|
Six months ended
|
|
$
|
(3.6
|
)
|
|
$
|
6.2
|
|
|
$
|
(9.8
|
)
|
|
|
(158.1
|
)%
|
The increase in consolidated net income for the three months ended February 28, 2009, as
compared to February 29, 2008, was due primarily to increased profitability and volume in our E&I
and E&C segments. The loss in the six months ended February 28, 2009 was due primarily to a
non-cash foreign exchange translation loss of $130.3 million resulting from the limited recourse
Japanese Yen-denominated debt associated with our Westinghouse Equity.
NM — Not Meaningful.
Segment Results of Operations
The following comments and tables compare selected summary financial information related to
our segments for the three and six months ended February 28, 2009 and February 29, 2008 (dollars in
millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
552.0
|
|
|
$
|
639.1
|
|
|
$
|
(87.1
|
)
|
|
|
(13.6
|
)%
|
|
E&I
|
|
|
449.9
|
|
|
|
344.4
|
|
|
|
105.5
|
|
|
|
30.6
|
|
|
E&C
|
|
|
331.2
|
|
|
|
273.5
|
|
|
|
57.7
|
|
|
|
21.1
|
|
|
Maintenance
|
|
|
172.7
|
|
|
|
244.8
|
|
|
|
(72.1
|
)
|
|
|
(29.5
|
)
|
|
F&M
|
|
|
161.2
|
|
|
|
142.1
|
|
|
|
19.1
|
|
|
|
13.4
|
|
|
Corporate
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
(0.2
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,667.5
|
|
|
$
|
1,644.6
|
|
|
$
|
22.9
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
(31.1
|
)
|
|
$
|
34.3
|
|
|
$
|
(65.4
|
)
|
|
|
(190.7
|
)%
|
|
E&I
|
|
|
40.3
|
|
|
|
23.5
|
|
|
|
16.8
|
|
|
|
71.5
|
|
|
E&C
|
|
|
60.6
|
|
|
|
15.6
|
|
|
|
45.0
|
|
|
|
288.5
|
|
|
Maintenance
|
|
|
(1.5
|
)
|
|
|
11.8
|
|
|
|
(13.3
|
)
|
|
|
(112.7
|
)
|
|
F&M
|
|
|
33.7
|
|
|
|
37.7
|
|
|
|
(4.0
|
)
|
|
|
(10.6
|
)
|
|
Corporate
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
(0.6
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
102.4
|
|
|
$
|
123.9
|
|
|
$
|
(21.5
|
)
|
|
|
(17.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
|
(5.6
|
)%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
E&I
|
|
|
9.0
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
E&C
|
|
|
18.3
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
|
(0.9
|
)
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
F&M
|
|
|
20.9
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
NM
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
6.1
|
%
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes, minority interest and
earnings (losses)
from unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
(45.7
|
)
|
|
$
|
24.1
|
|
|
$
|
(69.8
|
)
|
|
|
(289.6
|
)%
|
|
E&I
|
|
|
25.1
|
|
|
|
5.4
|
|
|
|
19.7
|
|
|
|
364.8
|
|
|
E&C
|
|
|
53.1
|
|
|
|
11.7
|
|
|
|
41.4
|
|
|
|
353.8
|
|
|
Maintenance
|
|
|
(4.1
|
)
|
|
|
9.2
|
|
|
|
(13.3
|
)
|
|
|
(144.6
|
)
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
F&M
|
|
|
26.1
|
|
|
|
32.0
|
|
|
|
(5.9
|
)
|
|
|
(18.4
|
)
|
|
Investment in Westinghouse
|
|
|
20.0
|
|
|
|
(50.4
|
)
|
|
|
70.4
|
|
|
|
139.7
|
|
|
Corporate items and eliminations
|
|
|
(19.1
|
)
|
|
|
(18.8
|
)
|
|
|
(0.3
|
)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before
income taxes, minority
interest and earnings
(losses) from unconsolidated
entities
|
|
$
|
55.4
|
|
|
$
|
13.2
|
|
|
$
|
42.2
|
|
|
|
319.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM — Not Meaningful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
1,228.6
|
|
|
$
|
1,237.7
|
|
|
$
|
(9.1
|
)
|
|
|
(0.7
|
)%
|
|
E&I
|
|
|
851.3
|
|
|
|
734.3
|
|
|
|
117.0
|
|
|
|
15.9
|
|
|
E&C
|
|
|
653.0
|
|
|
|
569.6
|
|
|
|
83.4
|
|
|
|
14.6
|
|
|
Maintenance
|
|
|
506.8
|
|
|
|
535.1
|
|
|
|
(28.3
|
)
|
|
|
(5.3
|
)
|
|
F&M
|
|
|
325.9
|
|
|
|
278.6
|
|
|
|
47.3
|
|
|
|
17.0
|
|
|
Corporate
|
|
|
2.4
|
|
|
|
1.4
|
|
|
|
1.0
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,568.0
|
|
|
$
|
3,356.7
|
|
|
$
|
211.3
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
20.7
|
|
|
$
|
77.2
|
|
|
$
|
(56.5
|
)
|
|
|
(73.2
|
)%
|
|
E&I
|
|
|
74.8
|
|
|
|
48.6
|
|
|
|
26.2
|
|
|
|
53.9
|
|
|
E&C
|
|
|
113.1
|
|
|
|
32.0
|
|
|
|
81.1
|
|
|
|
253.4
|
|
|
Maintenance
|
|
|
10.2
|
|
|
|
26.6
|
|
|
|
(16.4
|
)
|
|
|
(61.7
|
)
|
|
F&M
|
|
|
69.3
|
|
|
|
72.8
|
|
|
|
(3.5
|
)
|
|
|
(4.8
|
)
|
|
Corporate
|
|
|
2.4
|
|
|
|
1.7
|
|
|
|
0.7
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
290.5
|
|
|
$
|
258.9
|
|
|
$
|
31.6
|
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
|
1.7
|
%
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
E&I
|
|
|
8.8
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
E&C
|
|
|
17.3
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
Maintenance
|
|
|
2.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
F&M
|
|
|
21.3
|
|
|
|
26.1
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
NM
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total gross profit percentage
|
|
|
8.1
|
%
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes, minority interest and
earnings (losses) from
unconsolidated entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fossil & Nuclear
|
|
$
|
(9.8
|
)
|
|
$
|
57.3
|
|
|
$
|
(67.1
|
)
|
|
|
(117.1
|
)%
|
|
E&I
|
|
|
43.7
|
|
|
|
15.2
|
|
|
|
28.5
|
|
|
|
187.5
|
|
|
E&C
|
|
|
94.9
|
|
|
|
20.3
|
|
|
|
74.6
|
|
|
|
367.5
|
|
|
Maintenance
|
|
|
4.3
|
|
|
|
20.5
|
|
|
|
(16.2
|
)
|
|
|
(79.0
|
)
|
|
F&M
|
|
|
56.4
|
|
|
|
59.2
|
|
|
|
(2.8
|
)
|
|
|
(4.7
|
)
|
|
Investment in Westinghouse
|
|
|
(151.1
|
)
|
|
|
(116.6
|
)
|
|
|
(34.5
|
)
|
|
|
29.6
|
|
|
Corporate items and eliminations
|
|
|
(41.1
|
)
|
|
|
(39.1
|
)
|
|
|
(2.0
|
)
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before
income taxes, minority
interest and earnings
(losses) from unconsolidated
entities
|
|
$
|
(2.7
|
)
|
|
$
|
16.8
|
|
|
$
|
(19.5
|
)
|
|
|
(116.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM — Not Meaningful
The following table presents our revenues by geographic region generally based on the site
location of the project for the three and six months ended February 28, 2009 and February 29, 2008.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
United States
|
|
$
|
1,290.3
|
|
|
|
78
|
%
|
|
$
|
1,318.0
|
|
|
|
80
|
%
|
|
$
|
2,815.4
|
|
|
|
80
|
%
|
|
$
|
2,661.8
|
|
|
|
79
|
%
|
|
Asia/Pacific Rim
|
|
|
193.7
|
|
|
|
12
|
|
|
|
117.8
|
|
|
|
7
|
|
|
|
398.5
|
|
|
|
11
|
|
|
|
198.9
|
|
|
|
6
|
|
|
Middle East
|
|
|
122.4
|
|
|
|
7
|
|
|
|
162.5
|
|
|
|
10
|
|
|
|
229.5
|
|
|
|
6
|
|
|
|
358.4
|
|
|
|
11
|
|
|
Canada
|
|
|
6.4
|
|
|
|
—
|
|
|
|
4.1
|
|
|
|
—
|
|
|
|
12.3
|
|
|
|
—
|
|
|
|
8.5
|
|
|
|
—
|
|
|
Europe
|
|
|
31.9
|
|
|
|
2
|
|
|
|
28.1
|
|
|
|
2
|
|
|
|
67.1
|
|
|
|
2
|
|
|
|
96.0
|
|
|
|
3
|
|
|
South America and Mexico
|
|
|
15.0
|
|
|
|
1
|
|
|
|
7.1
|
|
|
|
1
|
|
|
|
31.6
|
|
|
|
1
|
|
|
|
16.4
|
|
|
|
—
|
|
|
Other
|
|
|
7.8
|
|
|
|
—
|
|
|
|
7.0
|
|
|
|
—
|
|
|
|
13.6
|
|
|
|
—
|
|
|
|
16.7
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,667.5
|
|
|
|
100
|
%
|
|
$
|
1,644.6
|
|
|
|
100
|
%
|
|
$
|
3,568.0
|
|
|
|
100
|
%
|
|
$
|
3,356.7
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment Analysis
Fossil & Nuclear Segment
Our Fossil & Nuclear segment continues to address demand for our services in the areas of air
quality control and new coal fired power generation facilities primarily for regulated electric
power utilities located in the United States and selected international markets. Additionally, we
are performing engineering and site development activities for six new nuclear power reactors in
the United States for which we have signed EPC contracts and have included a portion of the work in
our current backlog. Our international work in the Fossil & Nuclear segment has also increased due
to a major engineering services project in support of four new nuclear reactors in China.
Revenues (2nd Quarter)
The Fossil & Nuclear segment’s revenues decreased $87.1 million, or 13.6%, to $552.0 million
for the three months ended February 28, 2009 from $639.1 million in the same period in the prior
fiscal year. This decrease was due primarily to an increase in the forecast estimated cost at
completion on a coal fired power plant of $73.9 million resulting in a $36.5 million reduction in revenues
for the period as well as a reduction of work on air quality control systems as several FGD
projects reached substantial completion. These decreases were partially offset by progress on
projects for new plant construction on coal and gas-fired units in the U.S. as well as work on
nuclear AP1000 units both domestically and in China.
Gross profit (loss) and gross profit (loss) percentage (2nd Quarter)
Gross profit decreased $65.4 million, or 190.7%, to $(31.1) million for the three months ended
February 28, 2009 from $34.3 million in the same period in the prior fiscal year. Our gross profit
percentage decreased to (5.6)% for the three months ended February 28, 2009 from 5.4% in the same
period in the prior fiscal year. The decrease in our gross profit and gross profit percentage was
primarily due to a $73.9 million increase in the forecast estimated cost at completion relating to
an EPC contract for a coal fired power plant in the U.S. Substantially all of this change reflects costs
forecast to be incurred in the future.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (2nd Quarter)
The decrease in income (loss) before income taxes, minority interest and earnings (losses)
from unconsolidated entities of $69.8 million, or 289.6%, to $(45.7) million for the three months
ended February 28, 2009 from $24.1 million in the same period in the prior fiscal year was
primarily attributable to the decrease in gross profit described above along with an increase in
general and administrative expenses related to the support of our backlog of work.
Revenues (Year to Date)
The
Fossil & Nuclear segment’s revenues decreased $9.1 million, or 0.7%, to
$1,228.6 million
for the six months ended February 28, 2009 from $1,237.7 million in the same period in the prior
fiscal year. This decrease was primarily attributable to the $36.5 million decline in revenues
resulting from the reduced estimated percent complete caused by the increase in the forecast
estimated cost at completion on a coal fired power plant, and from a reduction in air quality control systems
revenues as several FGD projects reached substantial completion. These reductions were partially
offset by progress on early stage projects for new plant construction on coal and gas-fired units,
and work on nuclear AP1000 units both domestically and in China.
45
Gross profit (loss) and gross profit (loss) percentage (Year to Date)
Gross profit decreased $56.5 million, or 73.2%, to $20.7 million for the six months ended
February 28, 2009 from $77.2 million in the same period in the prior fiscal year. Our gross profit
percentage decreased to 1.7% for the six months ended February 28, 2009 from 6.2% in the same
period in the prior fiscal year. The decrease in our gross profit and gross profit percentage was
primarily due to the change in the forecasted estimated cost completion on the coal project noted
above.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (Year to Date)
The decrease in income (loss) before income taxes, minority interest and earnings (losses)
from unconsolidated entities of $67.1 million, or 117.1%, to $(9.8) million for the six months
ended February 28, 2009 from $57.3 million in the same period in the prior fiscal year was
primarily attributable to the factors impacting gross profit as described above along with an
increase in general and administrative expenses related to the support of our backlog of work.
Environmental & Infrastructure (E&I) Segment
Our E&I segment’s revenues increased during the second quarter of fiscal year 2009 as compared
to the same period in the prior year. Our federal services experienced significant growth in the
second quarter of fiscal year 2009 due primarily to our work on a hurricane protection project for
the U.S. Army Corps of Engineers in southeast Louisiana. While our commercial services related to
consulting and engineering experienced increased revenues, these increases were offset by a decline
in our construction services for commercial clients.
We expect fiscal year 2009 revenues to be higher than fiscal year 2008 revenues based on
projections for work currently in backlog and anticipated new work opportunities that will be
executed during fiscal year 2009. We are positioned in both our federal and commercial consulting,
engineering and construction services to capture additional work that may become available from the
recently enacted American Recovery and Reinvestment Act of 2009.
Revenues (2nd Quarter)
The increase in E&I revenues of $105.5 million, or 30.6%, to $449.9 million for the three months
ended February 28, 2009 from $344.4 million for the same period in the prior fiscal year, was
primarily attributable to our work on a hurricane protection project with the U.S. Army Corps of
Engineers in southeast Louisiana and recovery and restoration services resulting from the September
2008 hurricanes. The increase in revenues was partially offset by decreased construction services
to commercial customers and no activity in the current quarter for construction of military housing
projects through military housing privatization joint ventures. We sold our interest in the
housing privatization projects in the first quarter of fiscal year 2009.
Gross profit and gross profit percentage (2nd Quarter)
E&I gross profit increased $16.8 million, or 71.5%, to $40.3 million for the three months
ended February 28, 2009 from $23.5 million for the same period in the prior fiscal year. Gross
profit percentage increased to 9.0% for the three months ended February 28, 2009 from 6.8% to for
the same period in the prior fiscal year. The increase in gross profit was primarily attributable
to our work on a hurricane protection project with the U.S. Army Corps of Engineers in southeast
Louisiana. The increase in gross profit and gross profit percentage was primarily due to recovery
and restoration services for the September 2008 hurricanes along with a positive impact from higher
utilization rates. The increase in gross profit and gross profit percentage was partially offset by
lower gross profit and gross profit percentage earned in the current period on our consolidated
joint ventures for the U.S. Department of Energy as compared to the same period of the prior fiscal
year.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (2nd Quarter)
The increase in income (loss) before income taxes, minority interest and earnings (losses)
from unconsolidated entities of $19.7 million, or 364.8%, to $25.1 million for the three months
ended February 28, 2009 from $5.4 million for the same period in the prior
46
fiscal year, was primarily attributable to the factors impacting gross profit as well as a
reduction in general and administrative expenses due to lower legal, business development and
proposal costs.
Revenues (Year to Date)
The increase in E&I revenues of $117.0 million, or 15.9%, to $851.3 million for the six months
ended February 28, 2009 from $734.3 million for the same period in the prior fiscal year, was
primarily attributable to the same items as described for the second quarter.
Gross profit and gross profit percentage (Year to Date)
E&I gross profit increased $26.2 million, or 53.9%, to $74.8 million for the six months ended
February 28, 2009 from $48.6 million for the same period in the prior fiscal year. Gross profit
percentage increased to 8.8% for the six months ended February 28, 2009 from 6.6% for the same
period in the prior fiscal year. The increase in gross profit was primarily attributable to our
work on a hurricane protection project with the U.S. Army Corps of Engineers in southeast
Louisiana. The increase in gross profit and gross profit percentage was due primarily to recovery
and restoration services for the September 2008 hurricanes along with a positive impact from higher
utilization rates. In addition, a favorable variance in current year gross profit percentage
resulted from recording no gross profit on revenues recorded in the same period in the prior fiscal
year on the consolidated military housing privatization joint ventures. The increase in gross
profit and gross profit percentage was partially offset by lower gross profit and gross profit
percentage earned in the current period on our consolidated joint ventures for the U.S. Department
of Energy as compared to the same period of the prior fiscal year.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (Year to Date)
The increase in income (loss) before income taxes, minority interest and earnings (losses)
from unconsolidated entities of $28.5 million, or 187.5%, to $43.7 million for the six months ended
February 28, 2009 from $15.2 million for the same period in the prior fiscal year was primarily
attributable to the factors impacting gross profit combined with a reduction in general and
administrative expenses related to business development and proposal costs.
Energy & Chemical (E&C) Segment
During the second quarter, our E&C segment continued its strong performance. E&C revenues were
primarily derived from previously existing backlog. We continue pursuing significant opportunities,
primarily in the Middle East and Asia, but due to current global economic uncertainties, we have
experienced a decreased level of new bookings. As a result of current market conditions and lower
than planned new bookings for the quarter, we expect to have a decline in gross profit and gross
profit percentages in Q3 and Q4.
Revenues (2nd Quarter)
For the three months ended February 28, 2009, E&C’s revenues increased $57.7 million, or
21.1%, to $331.2 million from $273.5 million for the same period in the prior fiscal year. Included
in these revenues were customer furnished material and pass through revenues of $99.6 million and
$109.0 million for the three months ended February 28, 2009 and February 29, 2008, respectively,
for which we recognize no gross profit or loss. The increase in E&C’s revenue was primarily due to
an increased number of projects for engineering services and procurement projects and increased
activity on a major international petrochemical project.
Gross profit and gross profit percentage (2nd Quarter)
E&C’s gross profit increased $45.0 million, or 288.5%, to $60.6 million for the three months
ended February 28, 2009 from $15.6 million for the same period in the prior fiscal year. This
increase was due primarily to an increase in number of engineering services projects currently
being performed as compared to the same period in the prior year, increased margins on work
currently being executed and higher gross profit in fiscal year 2009 associated with lower
estimated costs at completion related to an excess accrual for foreign withholding taxes. Also, the
prior fiscal year included a charge on a loss project of $7.3 million.
47
Gross profit percentage increased to 18.3% during the three months ended February 28, 2009
from 5.7% for the same period in the prior fiscal year, primarily due to the higher gross profit
margins in the second quarter of fiscal year 2009 compared to the same period in the prior fiscal
year as a result of the items discussed above and lower project overhead as a percent of revenue.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (2nd Quarter)
E&C segment income (loss) before income taxes, minority interest and earnings (loss) from
unconsolidated entities increased $41.4 million, or 353.8%, to $53.1 million for the three months
ended February 28, 2009 from $11.7 million for the same period in the prior fiscal year. In
addition to the changes in gross profit discussed above, the factors contributing to the increase
in E&C’s income before income taxes, minority interest and earnings (loss) from unconsolidated
entities included lower G&A expenses offset by a decrease foreign currency gains from he previous
year.
Revenues (Year to Date)
For the six months ended February 28, 2009, the increase in E&C revenues was $83.4 million, or
14.6%, to $653.0 million in the six months ended February 28, 2009 from $569.6 million for the same
period in the previous fiscal year. This increase was primarily attributable to an increased number
of projects for engineering services and procurement projects and increased activity on a major
international petrochemical project for the six month ended February 28, 2009 as compared to the
same period in the previous fiscal year. Included in E&C’s revenue was $202.8 million and $243.3
million for the six months ended February 28, 2009 and 2008, respectively, of customer furnished
materials.
Gross profit and gross profit percentage (Year to Date)
For the six months ended February 28, 2009, E&C’s gross profit increased $81.1 million, or
253.4%, to $113.1 million from $32.0 million for the same period in the prior fiscal year. This
increase was primarily due to an increase in number of engineering services projects currently
being performed as compared to the same period in the prior year, increased margins on work
currently being executed, and higher gross profit associated with to lower estimated costs at
completion related to an excess accrual for foreign withholding taxes. The prior year’s results
included a charge of $7.3 million related to a loss contract.
Gross profit percentage increased to 17.3% during the six months ended February 28, 2009 from
5.6% for the same period in the prior fiscal year. The increase in gross profit percentage was
primarily due to the increases noted above, lower customer furnished material revenue during fiscal
year 2009 for which we recognize no gross profit or loss, and lower project overhead as a percent
of total revenue.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (Year to Date)
For the six month ended February 28, 2009, our E&C segment’s income (loss) before income
taxes, minority interest and earnings (loss) from unconsolidated entities increased $74.6 million,
or 367.5%, to $94.9 million from $20.3 for the same period in the prior fiscal year due to the
increases discussed above, lower G&A expenses offset by higher gains related to foreign currency
transaction in the prior year.
Maintenance Segment
Our Maintenance segment experienced decreased activity during the second quarter of our fiscal
year 2009 as compared to the same period of fiscal year 2008 driven primarily by a lower volume of
work in our capital construction business.
In addition, during the second quarter of fiscal year 2009 we reached a settlement with an
owner over disputes on a major domestic power project and recorded a pre-tax loss of $3.9 million
associated with this project during the period.
Revenues (2nd Quarter)
The decrease in Maintenance revenues of $72.1 million, or 29.5%, to $172.7 million for the
three months ended February 28, 2009 from $244.8 million for the same period in the prior fiscal
year was primarily attributable to a decrease in the volume of nuclear maintenance work performed
as well as a decline in the revenues of the capital construction business. The higher capital
construction
48
revenues of the second quarter of fiscal year 2008 were driven by a major construction project
which reached substantial completion in the second half of that year.
Gross profit and gross profit percentage (2nd Quarter)
Gross profit decreased $13.3 million, or 112.7%, to ($1.5) million for the three months ended
February 28, 2009 from $11.8 million for the same period in the prior fiscal year. Gross profit
percentage decreased to (0.9)% for the three months ended February 28, 2009 from 4.8% for the same
period in the prior fiscal year. The decline in gross profit was primarily attributable to the
settlement reached with the owner of a major domestic plant where we experienced execution issues
associated with productivity and delays on the project that resulted in a pre-tax loss of $3.9
million during the three months ended February 28, 2009. Also contributing to the lower gross
profit and gross profit percentage was the substantial completion of a major capital construction
project in the second half of fiscal year 2008. This project contributed higher gross profit
percentages during the second quarter of fiscal year 2008 in comparison to routine maintenance
services that we traditionally provide.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (2nd Quarter)
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities decreased $13.3 million, or 144.6%, to ($4.1) million for the three months ended February
28, 2009 from $9.2 million for the same period in the prior fiscal year primarily due to the
changes in gross profit discussed above and slightly higher general and administrative expenses in
the three months ended February 28, 2009 as compared to the same period in the prior fiscal year.
Revenues (Year to Date)
The decrease in Maintenance revenues of $28.3 million, or 5.3%, to $506.8 million for the six
months ended February 28, 2009 from $535.1 million for the same period in the prior fiscal year was
primarily attributable to the decline in capital construction revenues. This decline was partially
offset by increases in revenues from our power maintenance business. The power maintenance business
experienced increased activity as we performed a higher volume of work driven by our customer’s
schedule of nuclear refueling outages. Nuclear reactor units generally undergo a refueling outage
every 18 to 24 months which impacts the timing of our level of activity for this type of work. The
increase in this work took place in the first quarter of fiscal year 2009. Also offsetting this
decline was an increase in the volume of work in our process maintenance business line.
Gross profit and gross profit percentage (Year to Date)
Gross profit decreased $16.4 million, or 61.7%, to $10.2 million for the six months ended
February 28, 2009 from $26.6 million for the same period in the prior fiscal year. Gross profit
percentage decreased to 2.0% for the six months ended February 28, 2009 from 5.0% for the same
period in the prior fiscal year. The decline in gross profit was primarily attributable to the
settlement reached with the owner of a major domestic plant where we experienced execution issues
associated with productivity and delays on a power project that resulted in a pre-tax loss of $3.9
million during the six months ended February 28, 2009. Also contributing to the negative gross
profit and gross profit percentage was the substantial completion of a major capital construction
project in the second half of fiscal year 2008. This project contributed higher gross profit
percentages during the second quarter of fiscal year 2008 in comparison to routine maintenance
services that we traditionally provide. Finally, the negative gross profit was also caused by an
increase in estimated costs at completion due to the impacts of hurricanes and subcontractor issues
on a capital construction project along the U.S. Gulf Coast.
The above decreases in gross profit in fiscal year 2009 were offset somewhat by a settlement
with an owner over project incentives on a major domestic power construction project.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (Year to Date)
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities decreased $16.2 million, or 79.0%, to $4.3 million for the six months ended February 28,
2009 from $20.5 million for the same period in the prior fiscal year primarily due to the changes
in gross profit discussed above and slightly higher general and administrative expenses in the
first half of fiscal year 2009 as compared to the first half of fiscal year 2008.
49
Fabrication and Manufacturing (F&M) Segment
Our F&M segment continues to experience global demand for our pipe and steel fabrication
services as well as our manufacturing and distribution capabilities. Although current economic
conditions did not play a significant factor in our performance for the three-months ended February
28, 2009, we believe certain of our customers will become more cautious and are examining future
project commitments and timing for expenditures. We believe our new Mexico facility, which
significantly increased their production during the three months ended February 28, 2009, offers us
a competitive advantage.
We continue building a fabrication facility in Lake Charles, Louisiana that will supply
nuclear structural and equipment modules to be used primarily in the construction of the AP1000
nuclear power plants. Facility construction continues on schedule, and we anticipate the initiation
of production in the first quarter of 2010. This facility has the potential to be a source of
future growth for the F&M segment.
We will strive to maintain our current volume levels throughout the remainder of our fiscal
year 2009, however our customers are anticipating lower prices due to current economic conditions
which will impact our gross profit margins in fiscal year 2010.
Revenues (2nd Quarter)
F&M segment revenues increased $19.1 million, or 13.4%, to $161.2 million for the three months
ended February 28, 2009 from $142.1 million for the same period in the prior fiscal year. This
increase was primarily due to revenues of $7.7 million at our new Mexico facility which was not in
operation during the prior comparative period. These increased revenues offset the effects due to
delays in project starts for our joint venture in the Middle East.
Gross Profit and Gross Profit Percentage (2nd Quarter)
F&M
gross profit decreased $4.0 million, or 10.6%, to $33.7 million for the three months ended
February 28, 2009 from $37.7 million for the same period in the prior fiscal year. Gross profit
percentage decreased to 20.9% for the three months ended February 28, 2009 from 26.5% for the same
period in the prior fiscal year. During the three months ended February 29, 2008, there were two
factors that improved the margins that were not present during the three months ended February 28,
2009. First, our Middle East joint venture generally provides labor services on the customer
furnished material, which substantially improves our gross profit percent. However, in 2009, a
significant project in the Middle East for this joint venture was delayed and our overall gross
profit was decreased $4.6 million. Secondly, start up costs for our Mexico facility negatively
impacted our gross profit, however, we expect this impact to diminish as we increase our in-house
capabilities.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated entities (2nd Quarter)
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities decreased $5.9 million, or 18.4%, to $26.1 million for the three months ended February 28,
2009 from $32.0 million for the same period in the prior fiscal year due to the changes in revenue
and gross profit addressed above combined with added costs related to the addition of personnel at
our new fabrication facility in Lake Charles, Louisiana.
Revenues (Year to Date)
F&M segment revenues increased $47.3 million, or 17.0%, to $325.9 million for the six months
ended February 28, 2009 from $278.6 million for the same period in the prior fiscal year. This
increase was primarily due to revenues of $9.4 million at our new Mexico facility which was not in
operation during the prior period. We also continued to increase revenues in our pipe fabrication
and distribution lines primarily from the our refining and power generation customers.
Gross Profit and Gross Profit Percentage (Year to Date)
F&M gross profit decreased $3.5 million, or 4.8%, to $69.3 million for the six months ended
February 28, 2009 from $72.8 million for the same period in the prior fiscal year. Our gross profit
percentage decreased to 21.3% for the six months ended February 28, 2009 from 26.1% for the same
period in the prior fiscal year. Our gross profit and gross profit percentage were impacted by our
50
Mexico facility costs, one time rework expenses at one pipe fabrication facility, and a
decline in gross profit for our Middle East joint venture as it experienced a delay for a
significant project.
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities (Year to Date)
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities declined $2.8 million, or 4.7%, to $56.4 million for the six months ended February 28,
2009 from $59.2 million for the same period in the prior fiscal year due to the changes in revenue
and gross profit discussed above combined with the added costs related to the addition of personnel
at our new fabrication facility in Lake Charles, Louisiana.
Investment in Westinghouse Segment
Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, on
a calendar quarter basis. Financial information about Westinghouse’s operations is available to us
for Westinghouse’s calendar quarter periods. As a result, we record our 20% interest of the equity
earnings (loss) and other comprehensive income (loss) reported to us by Westinghouse based upon
Westinghouse’s calendar quarterly reporting periods, or two months in arrears of our current
periods. Under this policy, Westinghouse’s operations for the three and six months ended December
31, 2008 are reflected in our results of operations for the three and six months ended February 28,
2009.
The impact of the Investment in Westinghouse segment on our income (loss) before income taxes,
minority interest and earnings (losses) from unconsolidated entities for the three months and six
months ended February 28, 2009 was $20.0 million and $(151.1) million, respectively, compared to
$(50.5) million and $(116.7) million, respectively, in the three and six months ended February 29,
2008. Results for the three and six months ended February 28, 2009 and February 29, 2008 included
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
(dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Interest expense on Japanese
Yen-denominated bonds including
accretion and amortization
|
|
$
|
(10.9
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(20.7
|
)
|
|
$
|
(18.1
|
)
|
|
Foreign currency translation gains
(losses) on Japanese
Yen-denominated bonds, net
|
|
|
30.9
|
|
|
|
(40.5
|
)
|
|
|
(130.3
|
)
|
|
|
(97.7
|
)
|
|
General and administrative expenses
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
minority interest and earnings
(losses) from unconsolidated
entities
|
|
$
|
20.0
|
|
|
$
|
(50.5
|
)
|
|
$
|
(151.1
|
)
|
|
$
|
(116.6
|
)
|
|
|
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|
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|
|
|
|
|
|
|
Additionally, our net income (loss) for the three and six months ended February 28, 2009
includes income from our 20% interest in Westinghouse earnings of
$5.5 million and $7.0 million,
respectively, compared to net income of $2.1 million and $6.9 million for the three and
six months ended February 29, 2008.
We enter into foreign currency forward contracts from time-to-time to hedge the impact of
exchange rate changes on our JPY interest payments on the Westinghouse Bonds. If we exercise the
Put Option for our full 20% equity Investment in Westinghouse, we would recover approximately 97%
of our investment that was originally made in JPY. The economic and liquidity impact of exchange
rate changes on our Westinghouse Bonds would be partially offset if we exercised our Put Option
because of the economic hedge relationship between the JPY proceeds we would receive from the
exercise of the Put Option that would be used to settle the JPY-denominated Westinghouse Bonds. The
net cash exposure between the two at February 28, 2009 approximates the equivalent of $43.6
million.
Corporate Segment
General and Administrative Expenses
G&A decreased
during the three and six months ended February 28, 2009 by $2.5 million, or
11.2% and $2.6 million, or 5.7%, respectively, as compared to the same periods in the prior fiscal
year. This decrease was primarily due to higher professional fees and audit fees incurred in the
first and second quarters of fiscal year 2008 resulting from the restatement of our prior year
financials, lower costs associated with our corporate aircraft, and reductions in certain
employee-related insurance costs, which were charged to our
51
other segments. These cost reductions were partially offset by non-income related taxes,
depreciation on new assets and higher labor and compensation costs. We allocate a portion of the
corporate center overhead costs referred to above to our other segments. Some of these corporate
center allocations are higher in the current year than in the prior year.
Related Party Transactions
From time to time we perform work for related parties. See Part I, Item 1- Financial
Statements, Note 14 for additional details relating to these activities.
Liquidity and Capital Resources
Liquidity
At February 28, 2009, our cash and cash equivalents increased $70.3 million, or 8.6%, to
$887.9 million from $817.6 million at November 30, 2008, and decreased from $927.8 million at
August 31, 2008. Our cash and cash equivalent balances excludes $13.3 million of restricted and
escrowed cash. In addition to our cash and cash equivalents, we had $296.5 million of revolving
credit availability under our Facility at February 28, 2009.
We generated cash from operating activities in all of our operating segments in the second
quarter of fiscal year 2009 primarily due to the earnings and working capital movements on projects
being executed in the segments as well as the receipt of a dividend from our investment in
Westinghouse. We generated significant positive operating cash flows in the second quarter of
fiscal year 2008 primarily from positive cash flows on projects in progress at that time or that
are currently ongoing. As our revenues have grown, so have our requirements to issue letters of
credit to our customers. To the extent markets for our EPC services continue to be strong, our
ability to continue our revenue growth may be dependent on our ability to increase our letter of
credit and surety bonding capacity, our ability to achieve timely release of existing letters of
credit and surety bonds and/or our ability to obtain more favorable terms from our customers
reducing letter of credit and/or surety bond requirements on new work. Additionally, the increase
in the usage of the Facility for performance letters of credit can reduce our available borrowing
capacity. The current credit market conditions are likely to make arranging a new credit facility
more difficult than in prior years and if available, will likely incur a higher cost. We can
provide no assurance as to the terms on which such additional letter of credit capacity might be
made available to us, if at all.
On October 15, 2008, we received a $3.0 incremental commitment through the original maturity
date of the Facility, which increased the amount effective under the Facility to
$1.053 billion until April 25, 2010. On October 15, 2008, we also entered into Amendment No. 6 to
the Facility to, among other things, extend the maturity from April 25, 2010 to April 25, 2011 for
$829 million of the then existing commitments. We also retained our ability to seek additional
commitments from lenders to increase the Facility up to a total capacity of $1.25 billion through
April 25, 2011 subject only to the consent of lenders who actually issued letters of credit on our
behalf. With Amendment No. 6, we also received consent to pledge up to $200.0 million of our
unrestricted cash on hand to collateralize additional letters of credit, incremental to the letters
of credit available under the Facility, provided that at the time we pledge such cash and
immediately thereafter, we have at least $500.0 million in unrestricted cash on hand. The amended
Facility retained other substantive terms that were applicable to the Facility prior to the
effectiveness of Amendment No. 6.
On December 30, 2008, we received a commitment from an existing lender to extend an additional
$45.0 million until April 25, 2011. As a result of Amendment No. 6, the aggregate amount effective
under the Facility remains at $1.053 billion until April 25, 2010 and reduces to $874.0 million
during the period from April 26, 2010 to April 25, 2011.
At February 28, 2009, we were in compliance with the financial covenants contained in the
Facility.
Excess cash is generally invested in one of two types of investment vehicles; either with
money market funds governed under rule 2a-7 of the U.S. Investment Company Act of 1940 or similarly
governed international funds and rated AAAm/Aaa by Standard & Poor’s and/or Moody’s Investors
Service, respectively, or in interest and non-interest bearing deposit accounts with commercial
banks rated A/A2 or better by Standard & Poor’s and/or Moody’s Investors Service, respectively. We
currently do not invest in securities having maturities greater than 120 days. However, in the
future we may elect to change our investment profile to invest in securities with longer maturities
and/or somewhat lower credit worthiness to enhance the return on our excess cash.
52
Approximately $112 million of our cash at February 28, 2009 was held by our international
operations. We have the ability to return certain amounts of our overseas funds to the U.S. but may
incur incremental taxes under certain circumstances.
We expect to generate net positive operating cash flow during 2009 but not necessarily every
quarter. We expect to fund our operations for the next twelve months through the use of cash
generated from operations or existing cash balances. However, there can be no assurance that we
will achieve our forecasted cash flow, which could result in new borrowings under existing or
future credit facilities. We expect to continue to reinvest a portion of our excess cash to support
our business lines’ growth including, but not limited to, the investment in a new modular
fabrication facility by our F&M segment that will supply equipment to new nuclear power plants, and
to purchase certain equipment routinely used in our operations that we have historically leased. In
March, 2009, we voluntarily elected to cash collateralize an outstanding performance letter of
credit of approximately $56.4 million which was previously issued under our credit facility in
support of our project execution activities. We may elect to expand the use of our excess cash to
collateralize other outstanding letters of credit to save letter of credit fees and provide
additional letter of credit capacity. Additionally, in March 2009, we made a voluntary cash
contribution to our underfunded pension plan in the United Kingdom of approximately
$11.5 million.
Other Revolving Lines of Credit
In addition to our Facility, we have various short-term (committed and uncommitted) revolving
credit facilities from several financial institutions that are available for letters of credit and,
to a lesser extent, working capital loans. See Note 7 — Long-Term Debt and Revolving Lines of
Credit included in Part I, Item 1 — Financial Statements for additional information.
Off Balance Sheet Arrangements
On a limited basis, performance assurances are extended to customers in the form of letters of
credit, surety bonds, and / or parent company guarantees that guarantee certain performance
obligation of a project. If performance assurances are extended to customers, generally our maximum
potential exposure is limited in the contract with our customers. We frequently obtain similar
performance assurances 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.
See Note 5 — Equity Method Investments and Variable Interest Entities included in Part I, Item
1 — Financial Statements for a discussion of guarantees related to our Privatization entities.
Commercial Commitments
Our lenders issue letters of credit on our behalf to clients, sureties and to secure other
financial obligations in connection with our contract performance and in limited circumstances on
certain other obligations of third parties. If drawn, we are required to reimburse our lenders for
payments on these letters of credit. At February 28, 2009, we had both letter of credit commitments
and surety bonding obligations, which were generally issued to secure performance and financial
obligations on certain of our construction contracts, which expire as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Commitments (1)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
After 5 Years
|
|
|
Letters of Credit — Domestic and Foreign
|
|
$
|
834.2
|
|
|
$
|
342.9
|
|
|
$
|
317.1
|
|
|
$
|
118.7
|
|
|
$
|
55.5
|
|
|
Surety bonds
|
|
|
779.5
|
|
|
|
568.3
|
|
|
|
171.2
|
|
|
|
0.5
|
|
|
|
39.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Commitments
|
|
$
|
1,613.7
|
|
|
$
|
911.2
|
|
|
$
|
488.3
|
|
|
$
|
119.2
|
|
|
$
|
95.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
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 March 1, 2009
|
53
Of the amount of outstanding letters of credit at February 28, 2009, $623.8 million were
issued to customers in connection with contracts (performance letters of credit). Of the $623.8
million, five customers held $339.2 million or 54% of the outstanding letters of credit. The
largest amount of letters of credit issued to a single customer on a single project is $114.2
At February 28, 2009 and August 31, 2008, we had total surety bonds of $779.5 million and
$762.1 million, respectively. However, based on our percentage-of-completion on contracts covered
by these surety bonds, our estimated potential liability at February 28, 2009 and August 31, 2008
was $267.9 million and $331.0 million, respectively.
Fees related to these commercial commitments were $3.4 million and $7.4 million, for the three
and six months ended February 28, 2009, respectively, compared to $3.8 million and $7.6 million
for the three and six months ended February 29, 2008, respectively.
See Note 7 — Long-term Debt and Revolving Lines of Credit to our consolidated financial
statements in Item 1 of Part I of this report for a discussion of long-term debt, and Note 10 -
Contingencies and Commitments to our consolidated financial statements in Item 1 of Part I of this
report for a discussion of contingencies and commitments.
Critical Accounting Policies
Item 7 of Part II of our 2008 Form 10-K addresses 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 those that require management
judgment and assumptions, or involve uncertainties. The only significant change to our application
of critical accounting policies and estimates is our adoption of SFAS 157 and SFAS 159 in our first
quarter of this year.
Backlog of Unfilled Orders
Backlog is based on legally binding agreements for projects that management believes are
probable to proceed. Our backlog represents management’s estimate of the amount of awards that we
expect to result in future revenues. Awards are evaluated by management on a project-by-project
basis and are reported for each period shown based upon the nature of the underlying contract,
commitment and other factors, which may include the economic, financial and regulatory viability of
the project and a qualitative assessment of the likelihood of the contract proceeding.
Our backlog is largely a reflection of the broader economic trends being experienced by our
customers and is important to us in anticipating our operational needs. Our current backlog
excludes a significant amount of domestic nuclear work expected to be performed under two of our
three signed EPC contracts. While we have not identified significant delays in completing work in
backlog, current economic conditions may cause us to experience such reductions or delays. In
addition, current economic conditions may make it more difficult to add projects to our backlog
going forward if, and to the extent, capital constraints negatively impact our customers’ planned
capital expenditures. Backlog is not a measure defined in generally accepted accounting principles
(GAAP), and our methodology for determining backlog may not be comparable to the methodology used
by other companies in determining their backlog. We cannot assure you that revenues projected in
our backlog will be realized, or if realized, will result in profits.
Projects in backlog normally allow our customers to terminate the underlying agreement for
convenience. Many of the contracts in backlog provide for cancellation fees in the event customers
cancel projects. These cancellation fees usually provide for reimbursement of our out-of-pocket
costs, revenues associated with work performed prior to cancellation and a varying percentage of
the profits we would have realized had the contract been completed. Should a contract be cancelled
or if information becomes available prior to our filing of the Form 10-Q that results in management
concluding the project is unlikely to proceed, we remove the contract from our backlog.
Fossil & Nuclear and E&C Segments
. We define our backlog in the Fossil & Nuclear
segment and in the E&C segment to include projects for which we have received a commitment from our
customers and our pro rata share of our unconsolidated joint venture entities. This commitment
typically takes the form of a written contract for a specific project, a purchase order, or a
specific indication of the amount of time or material we need to make available for a customer’s
anticipated project. Certain backlog engagements are for particular products or projects for which
we estimate anticipated future revenues, often based on engineering and design specifications that
have not been finalized and may be revised over time.
54
Items not included in our backlog where clients have already selected us for expected future
work include construction of five potential 800 MWe coal fired power units for two
ultra-supercritical coal projects in the United Kingdom and the majority of the work on two EPC
contracts for four new nuclear power units to be located in Georgia and South Carolina for which
contracts have been awarded, but for which certain client authorizations had not been received as
of February 28, 2009. Subsequent to our fiscal quarter end, we received full notice to proceed for
the two nuclear power units located in Georgia.
E&I Segment
. Our E&I segment’s backlog includes the value of awarded contracts
including the estimated value of unfunded work. The unfunded backlog generally represents various
government (Federal, state and local) project awards for which the project funding has been
partially authorized or awarded by the relevant government authorities (e.g., authorization or an
award has been provided for only the initial year of a multi-year project). Because of
appropriation limitations in the governmental budget processes, firm funding is usually made for
only one year at a time, and, in some cases, for periods less than one year, with the remainder of
the years under the contract expressed as a series of one-year options. Amounts included in backlog
are based on the contract’s total awarded value and our estimates regarding the amount of the award
that will ultimately result in the recognition of revenues. These estimates are based on
indications of future values provided by our customers, our experience with similar awards, similar
customers and our knowledge and expectations relating to the given award. Generally the unfunded
component of new contract awards is added to backlog at 75% of our expected value, although a
higher or lower percentage is used if it provides a more accurate estimate. The programs are
monitored and estimates are reviewed periodically, and adjustments are made to the amounts included
in backlog and in unexercised contract options to properly reflect our estimate of total contract
value in the E&I segment backlog. Our E&I segment backlog does not generally include any awards
(funded or unfunded) for work expected to be performed more than five years after the date of our
financial statements. The executed amendment to the MOX contract signed in the third quarter of
fiscal 2008 with the DOE extends beyond five years but has defined contract terms which make
inclusion appropriate for this specific contract. Accordingly, we included the entire value of the
MOX contract not yet executed in our backlog of unfilled orders. The amount of future actual awards
may be more or less than our estimated revenues as addressed above.
Maintenance Segment
. We define our backlog in the Maintenance segment to include
projects which are based on legally binding contracts from our clients and our pro rata share of
unconsolidated joint venture entities. This commitment typically takes the form of a written
contract for a specific project purchase order, or a specific indication of the amount of time or
material we need to make available for a customer’s anticipated projects. Certain backlog
engagements are for particular products or projects for which we estimate anticipated future
revenues. Our backlog for maintenance work is derived from maintenance contracts and our customers’
historic maintenance requirements, as well as our future cost estimates based on the customer’s
indications of future plant outages. Our Maintenance segment backlog does not include any awards
for work expected to be performed more than five years after the date of our financial statements.
F&M Segment.
We define our backlog in the F&M segment to include projects for which we
have received a commitment from our clients inclusive of subcontracted orders received from
affiliated Shaw companies. These commitments typically take the form of a written contract for a
specific project, a purchase order or a specific indication of the amount of time or material we
need to make available for clients’ anticipated projects.
Our backlog was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
By Segment
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
Fossil & Nuclear
|
|
$
|
10,322.8
|
|
|
|
54
|
|
|
$
|
6,109.7
|
|
|
|
39
|
|
|
E&I
|
|
|
5,263.3
|
|
|
|
28
|
|
|
|
5,155.4
|
|
|
|
33
|
|
|
E&C
|
|
|
1,672.7
|
|
|
|
9
|
|
|
|
2,175.5
|
|
|
|
14
|
|
|
Maintenance
|
|
|
1,200.8
|
|
|
|
6
|
|
|
|
1,423.3
|
|
|
|
9
|
|
|
F&M
|
|
|
588.7
|
|
|
|
3
|
|
|
|
763.1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
19,048.3
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
By Industry
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
E&I
|
|
$
|
5,263.3
|
|
|
|
28
|
|
|
$
|
5,155.4
|
|
|
|
33
|
|
|
Power Generation
|
|
|
11,509.9
|
|
|
|
60
|
|
|
|
7,570.2
|
|
|
|
48
|
|
|
Chemical
|
|
|
2,132.0
|
|
|
|
11
|
|
|
|
2,751.9
|
|
|
|
18
|
|
|
Other
|
|
|
143.1
|
|
|
|
1
|
|
|
|
149.5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
19,048.3
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
August 31, 2008
|
|
|
By Geographic Region
|
|
(In Millions)
|
|
|
%
|
|
|
(In Millions)
|
|
|
%
|
|
|
Domestic
|
|
$
|
16,895.4
|
|
|
|
89
|
|
|
$
|
12,867.4
|
|
|
|
82
|
|
|
International
|
|
|
2,152.9
|
|
|
|
11
|
|
|
|
2,759.6
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total backlog
|
|
$
|
19,048.3
|
|
|
|
100
|
%
|
|
$
|
15,627.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog for the Fossil & Nuclear segment at February 28, 2009 increased $4.2 billion as
compared to August 31, 2008. Included in our backlog as of the fiscal quarter ending February 28,
2009 is our share of an EPC contract award for two AP1000 nuclear reactors in Florida.
While backlog represents amounts we expect to recognize in revenues, full realization of this
amount is subject to additional permitting and regulatory approvals. Also added to our backlog this
period is the value associated with certain work authorizations on a previously awarded EPC
contract for two AP1000 nuclear reactors in South Carolina, for which a key
regulatory approval was obtained by our client during this period.
While we have seen a slowing of new awards of coal-fired power plants in 2009 as compared to
prior years, during the second quarter of this fiscal year, we were awarded a contract for early
development services associated with a potential 1200 MW circulating fluidized-bed project in the United
States.
We have included additional scope growth due to increases to our existing signed contracts
during the year. These new awards and additions were more than offset by the execution of existing
projects during the fiscal year. In the first quarter of fiscal year 2009, we received notice of a
suspension until the beginning of 2010 on the start date of the engineering and construction
portion of a recent award for a 620 MW gas-fired power plant in North Carolina. This award remains
in our backlog at February 28, 2009, as we expect this project to proceed as planned. Additionally,
in April 2009, we received notification of a long-term suspension in the execution of a new coal
fired power plant under construction in Louisiana. This project was removed from our backlog at
February 28, 2009.
As of February 28, 2009, two customers account for approximately $5.8 billion or 56.3% of
backlog for the Fossil & Nuclear segment.
Backlog for the E&I segment at February 28, 2009 increased $107.9 million compared to August
31, 2008. The increase in backlog is primarily attributable to increases in scope of work on our
MOX project for the DOE and on the Inner Harbor Navigation Canal Hurricane Protection project for
the USACE, and new DOD contract awards, supplemented by smaller awards from federal agencies, state
and local government agencies and recurring work from commercial clients.
At February 28, 2009, contracts with government agencies or entities owned by the U.S.
Government are a predominant component of the E&I segment backlog, accounting for $4.9 billion or
93.0% of the backlog. Unfunded backlog related to federal government projects awarded for which
funding has yet to be approved is $3.6 billion at February 28, 2009.
Backlog for the E&C segment at February 28, 2009 decreased $502.8 million as compared to
August 31, 2008 primarily as a result of a decline in the amount of customer furnished materials.
Customer furnished materials do not have any associated gross profit or loss opportunities and the
amounts included in backlog at February 28, 2009 and August 31, 2008, are $242.2 million and $444.3
million, respectively. At February 28, 2009, two customers account for approximately $1.2 billion
or 70.8% of backlog for the E&C segment.
Backlog for the Maintenance segment at February 28, 2009 decreased $222.5 million as compared
to August 31, 2008. The decrease in backlog was due primarily to the completion of the first
quarter work on the maintenance contracts that are awarded every three to five years. Under these
multi-year awards, the entire amount of the work is included in backlog in year one and each
succeeding year results in a decline in that amount until a new contract is awarded. At February
28, 2009, two customers account for approximately $691.0 million or 57.5% of the backlog for the
Maintenance segment.
Backlog for F&M segment at February 28, 2009 decreased $174.4 million as compared to November
30, 2008 due to a decline in new contract awards and the removal of work related to the long-term
suspension in the execution of the new coal fired power plant under construction in Louisiana. The
current economic climate has caused some of our customers to delay or cancel their anticipated
56
capital expenditures which impacted our new awards. Underlying demand in the chemical,
petrochemical, refining and coal fired power generation industries for our fabrication and
distribution services has slowed but remains active.
Recently Adopted Accounting Pronouncements
For a discussion of recently adopted accounting pronouncements, refer to Note 1 — General
Information of our consolidated financial statements in Part I, Item 1 — Financial Statements.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and the effect they could have on our
financial statements, refer to Note 18 — New Accounting Pronouncements of our consolidated
financial statements in Part I, Item 1 — Financial Statements.
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 exchange rate risk. For quantitative and qualitative
disclosures about our market risk, see Item 7A — Quantitative and Qualitative Disclosures about
Market Risk of our 2008 Form 10-K. Our exposures to market risk have not changed materially since
August 31, 2008.
ITEM 4. — CONTROLS AND PROCEDURES
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) are designed to ensure that information required to be disclosed in our reports filed
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. This information is collected and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. Our management, 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 at February 28,
2009. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were not effective at February 28, 2009 because of the
material weaknesses discussed below.
Identification of Material Weaknesses
As part of our quarterly evaluation of the effectiveness, design and operation of our
disclosure controls and procedures described above, we have concluded that the following material
weaknesses in internal control over financial reporting that existed at August 31, 2008 continued
to exist at February 28, 2009:
(1) Project Reporting of Estimates of Cost at Completion on EPC Complex Fixed-Price Contracts
We did not maintain effective control over our project reporting of EAC on EPC complex
fixed-price contracts. Specifically, we identified the following control deficiencies at August 31,
2008, which continued to exist at February 28, 2009:
|
|
•
|
|
We did not maintain internal controls to ensure that EACs were updated completely and
accurately on a timely basis. Additionally, documentation of EACs was not sufficiently
detailed to allow for an effective analysis and review of the completeness, accuracy and
reasonableness of the EACs by knowledgeable management;
|
|
|
|
|
•
|
|
Our policies and procedures were not designed to ensure adequate identification and
disclosure by project management of changes in the assumptions used to develop EACs that
could be material to the financial reporting of the project;
|
57
|
|
•
|
|
Our policies and procedures were not designed to require periodic detail reviews of
EACs by personnel independent of the project to promptly identify deficiencies in the
operation of internal controls, including those that could arise from management override;
and
|
|
|
|
|
•
|
|
Our policies and procedures were not designed to ensure periodic written certification
as to whether the project team prepared the EACs in accordance with our EAC policies and
procedures and that the EAC reasonably reflect project management’s best estimates of cost
at completion of the project.
|
These control deficiencies give rise to a reasonable possibility of a material misstatement in
our financial reporting not being detected or prevented on a timely basis. This material weakness
contributed to the restatement of our February 29, 2008 and May 31, 2008 interim financial
statements included in our 2008 Form 10-K.
(2) Accounting for Income Taxes
We did not maintain a sufficient number of tax professionals with adequate experience in the
application of Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes
(FAS 109). As a result, our polices and procedures for the identification and analysis of the
appropriate accounting treatment of routine and non-routine income tax matters were not effective
to ensure that our income tax accounting was consistent with generally accepted accounting
principles. These control deficiencies give rise to a reasonable possibility of a material
misstatement in our financial reporting not being detected or prevented on a timely basis.
Remediation of Material Weaknesses in Process
Our planned measures to remediate the material weaknesses identified above include:
1) Project Reporting of Estimates of Cost at Completion on EPC Complex Fixed-Price Contracts
We are in the process of finalizing and issuing additional and revised policies and procedures
including the related internal controls regarding the development, reporting and review of EACs on
EPC complex fixed-price contracts. These policies and procedures include:
|
|
-
|
|
revised processes to facilitate improved reviews of EACs by the project team and by management,
|
|
|
|
|
-
|
|
minimum project reporting documentation requirements to facilitate effective management reviews of EACs,
|
|
|
|
|
-
|
|
increased transparency of significant EAC assumptions and changes in significant EAC
assumptions in project reports, and
|
|
|
|
|
-
|
|
periodic written certification by key project personnel that the project EAC used to
record project results in our financial statements at the end of each quarter are prepared
in accordance with our EAC policies and procedures and that the EAC reasonably reflects
the project team’s best EAC for the project.
|
We have initiated training of our segment management and project personnel on our policies,
procedures and internal controls. Training will be completed in our fiscal third quarter of 2009,
and testing of our new controls will begin in our fiscal third quarter and continue into our fiscal
fourth quarter of 2009.
(2) Accounting for Income Taxes
Our new Vice President of Tax, along with our Vice President and Corporate Controller, are in
the process of reviewing and enhancing our policies, procedures and internal controls related to
the application of FAS 109. We have evaluated our need for additional experienced tax accounting
professionals, and we added experienced tax accounting professionals in key management positions
during our fiscal second quarter 2009. Our tax accounting personnel and other members of our
accounting and tax departments attended FAS 109 training during the quarter. We will continue to
engage external tax resources as necessary to assist us until the remedial measures can be
designed, implemented and tested.
In light of the material weaknesses described above, we performed additional procedures that
provided us with reasonable assurance regarding the reliability of: (1) our financial reporting and
(2) the preparation of the consolidated financial statements contained in this Form 10-Q.
Accordingly, management believes that the consolidated financial statements included in this Form
10-Q fairly present, in all material respects, our financial position, results of operations and
cash flows for the periods presented.
58
We are committed to finalizing our remediation action plans and implementing the necessary
enhancements to remediate the material weaknesses described above. These material weaknesses will
not be considered remediated until: (1) the new processes are designed, appropriately controlled
and implemented for a sufficient period of time and (2) we have sufficient evidence that the new
processes and related controls are operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months
ended February 28, 2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.
—
LEGAL PROCEEDINGS
See Note 10 — Contingencies and Commitments of our consolidated financial statements in Part
I, Item 1, “Financial Statements” for information about our material pending legal proceedings.
ITEM 1A.
—
RISK FACTORS
In addition to the other information set forth in this Form 10-Q, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2008 Form 10-K, that could
materially affect our business, financial condition or future results. The risks described in this
Form 10-Q and in our 2008 Form 10-K are not the only risks facing our company. Additional risks and
uncertainties not currently known to us, or that we currently deem to be immaterial, also may
materially adversely affect our business, financial condition and future results.
Many of our clients’ activity levels and spending for our products and services
and
their
ability to meet their payment commitments
to us may be impacted by the current
deterioration in the credit markets.
Many of our clients finance their activities through the incurrence of debt or the issuance of
equity. Recently, there has been a significant decline in the availability of credit. Additionally,
many of our customers’ equity values have substantially declined. The combination of a reduction of
cash flow resulting from declines in revenues, a reduction in borrowing bases under reserve based
credit facilities and the lack of availability of debt or equity financing may result in a
significant reduction in our customers’ spending for our products and services. This reduction in
spending could have a material adverse effect on our operations.
In many instances during the course of a project, we commit and/or pay for products or
expenses attributable to our clients with an understanding that such client will pay us per the
terms of our commercial contract with them. Due to the deterioration of the credit markets, our
clients may not be able to make such payments to us in a timely manner, or at all, in which case we
could be forced to absorb these costs. This could have a material adverse effect on our operations.
If the United States were to change its support of nuclear power or revoke or limit the Department
of Energy’s Loan Guarantee Program it could have a material adverse effect on our operations.
The U.S. Government has been supportive of increased investment in nuclear power. However, if
the U.S. Government were to change its policy or public acceptance of nuclear technology as a means
of generating electricity were to decrease it could harm demand for nuclear power and also
potentially increase the regulation of the nuclear power industry. Because several of our segments
deal with nuclear power either directly or indirectly this could have a material adverse effect on
our operations.
Some of our customers may rely on the U.S. Department of Energy’s (DOE) Loan Guarantee Program
under which the DOE issues loan guarantees to eligible projects that “avoid, reduce, or sequester
air pollutants or anthropogenic emissions of greenhouse gases” and “employ new or significantly
improved technologies as compared to technologies in service in the United States at the time the
guarantee is issued.” If the current administration were to revoke or limit the DOE’s Loan
Guarantee Program it could make
59
obtaining funding more difficult to many of our clients which could inhibit their ability to
take on new projects resulting in a negative impact on our operations.
ITEM 4.
—
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 28, 2009, we held our 2009 Annual Meeting of Shareholders (Annual Meeting). The
record date for the Annual Meeting was December 5, 2008, and, on the record date, there were
83,588,652 shares outstanding and entitled to vote at the Annual Meeting held by approximately 566
holders of record. Article III of our by-laws provides for the election of directors by a plurality
of the votes cast. Therefore, the seven nominees receiving the highest number of affirmative votes
of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote
were elected as members of our Board of Directors.
The following matters were submitted to a vote of our security holders at the Annual Meeting,
and the percentages below are based upon the 83,588,652 shares outstanding and entitled to vote on
the record date.
(1) Election of seven members to our Board of Directors, each for a one-year term;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
Votes For
|
|
% of Outstanding
|
|
Withheld
|
|
% of Outstanding
|
|
J. M. Bernhard, Jr.
|
|
|
72,921,853
|
|
|
|
87.2
|
|
|
|
1,023,456
|
|
|
|
1.2
|
|
|
James F. Barker
|
|
|
41,075,626
|
|
|
|
49.1
|
|
|
|
32,869,683
|
|
|
|
39.3
|
|
|
Thos. E. Capps
|
|
|
41,449,694
|
|
|
|
49.6
|
|
|
|
32,495,615
|
|
|
|
38.9
|
|
|
Daniel A. Hoffler
|
|
|
48,247,449
|
|
|
|
57.7
|
|
|
|
25,697,860
|
|
|
|
30.7
|
|
|
David W. Hoyle
|
|
|
41,198,046
|
|
|
|
49.3
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|
|
|
32,747,263
|
|
|
|
39.2
|
|
|
Michael J. Mancuso
|
|
|
41,227,584
|
|
|
|
49.3
|
|
|
|
32,717,725
|
|
|
|
39.1
|
|
|
Albert D. McAlister
|
|
|
49,872,353
|
|
|
|
59.7
|
|
|
|
24,072,956
|
|
|
|
28.8
|
|
(2) A proposal was passed by the required shareholder vote approving the adoption of our 2008
Omnibus Incentive Plan;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
% of Outstanding
|
|
Votes Against
|
|
% of Outstanding
|
|
Abstain
|
|
% of Outstanding
|
|
51,084,763
|
|
|
61.1
|
|
|
|
7,004,225
|
|
|
|
8.4
|
|
|
|
78,367
|
|
|
0.1
|
(3) A proposal was passed by the required shareholder vote ratifying the Audit Committee’s
appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year
ending August 31, 2009;
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
% of Outstanding
|
|
Votes Against
|
|
% of Outstanding
|
|
Abstain
|
|
% of Outstanding
|
|
73,230,985
|
|
|
87.6
|
|
|
|
530,779
|
|
|
|
0.6
|
|
|
|
183,544
|
|
|
0.2
|
(4) A proposal was passed by the required shareholder vote regarding certain executive agreements
described in the proxy statement;
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For
|
|
% of Outstanding
|
|
Votes Against
|
|
% of Outstanding
|
|
Abstain
|
|
% of Outstanding
|
|
38,815,127
|
|
|
46.4
|
|
|
|
19,200,784
|
|
|
|
23.0
|
|
|
|
151,443
|
|
|
0.2
|
60
ITEM 6.
—
EXHIBITS
The exhibits marked with the cross symbol (†) are filed or furnished (in the case of Exhibits 32.1
and 32.2) with this Form 10-Q. The exhibits marked with the asterisk symbol (*) are management
contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of
Regulation S-K.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
|
Exhibit
|
|
|
|
|
|
Registration
|
|
Or Other
|
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
3.1
|
|
Amendment to and Restatement of the Articles
of Incorporation of The Shaw Group Inc. (the
“Company”) dated February 23, 2007
|
|
The Shaw Group Inc. Annual
Report on Form 10-K/A
(Amendment No. 1) for the
fiscal year ended August 31,
2006.
|
|
1-12227
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
3.2
|
|
Amended and Restated By-Laws of the Company
dated at January 30, 2007
|
|
The Shaw Group Inc. Annual
Report on Form 10-K/A
(Amendment No. 1) for the
fiscal year ended August 31,
2006.
|
|
1-12227
|
|
|
3.2
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
*10.1
|
|
Amended and restated employment agreement
dated as of December 22, 2008 by and between
the Company and Gary P. Graphia
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
December 24, 2008.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
10.2
|
|
Letter agreement dated as of December 30,
2008, among the Company, Merrill Lynch and BNP
Paribus, as Agent
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 6, 2009.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.3
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and J. M. Bernhard, Jr.
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
|
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|
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|
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|
|
*10.4
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and Brian K. Ferraioli
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.5
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and David P. Barry
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.6
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and Ronald W. Oakley
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.7
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and Dirk J. Wild
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.8
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.9
|
|
The Shaw Group Inc. 2008 Omnibus Incentive
Plan Incentive Stock Option Agreement Form of Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.10
|
|
The Shaw Group Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.11
|
|
The Shaw Group Deferred Compensation Plan Form
of Adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.12
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and G. Patrick Thompson
|
|
|
|
|
|
|
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|
61
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
|
Exhibit
|
|
|
|
|
|
Registration
|
|
Or Other
|
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
†*10.13
|
|
Amended and restated employment agreement
dated as of December 31, 2008 by and between
the Company and George P. Bevan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.14
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Roy Montgomery Glover
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.15
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Dorsey Ron McCall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.16
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Lou Pucher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.17
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Clifton Scott Rankin
|
|
|
|
|
|
|
|
|
|
|
|
†*10.18
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan Non-Qualified Stock Option Form of Agreement
|
|
|
|
|
|
|
|
|
|
|
|
†*10.19
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan Restricted Stock Unit Award Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†31.1
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†31.2
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†32.1
|
|
Certification pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†32.2
|
|
Certification pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
62
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
THE SHAW GROUP INC.
|
|
|
Dated: April 8, 2009
|
/s/ Brian K. Ferraioli
|
|
|
|
Brian K. Ferraioli
|
|
|
|
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)
|
|
63
THE SHAW GROUP INC.
EXHIBIT INDEX
Exhibits not incorporated by reference to a prior filing, and which are filed herewith are
designated by a cross (†); all exhibits not so designated are incorporated herein by reference to a
prior filing as indicated. The exhibits with the asterisk symbol (*)
are compensatory arrangements filed pursuant to Item 601(b)(10)(iii)
of Regulation S-K,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
|
Exhibit
|
|
|
|
|
|
Registration
|
|
Or Other
|
|
Number
|
|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
3.1
|
|
Amendment to and Restatement of the Articles of
Incorporation of The Shaw Group Inc. (the “Company”)
dated February 23, 2007
|
|
The Shaw Group Inc. Annual
Report on Form 10-K/A
(Amendment No. 1) for the
fiscal year ended August 31,
2006.
|
|
1-12227
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated By-Laws of the Company dated at
January 30, 2007
|
|
The Shaw Group Inc. Annual
Report on Form 10-K/A
(Amendment No. 1) for the
fiscal year ended August 31,
2006.
|
|
1-12227
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.1
|
|
Amended and restated employment agreement dated as of
December 22, 2008 by and between the Company and Gary
P. Graphia
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
December 24, 2008.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Letter agreement dated as of December 30, 2008, among
the Company, Merrill Lynch and BNP Paribus, as Agent
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 6, 2009.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.3
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and J.
M. Bernhard, Jr.
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.4
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Brian K. Ferraioli
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.5
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
David P. Barry
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.6
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Ronald W. Oakley
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.7
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and Dirk
J. Wild
|
|
The Shaw Group Inc. Current
Report on Form 8-K filed on
January 7, 2009.
|
|
1-12227
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.8
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.9
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan Incentive Stock Option Agreement Form
of Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.10
|
|
The Shaw Group Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.11
|
|
The Shaw Group Deferred Compensation Plan Form of
Adoption
|
|
|
|
|
|
|
|
|
|
|
|
†*10.12
|
|
Amended and restated employment agreement dated as of
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEC File or
|
|
Exhibit
|
|
Exhibit
|
|
|
|
|
|
Registration
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Or Other
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Number
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|
Document Description
|
|
Report or Registration Statement
|
|
Number
|
|
Reference
|
|
|
|
December 31, 2008 by and between the Company and G.
Patrick Thompson
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|
|
†*10.13
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
George P. Bevan
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
|
|
†*10.14
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Roy Montgomery Glover
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
†*10.15
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Dorsey Ron McCall
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.16
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Lou Pucher
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†*10.17
|
|
Amended and restated employment agreement dated as of
December 31, 2008 by and between the Company and
Clifton Scott Rankin
|
|
|
|
|
|
|
|
|
|
|
|
†*10.18
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan Non-Qualified Stock Option Form of Agreement
|
|
|
|
|
|
|
|
|
|
|
|
†*10.19
|
|
The Shaw Group Inc. 2008 Omnibus Incentive Plan Restricted Stock Unit Award Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†31.1
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†31.2
|
|
Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†32.2
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
|
|
|
65
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