UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

The Shaw Group Inc.

225-932-2500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.
Yes x Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
Yes x Noo

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, 64,082,779 shares outstanding as of January 7, 2005.

FORM 10-Q

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

ITEM 1. – FINANCIAL STATEMENTS

THE SHAW GROUP INC. AND SUBSIDIARIES

ASSETS

(Continued)

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

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THE SHAW GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)

LIABILITIES AND SHAREHOLDERS’ EQUITY

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

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THE SHAW GROUP INC. AND SUBSIDIARIES

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

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THE SHAW GROUP INC. AND SUBSIDIARIES

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

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

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

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THE SHAW GROUP INC. AND SUBSIDIARIES

Note 1 - General Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the interim reporting requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Consequently, financial information and disclosures normally included in financial statements prepared annually in accordance with Generally Accepted Accounting Principles (GAAP) have been condensed or omitted. Readers of this report should, therefore, refer to the consolidated financial statements and the notes included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2004, of The Shaw Group Inc., filed with the Securities and Exchange Commission on November 2, 2004.

The financial information of The Shaw Group Inc., its wholly-owned subsidiaries, its consolidated variable interest entities, and in some cases the proportionate share of its investment in joint ventures as of November 30, 2004 and for the three months ended November 30, 2004 and 2003, was not audited by our independent auditors. However, management believes it has made all adjustments (consisting of normal recurring adjustments) which are necessary to fairly present its financial position and its results of operations as of and for these periods. Results of operations for the interim periods are not necessarily indicative of results of operations that will be realized for the fiscal year ending August 31, 2005.

Effective September 1, 2004, we segregated our business activities into four operating segments: Energy & Chemicals (E&C) segment, Maintenance segment, Environmental & Infrastructure (E&I) segment, and Fabrication, Manufacturing and Distribution segment. The primary change from our previously reported segments was to divide our former Engineering, Construction & Maintenance (ECM) segment into the newly created E&C segment and Maintenance segment (see Note 10). All historical segment information has been restated to reflect the new operating segments.

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

Certain reclassifications have been made to the prior period’s financial statements in order to conform to the current period’s presentation.

Note 2 - Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, allows companies to account for stock-based compensation by either recognizing an expense for the fair value of stock-based compensation upon issuance or by the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25 and related interpretations. Our stock-based compensation consists of the issuance of stock options and restricted stock.

We account for our stock-based compensation under APB No. 25, which provides that no stock-based compensation expense is recognized if stock options are granted at an exercise price equal to the market value of the underlying stock at the date of grant and all other provisions are fixed at the date of grant.

In addition, APB No. 25 provides that compensation expense related to restricted stock grants be measured at the market price of the stock on the date the restricted stock is granted, with no discount provided for the restrictions. The compensation expense is recognized over the periods benefited from the employees’ services which we believe is the period over which the restrictions lapse.

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However, if we had adopted the fair value method of accounting for stock-based compensation and had determined our stock-based compensation cost based on the fair value at the grant date consistent with the provisions of SFAS No. 123, our net income (loss) and earnings (loss) per common share would have approximated the pro forma amounts below (in thousands, except per share amounts):

The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options. The Black-Scholes model requires the use of highly subjective assumptions including the expected volatility of the underlying stock price. Changes in these subjective assumptions can materially affect the fair value estimates of our stock options. In addition, the Black-Scholes model does not consider specific vesting restrictions of the stock options and assumes the stock options are fully transferable. The characteristics of traded options under the Black-Scholes model differ from the characteristics of stock options issued under our stock option plans. In addition, SFAS No. 123 provides no discount for the restrictions placed on restricted stock grants and stock options.

We believe existing option pricing models do not provide a reliable single measure of the fair value of our stock options and the above pro forma disclosures under SFAS No. 123 do not necessarily reflect the effects on reported earnings for future years as options vest over several years and new awards are typically made.

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Restricted Stock

Our 1993 Employee Stock Option Plan and 2001 Employee Incentive Compensation Plan allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. If termination of employment occurs prior to the lapse of these restrictions, the shares must be returned to us. During the three months ended November 30, 2004 and 2003, we granted restricted stock of 205,500 shares and 358,000 shares, respectively, to certain employees including our Chief Executive Officer, Chief Financial Officer and our President and Chief Operating Officer. In addition, we agreed to issue to our Chief Executive Officer and our President and Chief Operating Officer future restricted stock awards under this employee stock plan totaling 211,800 shares and 98,000 shares for the three months ended November 30, 2004 and 2003, respectively. As of November 30, 2004, 232,800 shares of restricted stock are due to be issued at a future date. As of November 30, 2004, we have recorded unearned stock-based compensation as a component of shareholders’ equity of $10.4 million related to these restricted stock grants. This unearned stock-based compensation is being amortized to compensation expense over the period the restrictions lapse (generally 2 to 4 years). For the three months ended November 30, 2004, $0.9 million of stock-based compensation expense is included in general and administrative expenses and costs of revenues on the accompanying condensed consolidated statement of operations related to these restricted stock grants.

Note 3 – Public Capital Stock Transactions

On October 29, 2003, we issued 23 million shares of common stock at $10 per share with related transaction costs of approximately $12.5 million, generating net proceeds of $217.5 million. Approximately $194.7 million of the net proceeds were used to repurchase a portion of our outstanding Liquid Yield Option™ Notes or LYONs (see Note 8). The remaining net proceeds of $22.8 million plus interest earned were held in escrow until they were used to repurchase additional LYONs in May 2004.

Note 4 - Acquisitions

The operating results of acquisitions are included in our condensed consolidated financial statements from the applicable dates of the transactions. Proforma information has not been disclosed for the fiscal year 2004 acquisitions as the impact on an individual and aggregate basis is not deemed significant for the periods presented. During fiscal year 2004, we completed three acquisitions accounted for as purchases. No acquisition occurred during the first quarter of fiscal 2005. The purchase price allocation for one acquisition is preliminary and subject to revision up to one-year subsequent to the acquisition date. The following is a brief description of each acquisition.

Coastal Engineering and Environmental Consultants, Inc.

In October 2003, we acquired certain assets and the workforce of Coastal Engineering and Environmental Consultants, Inc. (Shaw Coastal) for a cost of $1.2 million. Shaw Coastal specializes in engineering and consulting for Coastal Erosion and Wetlands Restoration projects. Shaw Coastal has been integrated into our Environmental & Infrastructure segment. Approximately $1.4 million of goodwill was recorded related to this transaction, based on our final allocation of the purchase price. The final purchase price allocation also included $1.4 million in assets, $0.5 million in accounts payable and accrued liabilities and $1.1 million in bank debt.

LFG&E Acquisition

On September 30, 2003, we acquired certain assets and assumed certain liabilities of LFG&E International, Inc. (LFG&E) for cash of approximately $2.2 million. LFG&E provides gas well-drilling services to landfill owners and operators and has been integrated into our Environmental & Infrastructure segment. As of November 30, 2004, $3.2 million in goodwill has been recorded in our final allocation of the purchase price. The final purchase price allocation also included $1.5 million in assets, $1.3 million in accounts payable and accrued liabilities and $1.2 million in contract liability adjustments (see Note 5).

Energy Delivery Services, Inc.

Effective December 31, 2003, we acquired all of the common stock of Energy Delivery Services, Inc. (EDS) from Duke Energy Global Markets, Inc. for a total purchase price, including direct acquisition costs, of approximately $22.4 million of which $18.4 million was paid in cash and $4.0 million was paid through a transfer of the ownership

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of a portion of EDS’s receivables to the seller. In connection with this acquisition, we also acquired equipment under capital leases of approximately $5.4 million which is reflected as a purchase price adjustment during the third quarter of fiscal 2004. EDS, renamed Shaw EDS, provides a full line of vertical services to utility companies seeking to upgrade, install and maintain their power grids and was included in our Energy & Chemicals (E&C) segment. Our preliminary purchase price allocation includes approximately $12.6 million of goodwill, $11.9 million in accounts receivable, $9.6 million of equipment, $0.5 million in other assets, $0.5 million in cash, $5.4 million in capital lease obligations and $7.3 million of other liabilities.

Note 5 - Goodwill and Other Intangible Assets

Goodwill

The following table reflects the changes in the carrying value of goodwill from September 1, 2004 to November 30, 2004. Refer to Note 4 for a more detailed discussion of the accounting related to these acquisitions (in thousands):

During the three months ended November 30, 2004, we received a $3.9 million income tax refund. This income tax refund relates to income tax returns filed by Stone & Webster’s Canadian entities prior to our acquisition of the assets of Stone & Webster in fiscal 2000. Pursuant to the asset purchase agreement, we are entitled to the income tax refund; however, as the refund relates to income tax uncertainties existing as of the acquisition date, goodwill has been reduced to reflect the refund as of the acquisition date.

Goodwill associated with the EDS acquisition is preliminarily calculated as of November 30, 2004. This purchase price allocation may change for up to one-year subsequent to the acquisition date, as we have not obtained all of the valuations of the intangible assets purchased, nor have we completed all of our review and valuation procedures of the assets acquired and the liabilities assumed.

We had tax deductible goodwill of approximately $180.3 million and $184.4 million as of November 30, 2004 and August 31, 2004, respectively.

Other Intangible Assets

At November 30, 2004 and August 31, 2004, amortizable intangible assets, included in other assets, other than construction contract adjustments, consisted of proprietary ethylene technology acquired in the Stone & Webster transaction in fiscal 2000, ethyl benzene, cumene and styrene technologies acquired in the Badger Technologies acquisition in fiscal 2003, which are being amortized over fifteen to seventeen years on a straight-line basis, and patents acquired in the IT Group transaction in fiscal 2002 which are being amortized over ten years on a straight-line basis. Additionally, we recorded a customer relationship intangible related to the IT Group transaction, which is being amortized over ten years on a straight-line basis.

The gross carrying values and accumulated amortization of these amortizable intangible assets as of November 30, 2004 and August 31, 2004 are presented below (in thousands):

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The annual amortization for our intangible assets not associated with contract acquisition adjustments is $2.9 million through fiscal 2008, $2.8 million in fiscal 2009 and $2.6 million in fiscal 2010 related to the proprietary technologies, patents and trademarks and $0.2 million related to customer relationships for each fiscal year through 2010.

Contract Adjustments and Loss Reserves

The construction contract adjustments and contract loss reserves established in purchase accounting (related to the IT Group, Stone & Webster and LFG&E acquisitions) are recognized periodically as adjustments to cost of revenues.

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

The decreases in the contract (asset), contract liability adjustments and accrued contract loss reserves for the three months ended November 30, 2004 and 2003 represent the utilization of allocation period adjustments related to the IT Group and Stone & Webster acquisitions.

The table above does not reflect $1.2 million in contract liability adjustments established in our final purchase accounting related to our LFG&E acquisition (see Note 4). We used a market based discounted cash flow approach to determine the contract adjustments and recognized utilization as costs were incurred on the related projects. The contract liability adjustments related to this acquisition were zero as of November 30, 2004 as costs of revenues were reduced during fiscal 2004 by $0.7 million with a remaining $0.5 million occurring during the three months ended November 30, 2004.

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Contract (asset) adjustments are included in other current assets and accrued contract loss reserves are included in billings in excess of cost and estimated earnings on uncompleted contracts on the accompanying condensed consolidated balance sheets.

Other Long Lived Assets

During the first quarter of fiscal 2004, we recorded accelerated amortization of $29.4 million on certain software assets as a result of a successful implementation of new software systems, including the conversion of historical financial and operating data, which had not previously been contemplated. In August 2002, we had developed a preliminary plan to convert certain of our operating units to new software systems. As a result, at that time, we accelerated the amortization of certain software assets to be replaced based on the projected implementation plan and anticipated future use of the assets. Our conversion to the new software systems, including the development of certain new software packages, was completed earlier and was more substantial than originally planned. Because implementation was substantially complete by November 30, 2003, we concluded we should completely abandon our previous software platforms. As a result, we accelerated the amortization of certain software assets replaced and recorded the aforementioned amortization expense of $29.4 million to general and administrative expenses in the consolidated statements of operations in the first quarter of fiscal 2004.

Note 6 - Inventories and Other Assets

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

Included in non-current other assets is $23.9 million at November 30, 2004 and August 31, 2004 representing the value of the Pike project site, land and materials and equipment which we obtained in settlement of our claim in the bankruptcy proceeding of our customer in November 2003.

Note 7 - Unconsolidated Entities, Joint Ventures and Limited Partnerships

Variable Interest Entities

Effective May 31, 2004, we adopted the provisions of Financial Accounting Series Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities,” which was revised in December 2003 to address certain FIN 46 implementation issues (FIN 46(R)). Prior to adopting FIN 46(R), we generally consolidated entities based on a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46(R) requires the consolidation of entities in which a company absorbs a majority of another entity’s expected losses, receives a majority of the other entity’s expected residual returns, or both, as a result of ownership, contractual, or other financial interests in the other entity. A variable interest holder that consolidates the variable interest entity (VIE) is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must record all of the VIEs assets, liabilities and non-controlling interests as if it were consolidated based on a majority voting interest.

As of November 30, 2004, the total assets and liabilities before intercompany eliminations of those VIEs of which we are the primary beneficiary, and therefore are consolidated, were approximately $53.3 million and $36.0 million, respectively. The total assets and liabilities of those VIEs for which we have a variable interest but are not the primary beneficiary were approximately $293.5 million and $245.4 million, respectively. As of August 31, 2004, the total assets and liabilities before intercompany eliminations of those VIEs of which we are the primary beneficiary were approximately $47.6 million and $35.2 million, respectively. The total assets and liabilities of those

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VIEs for which we have a variable interest but are not the primary beneficiary were approximately $37.2 million and $13.7 million, respectively.

In addition to the variable interest entities disclosed in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2004, of The Shaw Group Inc. filed with the Securities and Exchange Commission on November 2, 2004, including ShawNass Middle East, W.L.L., Badger Licensing, L.L.C. and PFH Management, L.L.C., the following disclosure provides new VIEs or significant changes in the status of VIEs as of and for the three months ended November 30, 2004:

Consolidated VIEs

•

In August 2004, Liquid Solutions LLC was formed to provide solutions for the management and treatment of wastewater. We have a 50% equity interest in this entity. We have concluded this entity is a VIE and we are the primary beneficiary as we are obligated to absorb the majority of the expected losses and the expected residual returns, if any. This entity had total assets and liabilities of $2.6 million and $3.4 million, respectively, as of November 30, 2004 which are reflected in our E&I segment. The assets and liabilities as of August 31, 2004 were not material. The creditors of this entity, which are currently limited to vendors and suppliers, do not have recourse to our general credit. Our exposure to losses consists of our equity interest and notes receivables with accrued interest totaling $2.9 million as of November 30, 2004.

Unconsolidated VIEs (Equity Method Accounting)

•

In August 2004, we contributed cash of $3.8 million to Little Rock Family Housing, LLC for a 50% equity interest. This entity was established to undertake the privatization of military housing for Air Force personnel and their families under a design, build and rental housing contract in Little Rock, Arkansas. We have concluded that Little Rock Family Housing, LLC is a VIE. Under the arrangement, Little Rock Family Housing, L.L.C. is obligated to absorb the majority of the expected losses from the project; however, we are not the primary beneficiary. We account for Little Rock Family Housing, L.L.C. under the equity method. As of November 30, 2004, our maximum exposure to loss consisted of our equity interest of $4.7 million. In October 2004, Little Rock Family Housing, L.L.C. successfully obtained financing of approximately $65.3 million through a private placement bond offering from third-party lenders. The bonds are secured by first liens on the rental properties without recourse to the general credit of the partners. As of November 30, 2004, this entity had total assets and liabilities of approximately $76.1 million and $66.5 million, respectively. The assets and liabilities as of August 31, 2004 were not material.

•

In October 2004, we contributed cash of $5.0 million to Hanscom Family Housing, LLC for a 50% equity interest. This entity was established to undertake the privatization of military housing for Air Force personnel and their families under a design, build and rental housing contract twenty miles northwest of Boston, Massachusetts. We have concluded that Hanscom Family Housing LLC is a VIE. Under the arrangement, Hanscom Family Housing, L.L.C. is obligated to absorb the majority of the expected losses from the project; however, we are not the primary beneficiary. We account for Hanscom Family Housing, L.L.C. under the equity method. As of November 30, 2004, our maximum exposure to loss consisted of our equity investment of $5.0 million. In October 2004, Hanscom Family Housing, L.L.C. successfully obtained financing of approximately $168.2 million through a private placement bond offering from third-party lenders. The bonds are secured by first liens on the rental properties without recourse to the general credit of the partners. As of November 30, 2004, this entity had total assets and liabilities of $183.1 million and $169.6 million, respectively. The assets and liabilities as of August 31, 2004 were not material.

From time to time, we enter into joint ventures to bid and propose on specific contracts. If the contract is ultimately awarded to the joint venture entity, certain modifications to the operating agreements are often made and initial working capital investments are then made by each joint venture partner. If a contract is not awarded, the joint venture is dissolved and our investment is expensed. Typically, the activity in these joint ventures is initially limited to bid and proposal costs and are not material. We will continue to monitor these joint ventures, but will generally defer the decision as to whether these entities require consolidation under FIN 46(R) until contracts are awarded.

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Some of our unconsolidated entities have operating agreements that allow for changes in ownership interests and allocation of profits and losses if certain events should occur. These changes, should they occur, would require us to reconsider whether these entities meet the definition of a VIE, as well as the determination of the primary beneficiary, if any, in accordance with FIN 46(R).

Unconsolidated Entities, Joint Ventures and Limited Partnerships

The following is a summary of our investments in and advances to unconsolidated entities which are accounted for under the equity method except for one which is accounted for at cost. Upon adoption of FIN 46(R), some of our unconsolidated entities, including Shaw Nass Middle East, W.L.L., were determined to be VIEs for which we are the primary beneficiary. These entities were consolidated as of May 31, 2004 and the results of their operations are consolidated for the three months ended November 30, 2004. For the three months ended November 30, 2003, their operating results were reflected in earnings (losses) from unconsolidated entities.

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

Shaw Nass was consolidated effective May 31, 2004. There were no contributions or distributions for the three months ended November 30, 2004 and 2003 for Shaw Nass.

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Our EntergyShaw, L.L.C. (“EntergyShaw”) joint venture was created in fiscal 2001 to focus on the construction of power plants in North America and Europe. There were no contributions or distributions for the three months ended November 30, 2004 and 2003. Subsequent to November 30, 2004, we and our joint venture partner funded this joint venture’s negative investment balance and the joint venture distributed substantially all of its cash to our subsidiary, Stone & Webster, in fulfillment of project related obligations. The joint venture’s balance sheet currently reflects a project warranty reserve with no other significant amounts on the joint venture’s balance sheet.

In connection with the IT Group acquisition, we acquired an investment in the Stennis joint venture in our E&I segment. We have a 45% equity interest in this joint venture which provides facility management services to the Stennis Space Center in Mississippi. There were no distributions in the three months ended November 30, 2004 and 2003 for this joint venture.

We acquired a 19% equity interest in Nordic for an investment of $1.9 million in fiscal 2000. As our equity interest is less than 20%, and we do not exercise any significant influence over the management of the operations, we do not recognize any income from this operation other than cash distributions in accordance with the cost method of accounting. No such distributions have been made since our initial investment.

In connection with our housing privatization joint ventures, we made equity contributions of approximately $6.0 million during the three months ended November 30, 2004. There were no equity contributions for the three months ended November 30, 2003. As of November 30, 2004, we are also scheduled to make additional equity contributions of approximately $2.8 million for the remainder of fiscal 2005; however, the exact timing of these equity contributions is uncertain, as they are dependent on the progress of the underlying projects. As of November 30, 2004, the scheduled additional equity contributions reflect a reduction of our total estimated contributions in fiscal 2005 based on our expectations that certain projects will require less equity contributions than original estimates or such projects have been delayed.

Note 8 — Long-term Debt

Long-term debt consisted of (in thousands):

During the three months ended November 30, 2004, we financed insurance premiums of $8.7 million which will be paid monthly over the next eight months.

The estimated fair value of long-term debt, excluding capital leases, as of November 30, 2004 and August 31, 2004 was approximately $289.9 million and $253.8 million, respectively, based on recent sales of such debt.

For the three months ended November 30, 2004 and 2003, we recognized, $1.1 million and $1.4 million, respectively, of interest expense associated with the amortization of financing fees that were incurred with respect to issuance of our Senior Notes, LYONS and the Credit Facility. As of November 30, 2004 and August 31, 2004, unamortized deferred financing fees related to the Senior Notes and the Credit Facility were approximately $10.9 million and $11.3 million, respectively.

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Senior Notes

On March 17, 2003, we issued and sold $253 million aggregate principal amount at maturity of 10.75% Senior Notes due 2010, or Senior Notes, which mature on March 15, 2010. The Senior Notes were issued at an original discount price of $988.03 per $1,000 maturity value and have a yield to maturity of 11.00%. The notes have a call (repurchase) feature that allows us to repurchase all or a portion of the notes at prices stipulated by the Senior Notes.

Additionally, prior to March 15, 2006, we may, at our option, utilize the net cash proceeds from one or more equity offerings, within ninety days of our receipt of the equity funds, to repurchase up to 35% of the then outstanding amount of Senior Notes at a price of 110.75% of the maturity value of the Senior Notes. Prior to March 15, 2007, we may, at our option, repurchase all of the then outstanding Senior Notes at a price equal to the principal amount of the notes plus a specified applicable premium. The Senior Notes are unsecured but are guaranteed by all of our material domestic subsidiaries. Upon the sale of assets exceeding $10 million, we may use the proceeds to either reduce senior debt, borrowings drawn under our Credit Facility, or acquire additional assets within a one year period. To the extent any proceeds remain after one year, we are required to offer to purchase the Senior Notes at their full accreted value.

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LYONs Convertible Securities

Effective May 1, 2001, we issued and sold $790 million (including $200 million to cover over-allotments) of 20-year, zero-coupon, unsecured, convertible debt, Liquid Yield Option(TM) Notes, or LYONs. During fiscal 2003 and 2004, we repurchased LYONs through various tender offers and private purchases and as a result, $0.9 million of accreted value remains outstanding at November 30, 2004.

The holders of the remaining LYONs have the right to require us to repurchase the LYONs on May 1, 2006, May 1, 2011 and May 1, 2016 at the then accreted value ($1.1 million at May 1, 2016). We have the right to fund such repurchases with shares of our common stock at the current market value, cash, or a combination of common stock and cash.

Revolving Lines Of Credit

Our primary Credit Facility, dated July 2000, was amended and restated on March 17, 2003 and extended for a three year term from that date. On October 17, 2003, we amended our Credit Facility to increase the credit limit from $250 million to $300 million and to amend certain of the covenants contained therein. During fiscal 2004, certain financial covenants were amended again under the Credit Facility.

The Credit Facility provides for both revolving credit loans and letters of credit within the $300 million limit. We have previously used the Credit Facility to provide working capital and to fund fixed asset purchases, acquisitions and investments in joint ventures.

Under the Credit Facility, interest is computed, at our option for each draw, using either the defined base rate or the defined LIBOR rate, plus an applicable margin. The terms “base rate” and “LIBOR rate” have meanings customary for financings of this type. The applicable margin is adjusted pursuant to a pricing grid based on ratings by Standard and Poor’s Rating Services and Moody’s Investor Services for the Credit Facility or, if the Credit Facility is not rated, the ratings from these services applicable to our senior, unsecured long-term indebtedness. The margins for the Credit Facility loans may be in a range of (i) 1.00% to 3.00% over LIBOR or (ii) 0% to 1.50% over the base rate. On November 30, 2004, the interest rate on the Credit Facility would have been either 6.5% (if the base rate index had been chosen) or 5.3% (if the LIBOR rate index had been chosen). On November 30, 2004, we had outstanding letters of credit of approximately $217.2 million under our Credit Facility. There were no borrowings under our Credit Facility as of November 30, 2004. Fees associated with these letters of credit were approximately $1.8 million and $1.0 million for the three months ended November 30, 2004 and 2003, respectively.

We are required, with certain exceptions, to prepay loans outstanding under the Credit Facility with (i) the proceeds of new indebtedness; (ii) net cash proceeds from equity sales to third parties (if not used for acquisitions or other general corporate purposes within 90 days after receipt); and (iii) insurance proceeds or condemnation awards in excess of $5 million that are not used to purchase a similar asset or for a like business purpose within 90 days of the receipt thereof. Further, we are required to obtain the consent of the lenders to prepay or amend the terms of the 10.75% Senior Notes due 2010.

The Credit Facility is secured by, among other things, (i) guarantees by our domestic subsidiaries; (ii) a pledge of all of the capital stock of our domestic subsidiaries and 66% of the capital stock in certain of our foreign subsidiaries; and (iii) a security interest in all of our property and the property of our domestic subsidiaries (including equipment and real estate).

We also have the ability to obtain unsecured performance letters of credit outside of the Credit Facility of up to $150 million.

The Credit Facility, as amended, contains certain financial covenants, including:

	•	A maximum leverage ratio of 3.5x through May 31, 2005 and 3.0x thereafter;
	•	a minimum fixed charge coverage ratio of 2.0x;

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	•	a minimum net worth as defined by the Credit Facility;
	•	a defined minimum earnings before interest expense, income taxes, depreciation and amortization (EBITDA). EBITDA, as defined in the Credit Facility, is adjusted for certain non-cash items and for the pro forma impact of acquisitions and dispositions of operations (Adjusted EBITDA). The minimum Adjusted EBITDA covenant requires a trailing twelve months of EBITDA of $110 million; and
	•	a minimum working capital ratio requirement, as defined by the Credit Facility, of 1.0 to 1.0.

The Credit Facility also imposes restrictions on annual capital expenditures to 25% of annual EBITDA, as defined, among other restrictions.

As of November 30, 2004, we were in compliance with the covenants contained in the Credit Facility, as amended.

The leverage ratio limits the amount of cash that we can borrow. As of November 30, 2004, the maximum amount that we could borrow under the leverage ratio is approximately $162.2 million, subject to the overall availability under the Credit Facility which was $82.8 million as of November 30, 2004, after consideration for outstanding letters of credit.

As of November 30, 2004 and August 31, 2004, our foreign subsidiaries had short-term revolving lines of credit available totaling approximately $17.6 million and $16.1 million, respectively. These subsidiaries had outstanding borrowings under these lines of approximately $3.9 million and $2.5 million, respectively, at a weighted average interest rate of approximately 5.25% at November 30, 2004 and 4.25% at August 31, 2004. These subsidiaries also had outstanding letters of credit under these lines of $3.5 million and $3.5 million, at November 30, 2004 and August 31, 2004, respectively, leaving $10.2 million of availability under these lines at November 30, 2004.

As of November 30, 2004 and August 31, 2004, one of our consolidated VIEs had a committed short-term revolving line of credit of $4.0 million with borrowings of $3.9 million and $3.5 million, respectively, at a weighted average interest rate of 6.25% and 5.75%, respectively, and we guarantee the debt.

Note 9 — Comprehensive Income (Loss)

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

The foreign currency translation adjustments relate to the varying strength of the U.S. dollar in relation to the British pound, Venezuelan Bolivar, Australian and Canadian dollars and the Euro. The gains for the three months ended November 30, 2004 and 2003 are primarily the result of the strengthening of the British pound and the Euro in relation to the U.S. dollar.

Our hedging activities, which are generally limited to foreign exchange transactions, during the three months ended November 30, 2004 and 2003, were not material.

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Note 10 — Business Segments

Effective September 1, 2004, we segregated our business activities into four operating segments: Energy & Chemicals (E&C) segment, Maintenance segment, Environmental & Infrastructure (E&I) segment, and Fabrication, Manufacturing and Distribution segment. The primary change from our previously reported segments is the division of our former Engineering, Construction & Maintenance (ECM) segment into the newly created E&C segment and Maintenance segment. We allocated goodwill between the newly created business segments using the relative fair value of each segment’s operations based on the estimated discounted operating cash flows of the segments.

The following table presents information about segment results of operations and assets for the periods indicated. Certain reclassifications have been made to conform the November 2003 financial information to the November 2004 presentation basis (in thousands):

Corporate allocates depreciation which is included in the segment results of operations above while the assets remain at the Corporate level. The total allocated deprecation is as follows (in thousands):

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A reconciliation of total segment assets to total consolidated assets for the periods indicated follows (in thousands):

Note 11 — Earnings (Loss) Per Common Share

The computation of basic and diluted earnings per share (in thousands, except per share data) is set forth below.

Weighted-average incremental shares excluded from the calculation of diluted income (loss) per share because they were antidilutive were as follows (in thousands):

Note 12 — Claims on Major Projects

Claims are amounts in excess of the original contract price (or original contract price adjusted for approved change

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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. 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. We refer to these claims from customers and backcharges and claims against vendors, subcontractors and others as “claims.” As a result, the recording of claims increases gross margin or reduces gross loss on the related projects in the periods the claims are reported. Claims receivable are included in costs in excess of estimated earnings and billings on uncompleted contracts on the accompanying condensed consolidated balance sheets.

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

The following disclosure provides a summary and update of significant changes, if any, from August 31, 2004, related to our significant claims. Readers should refer to Note 20 of the notes to our consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended August 31, 2004 filed with the Securities and Exchange Commission on November 2, 2004 for a more detailed description of each claim.

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

Subsequent to November 30, 2004, we reached settlements related to certain of these disputes. These settlements resulted in net cash proceeds to us of approximately $26.0 million. These settlement amounts were approximately the amount of the recorded claims receivable related to these disputes, and, therefore, did not result in a material gain or loss and will reduce our recorded net claims receivable from owners, equipment vendors, subcontractors and others for costs incurred of $74.7 million as shown above.

Covert & Harquahala Projects

During the three months ended November 30, 2004, the arbitration proceedings with the owners have been bifurcated, at our request, whereby arbitration regarding the owners’ assessment of liquidated damages is scheduled for April 2005, while arbitration regarding claims for additional work is scheduled for the Fall of 2005. Additionally, we have filed a detailed statement of claims to the arbitration board specifying our claims against the turbine manufacturer on the Covert project. We continue to participate in preliminary settlement discussions with the turbine manufacturer related to our claims.

Subsequent to November 30, 2004, we reached a settlement with the equipment manufacturer on the Harquahala project and received a cash payment of $11.9 million. This settlement reduces our net claims receivable for these two projects to $65.0 million.

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

Wolf Hollow Project

During the first quarter of fiscal 2005, the arbitration hearing against the heavy equipment manufacturer scheduled for January 31, 2005 was rescheduled to May 2005.

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

Other

Subsequent to November 30, 2004, we reached a settlement related to a project to construct a chemical processing facility in Freeport, Texas and received a cash payment related to the settlement.

Marcus Hook Project

In addition to the claims discussed above, one of our engineering, procurement and construction (EPC) projects with FPL-Energy (“FPLE”) for a combined-cycle cogeneration plant and auxiliary boiler facility in Marcus Hook, Pennsylvania, was delayed for various reasons. Each party commenced legal proceedings against the other for various claims. Shortly thereafter, the parties entered into a Standstill Agreement which would allow the parties time to attempt to resolve their disputes. This Standstill Agreement provided that the parties withdraw their lawsuits. The parties are continuing attempts to resolve these issues.

We believe any amounts that we incur related to this project, including legal costs to pursue issues with any subcontractors and vendors, are recoverable from FPLE under the terms of the EPC contract. However, FPLE has disputed whether the costs are fully reimbursable.

We cannot provide absolute assurance as to the timing or outcome of the mediation or results of the litigation, or disputes with FPLE, or with the subcontractors.

Accounts Receivable

In addition to claims on major projects, accounts receivable on the accompanying consolidated balance sheets as of November 30, 2004 and August 31, 2004 include the following:

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Unbilled accounts receivables become billable according to the contract terms which vary significantly but usually consider the passage of time, achievement of certain milestones or completion of the project. We believe that substantially all such unbilled amounts will be billed and collected over the next twelve months. Retainage represents amounts that are typically withheld from progress billings by our customers until the completion of a project and, in some instances, for even longer periods. Retainage may also be subject to specific restriction conditions such as performance or fulfillment guarantees (see Note 14).

Note 13 — New Accounting Pronouncements

FASB Statement No. 123R — “Share-Based Payment”

In December of 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which replaces the requirements under SFAS No. 123 and APB No. 25. The statement sets accounting requirements for “share-based” compensation to employees, including employee stock purchase plans, and requires all share-based payments, including employee stock options, to be recognized in the financial statements based on their fair value. It carries forward prior guidance on accounting for awards to non-employees. The accounting for employee stock ownership plan transactions will continue to be accounted for in accordance with Statement of Position (SOP) 93-6, while awards to most non-employee directors will be accounted for as employee awards.

This Statement is effective for public companies that do not file as small business issuers as of the beginning of interim or annual reporting periods that begin on or after June 15, 2005 (effective September 1, 2005 for us). We have not yet determined the effect the new Statement will have on our condensed consolidated financial statements as we have not completed our analysis; however, we expect the adoption of this Statement to result in a reduction of net income which may be material.

Note 14 — Contingencies and Commitments

Liabilities Related to Contracts

Our contracts often contain provisions relating to the following matters:

	•	warranty, 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 typically attempt to limit our exposure under these penalty provisions or liquidated damage claims to the contractual fee related to the work; however, in certain instances we can be exposed to more than the fee or profit earned under the terms of the contract. We also have claims from customers as well as vendors, subcontractors and others which are considered in determining the gross margin on certain contracts subject to negotiation with these parties and/or subject to litigation.

Contingencies Related to the Stone & Webster and IT Group Acquisitions

We believe that, pursuant to the terms of the acquisition agreements, we assumed only certain specified liabilities in the Stone & Webster and IT Group Acquisitions. We believe that liabilities excluded from these acquisitions include liabilities associated with certain contracts in progress, completed contracts, claims or litigation that relate to acts or events occurring prior to the acquisition date, and certain employee benefit obligations, including but not limited to, Stone & Webster’s U.S. defined benefit plan (collectively, the excluded items). We, however, cannot provide assurance that we have no exposure with respect to the excluded items because, among other things, the bankruptcy courts related to both acquisitions have not finalized their validation of claims filed with the court. The final amount of assumed liabilities may change as a result of the validation of the claims process; however, we believe, based on our review of claims filed, that any such adjustment to the assumed liabilities will not be material.

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Guarantees

Our lenders issue letters of credit on our behalf to customers or sureties in connection with our contract performance and in limited circumstances on certain other obligations of third parties. We are required to reimburse the issuers of these letters of credit for any payments which they make pursuant to these letters of credit. At November 30, 2004 and August 31, 2004 the amount of outstanding letters of credit was approximately $220.7 million and $219.0 million, respectively.

During the three months ended November 30, 2003, customers who had been issued letters of credit in connection with certain contracts received payments under outstanding letters of credit of $14.1 million which we reimbursed our lenders. These draws relate to the claims and contract disputes discussed in Note 12. There were no such payments for the three months ended November 30, 2004. Of the amount of outstanding letters of credit at November 30, 2004, $190.3 million are issued to customers in connection with contracts. Of the $190.3 million, five customers held $139.8 million or 73% of the outstanding letters of credit. The largest amount of outstanding letters of credit issued to a single customer on a single project is $48.8 million.

We have also provided guarantees to certain of our joint ventures which are reported under the equity method and are not consolidated on the accompanying balance sheets. At November 30, 2004 and August 31, 2004, we had guaranteed approximately $0.4 million and $0.7 million of bank debt or letters of credit and $77.1 million and $69.9 million of performance bonds with respect to our unconsolidated joint ventures, respectively. We would generally be required to perform under these guarantees in the event of default by the joint venture. No liabilities were recorded related to these guarantees as of November 30, 2004.

SEC Inquiry

On June 1, 2004, we were notified by the staff of the Securities and Exchange Commission (SEC) that the staff is conducting an informal inquiry relating to us. The SEC has not advised us as to either the reason for the inquiry or its scope. The staff’s notice states that it should not be construed as an indication of any improper or unlawful conduct by us. We are cooperating fully with the staff’s informal inquiry; however, if the inquiry elevates to a formal investigation, the resolution could have a material adverse effect on us.

Securities Litigation

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

In addition, two shareholder derivative actions, styled as Jonathan Nelson v. J.M. Bernhard, Jr., et al. and Larry F. Reusche v. Tim Barfield, Jr., et al., have been filed based on essentially the same allegations as the purported class actions. The derivative actions, which the plaintiffs purport to be bringing on behalf of the Company, name certain of our directors and current and former officers as defendants, and name the Company as a nominal defendant. The

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derivative suits collectively make claims of breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment based on allegations that the named defendants committed, condoned or failed to identify and disclose the misconduct alleged in the purported class action lawsuits, and that certain defendants sold company stock while in possession of knowledge of the alleged misconduct. The complaints do not specify the amount of damages sought. These derivative lawsuits have been stayed indefinitely by a court order as of December 14, 2004.

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

Other Matters

In the normal course of business activities, we enter into contractual agreements with customers for certain construction services to be performed based on agreed upon reimbursable costs and labor rates. In some instances, the terms of these contracts provide for the customer’s review of the accounting and cost control systems to verify the completeness and accuracy of the reimbursable costs invoiced. These reviews could result in reductions in reimbursable costs and labor rates previously billed to the customer. Additionally, we perform work for the U.S. Government that is subject to continuing financial and operating reviews by governmental agencies. We do not believe that any such reviews will result in a material change to our financial position or results of operations.

We maintain liability and property insurance against various risks in such amounts as we consider necessary or adequate in the circumstances. However, certain risks are either not insurable or insurance is available at rates which are considered uneconomical.

In the normal course of business, we become involved in various litigation matters including claims by third parties for alleged property damages, personal injuries, and other matters. We have estimated our potential exposure, net of insurance coverage, and have recorded reserves in our financial statements as appropriate. We do not anticipate that the differences between our estimated outcome of these claims and future actual settlements could have a material effect on our financial position or results of operations.

Note 15 — Assets Held for Sale, Discontinued Operations and Costs Associated with Exit and Disposal Activities

During the first quarter of fiscal 2005, we began marketing for sale a fabrication facility located in Shreveport, Louisiana in addition to another fabrication facility classified as an asset held for sale since fiscal 2004. These fabrication facilities had a carrying value of $4.1 million and $1.8 million as of November 30, 2004 and August 31, 2004, respectively, and are included in other current assets on the accompanying condensed consolidated balance sheets. The carrying value of these assets held for sale reflects the fair value of the assets after consideration of selling costs.

On August 31, 2004, we sold the assets of our hanger and pipe support businesses for $1.3 million in cash proceeds. Revenues and losses from discontinued operations before taxes from these discontinued operations were $2.3 million and $0.2 million for the three months ended November 30, 2003.

In connection with the sale of our Fabrication, Manufacturing and Distribution segment’s hanger and pipe support businesses, we have incurred disposal costs of approximately $0.5 million for the three months ended November 30, 2004. These disposal costs consist primarily of accrued contract costs associated with vacating leased facilities during the three months ended November 30, 2004. These disposal costs are included in the loss from discontinued operations, net of taxes, on the accompanying condensed consolidated statement of operations for the three months ended November 30, 2004.

In addition, during the three months ended November 30, 2004, the E&C segment executed a defined plan to reorganize and relocate employees within its Canadian operations. The plan will be completed in January 2005 and

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modifications to this reorganization plan are not expected. As a result, all employees in one of our locations were notified of the relocation and termination plan which included the timing of scheduled severances beginning in October 2004. We recorded an initial accrued severance liability of $0.8 million for which $0.3 million was paid during the three months ended November 30, 2004; the $0.8 million is reflected in income from continuing operations on the accompanying condensed consolidated statement of operations.

We also sold the assets and certain liabilities of two E&I foreign subsidiaries located in the United Kingdom during the three months ended November 30, 2004. In connection with the sale of these assets, we made cash disbursements, net of proceeds received, of $0.3 million. A loss on the disposal of these assets of $1.7 million was recorded and is included in other income (expense) on the accompanying condensed consolidated statement of operations for the three months ended November 30, 2004.

Note 16 — Restricted and Escrowed Cash

In connection with the EPC project to build a combined-cycle power plant in Astoria, New York, we established a cash account with which we have joint authority with another party to the contract (the Project Account). For the duration of the project, all payments received from the project owner are deposited directly into the Project Account to be used for certain permitted withdrawals. Permitted withdrawals, as defined by the contract, include the payment of third-party vendor costs, the guaranty fee, labor costs and out-of-pocket expenses incurred by us on a monthly basis, as well as a percentage of the expected total gross margin on the EPC project to be determined on a monthly basis subject to limitations under the contract. The Project Account is subject to a first lien security agreement between a third-party, who has guaranteed our performance on the project (the Guarantor), and us where the Guarantor has upon certain triggering events, sole control over the Project Account. Any withdrawals from this Project Account require the approval of both the Guarantor and us. As of November 30, 2004 and August 31, 2004, restricted cash related to this EPC contract was $98.2 million and $55.4 million, respectively. The project is scheduled to be completed in calendar 2006.

Additionally, as of November 30, 2004 and August 31, 2004, we had $1.2 million and $1.2 million, respectively, in escrow related to a foreign project that we agreed to deposit the advance payment of the customer into an escrow cash account.

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

Note 17 — Pension and Other Post Retirement Benefit Plans

In December 2003, the FASB issued SFAS No. 132 (revised December 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (SFAS 132-R). This statement amends the disclosure requirements of SFAS 132 to require more details about retirement plan assets, benefit obligations, cash flows and other relevant information and is effective for years ending after December 15, 2003, except certain benefit payment and international plan disclosures that are effective for fiscal years ending after June 15, 2004.

Components of Net Periodic Benefit Cost

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

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The total net periodic benefit cost related to other benefits for the three months ended November 30, 2004 and 2003 was not material.

Employer Contributions

We expect to contribute $4.4 million to our pension plans in fiscal 2005. As of November 30, 2004, $1.1 million in contributions have been made.

Note 18 — Subsequent Event

Effective December 31, 2004, we sold the assets of one of our E&C segment subsidiaries, Power Technologies, Inc., for cash proceeds of $14.0 million. We estimate the gain on the sale to be approximately $4 million to $6 million.

Note 19 — Unaudited Condensed Consolidating Financial Information

The following presents unaudited condensed consolidating financial information with respect to our financial position as of November 30, 2004 and August 31, 2004 and the results of our operations and cash flows for the three months ended November 30, 2004 and 2003.

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

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

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The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
As of November 30, 2004
(Unaudited)
(Dollars in thousands)

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The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
As of August 31, 2004
(Dollars in thousands)

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The Shaw Group Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
For the Three Months Ended November 30, 2004
(Unaudited)
(Dollars in thousands)