Attached files
file | filename |
---|---|
EX-10.65 - EXHIBIT 10.65 - SHAW GROUP INC | c94372exv10w65.htm |
EX-32.2 - EXHIBIT 32.2 - SHAW GROUP INC | c94372exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - SHAW GROUP INC | c94372exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - SHAW GROUP INC | c94372exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - SHAW GROUP INC | c94372exv31w2.htm |
EX-10.70 - EXHIBIT 10.70 - SHAW GROUP INC | c94372exv10w70.htm |
EX-10.68 - EXHIBIT 10.68 - SHAW GROUP INC | c94372exv10w68.htm |
EX-10.69 - EXHIBIT 10.69 - SHAW GROUP INC | c94372exv10w69.htm |
EX-10.66 - EXHIBIT 10.66 - SHAW GROUP INC | c94372exv10w66.htm |
EX-10.67 - EXHIBIT 10.67 - SHAW GROUP INC | c94372exv10w67.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2009
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 1-12227
The Shaw Group Inc.
(Exact name of registrant as specified in its charter)
Louisiana | 72-1106167 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
4171 Essen Lane, Baton Rouge, Louisiana | 70809 | |
(Address of principal executive offices) | (Zip Code) |
225-932-2500
(Registrants telephone number, including area code)
(Registrants 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o 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):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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 of registrants common stock outstanding as of December 31, 2009 was
83,609,506 shares.
TABLE OF CONTENTS
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EXHIBIT INDEX |
||||||||
Exhibit 10.65 | ||||||||
Exhibit 10.66 | ||||||||
Exhibit 10.67 | ||||||||
Exhibit 10.68 | ||||||||
Exhibit 10.69 | ||||||||
Exhibit 10.70 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
(In thousands, except per share amounts)
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Revenues |
$ | 1,858,515 | $ | 1,900,433 | ||||
Cost of revenues |
1,703,779 | 1,712,340 | ||||||
Gross profit |
154,736 | 188,093 | ||||||
Selling, general and administrative expenses |
75,777 | 73,106 | ||||||
Operating income |
78,959 | 114,987 | ||||||
Interest expense |
(980 | ) | (1,745 | ) | ||||
Interest expense on Japanese Yen-denominated bonds including accretion and
amortization |
(9,358 | ) | (9,862 | ) | ||||
Interest income |
1,959 | 3,923 | ||||||
Foreign currency translation (losses) on Japanese Yen-denominated bonds, net |
(102,339 | ) | (161,202 | ) | ||||
Other foreign currency transaction gains (losses), net |
(417 | ) | (2,399 | ) | ||||
Other income (expense), net |
5,046 | (1,861 | ) | |||||
Income (loss) before income taxes and earnings from unconsolidated entities |
(27,130 | ) | (58,159 | ) | ||||
Provision for income taxes |
(11,151 | ) | (22,698 | ) | ||||
Income (loss) before earnings from unconsolidated entities |
(15,979 | ) | (35,461 | ) | ||||
Income (loss) from 20% Investment in Westinghouse, net of income taxes |
(368 | ) | 1,543 | |||||
Earnings (losses) from unconsolidated entities, net of income taxes |
208 | (139 | ) | |||||
Net income (loss) |
(16,139 | ) | (34,057 | ) | ||||
Noncontrolling interests in income of consolidated subsidiaries, net of tax |
4,346 | 5,860 | ||||||
Net income (loss) attributable to Shaw |
$ | (20,485 | ) | $ | (39,917 | ) | ||
Net income (loss) attributable to Shaw per common share: |
||||||||
Basic |
$ | (0.25 | ) | $ | (0.48 | ) | ||
Diluted |
$ | (0.25 | ) | $ | (0.48 | ) | ||
Weighted average shares outstanding: |
||||||||
Basic |
83,420 | 83,103 | ||||||
Diluted |
83,420 | 83,103 |
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 2009 AND AUGUST 31, 2009
(In thousands, except share amounts)
November 30, | August 31, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 844,033 | $ | 1,029,138 | ||||
Restricted
and escrowed cash and cash equivalents |
19,463 | 81,925 | ||||||
Short-term investments |
575,379 | 342,219 | ||||||
Restricted short-term investments |
165,001 | 80,000 | ||||||
Accounts receivable, including retainage, net |
846,365 | 815,862 | ||||||
Inventories |
252,532 | 262,284 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts, including
claims |
608,794 | 599,741 | ||||||
Deferred income taxes |
315,468 | 270,851 | ||||||
Investment in Westinghouse |
1,002,857 | 1,008,442 | ||||||
Prepaid expenses and other current assets |
64,159 | 62,786 | ||||||
Total current assets |
4,694,051 | 4,553,248 | ||||||
Investments in and advances to unconsolidated entities, joint ventures and limited
partnerships |
20,015 | 21,295 | ||||||
Property and equipment, net of accumulated depreciation of $257,880 and $250,796,
respectively |
424,139 | 385,606 | ||||||
Goodwill |
501,931 | 501,305 | ||||||
Intangible assets |
20,228 | 20,957 | ||||||
Other assets |
67,559 | 74,763 | ||||||
Total assets |
$ | 5,727,923 | $ | 5,557,174 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 823,389 | $ | 859,753 | ||||
Accrued salaries, wages and benefits |
151,249 | 175,750 | ||||||
Other accrued liabilities |
211,391 | 187,020 | ||||||
Advanced billings and billings in excess of costs and estimated earnings on
uncompleted contracts |
1,441,337 | 1,308,325 | ||||||
Japanese Yen-denominated bonds secured by Investment in Westinghouse |
1,490,106 | 1,387,954 | ||||||
Interest rate swap contract on Japanese Yen-denominated bonds |
31,435 | 31,369 | ||||||
Short-term debt and current maturities of long-term debt |
16,346 | 15,399 | ||||||
Total current liabilities |
4,165,253 | 3,965,570 | ||||||
Long-term debt, less current maturities |
3,203 | 7,627 | ||||||
Deferred income taxes |
23,813 | 26,152 | ||||||
Other liabilities |
100,221 | 109,835 | ||||||
Total liabilities |
4,292,490 | 4,109,184 | ||||||
Contingencies and commitments (Note 11) |
||||||||
Shaw shareholders equity: |
||||||||
Preferred stock, no par value, 20,000,000 shares authorized; no shares issued and
outstanding |
| | ||||||
Common stock, no par value, 200,000,000 shares authorized; 89,353,608 and 89,316,057
shares issued, respectively; and 83,600,601 and 83,606,808 shares outstanding,
respectively |
1,247,020 | 1,237,727 | ||||||
Retained earnings |
403,166 | 423,651 | ||||||
Accumulated other comprehensive loss |
(121,400 | ) | (121,966 | ) | ||||
Treasury stock, 5,753,007 and 5,709,249 shares, respectively |
(117,353 | ) | (116,113 | ) | ||||
Total Shaw shareholders equity |
1,411,433 | 1,423,299 | ||||||
Noncontrolling interests |
24,000 | 24,691 | ||||||
Total equity |
1,435,433 | 1,447,990 | ||||||
Total liabilities and equity |
$ | 5,727,923 | $ | 5,557,174 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
THE SHAW GROUP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS EQUITY
(In thousands)
Accumulated | ||||||||||||||||||||||||||||
Treasury | Other | Total | ||||||||||||||||||||||||||
Common | Stock | Comprehensive | Retained | Shaw | Noncontrolling | Total | ||||||||||||||||||||||
Stock Amount | Amount | Income (Loss) | Earnings | Equity | Interests | Equity | ||||||||||||||||||||||
Balance, August 31, 2008 |
$ | 1,204,914 | $ | (114,951 | ) | $ | (9,609 | ) | $ | 409,376 | $ | 1,489,730 | $ | 29,082 | $ | 1,518,812 | ||||||||||||
Net income (loss) |
| | | (39,917 | ) | (39,917 | ) | 5,860 | (34,057 | ) | ||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||
Foreign currency translation adjustments |
| | (15,258 | ) | | (15,258 | ) | | (15,258 | ) | ||||||||||||||||||
Change in unrealized net gains (losses) on hedging
activities, net of tax |
| | (7,273 | ) | | (7,273 | ) | | (7,273 | ) | ||||||||||||||||||
Equity in Westinghouses pre-tax other comprehensive
income, net of tax |
| | (27,210 | ) | | (27,210 | ) | | (27,210 | ) | ||||||||||||||||||
Additional pension liability, not yet recognized in
net periodic pension expense, net of tax |
| | 579 | | 579 | | 579 | |||||||||||||||||||||
Total comprehensive income (loss) |
| | | | (89,079 | ) | 5,860 | (83,219 | ) | |||||||||||||||||||
Exercise of options |
42 | | | | 42 | | 42 | |||||||||||||||||||||
Tax benefits from stock based compensation |
(384 | ) | | | | (384 | ) | | (384 | ) | ||||||||||||||||||
Stock-based compensation |
5,596 | (995 | ) | | | 4,601 | | 4,601 | ||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | (9,973 | ) | (9,973 | ) | |||||||||||||||||||
Balance, November 30, 2008 |
$ | 1,210,168 | $ | (115,946 | ) | $ | (58,771 | ) | $ | 369,459 | $ | 1,404,910 | $ | 24,969 | $ | 1,429,879 | ||||||||||||
Balance, August 31, 2009 |
$ | 1,237,727 | $ | (116,113 | ) | $ | (121,966 | ) | $ | 423,651 | $ | 1,423,299 | $ | 24,691 | $ | 1,447,990 | ||||||||||||
Net income (loss) |
| | | (20,485 | ) | (20,485 | ) | 4,346 | (16,139 | ) | ||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||
Foreign currency translation adjustments |
| | 2,444 | | 2,444 | | 2,444 | |||||||||||||||||||||
Change in unrealized net gains (losses) on hedging
activities, net of tax |
| | (41 | ) | | (41 | ) | | (41 | ) | ||||||||||||||||||
Equity in Westinghouses pre-tax other comprehensive
income, net of Shaws tax |
| | (3,061 | ) | | (3,061 | ) | | (3,061 | ) | ||||||||||||||||||
Additional pension liability, not yet recognized in
net periodic pension expense, net of tax |
| | 982 | | 982 | | 982 | |||||||||||||||||||||
Unrealized gain (loss) on securities, net of tax |
| | 242 | | 242 | | 242 | |||||||||||||||||||||
Total comprehensive income (loss) |
| | | | (19,919 | ) | 4,346 | (15,573 | ) | |||||||||||||||||||
Exercise of options |
330 | | | | 330 | | 330 | |||||||||||||||||||||
Shares exchanged for taxes on stock based compensation |
(312 | ) | (1,240 | ) | | | (1,552 | ) | | (1,552 | ) | |||||||||||||||||
Tax benefits from stock based compensation |
(131 | ) | | | | (131 | ) | | (131 | ) | ||||||||||||||||||
Stock-based compensation |
9,406 | | | | 9,406 | | 9,406 | |||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | (5,037 | ) | (5,037 | ) | |||||||||||||||||||
Balance, November 30, 2009 |
$ | 1,247,020 | $ | (117,353 | ) | $ | (121,400 | ) | $ | 403,166 | $ | 1,411,433 | $ | 24,000 | $ | 1,435,433 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
THE SHAW GROUP INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2009 AND 2008
(In thousands)
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (16,139 | ) | $ | (34,057 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
14,819 | 12,572 | ||||||
Benefit from deferred income taxes |
(44,443 | ) | (62,141 | ) | ||||
Stock-based compensation expense |
9,406 | 6,836 | ||||||
Foreign currency transaction losses, net |
102,756 | 163,601 | ||||||
Other noncash items |
(942 | ) | 2,633 | |||||
Changes in assets and liabilities, net of effects of acquisitions and consolidation of variable
interest entities: |
||||||||
Increase in receivables |
(33,042 | ) | (258,173 | ) | ||||
Increase in costs and estimated earnings in excess of billings on uncompleted contracts,
including claims |
(7,024 | ) | (85,233 | ) | ||||
(Increase) decrease in inventories |
9,795 | (25,769 | ) | |||||
Increase in other current assets |
(6,018 | ) | (5,793 | ) | ||||
Increase (decrease) in accounts payable |
(34,083 | ) | 25,432 | |||||
Increase (decrease) in accrued liabilities |
(1,122 | ) | 58,382 | |||||
Increase in advanced billings and billings in excess of costs and estimated earnings on
uncompleted contracts |
132,117 | 115,000 | ||||||
Net change in other assets and liabilities |
(18,051 | ) | (4,691 | ) | ||||
Net cash provided by (used in) operating activities |
108,029 | (91,401 | ) | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(64,617 | ) | (19,926 | ) | ||||
Proceeds from sale of businesses and assets, net of cash surrendered |
20,232 | 26,522 | ||||||
Investments in and advances to unconsolidated entities and joint ventures |
| (1,269 | ) | |||||
Cash
withdrawn from restricted and escrowed cash |
82,462 | 45,946 | ||||||
Cash deposited into restricted and escrowed cash |
(14,192 | ) | (50,660 | ) | ||||
Purchases of short-term investments |
(466,117 | ) | | |||||
Proceeds from sale and redemption of short-term investments |
232,200 | | ||||||
Purchases of restricted short-term investments |
(58,674 | ) | | |||||
Net cash
provided by (used in) investing activities |
(268,706 | ) | 613 | |||||
Cash flows from financing activities: |
||||||||
Purchase of treasury stock |
(1,240 | ) | (993 | ) | ||||
Repayment of debt and capital leases |
(9,827 | ) | (2,084 | ) | ||||
Payment of deferred financing costs |
(9,702 | ) | (2,765 | ) | ||||
Issuance of common stock |
330 | 42 | ||||||
Excess tax benefits from exercise of stock options and vesting of restricted stock |
81 | 138 | ||||||
Distributions paid to noncontrolling interests |
(5,037 | ) | (9,973 | ) | ||||
Net cash used in financing activities |
(25,395 | ) | (15,635 | ) | ||||
Effects of foreign exchange rate changes on cash |
967 | (3,741 | ) | |||||
Net change in cash and cash equivalents |
(185,105 | ) | (110,164 | ) | ||||
Cash and cash equivalents beginning of year |
1,029,138 | 927,756 | ||||||
Cash and cash equivalents end of period |
$ | 844,033 | $ | 817,592 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 General Information
The Shaw Group Inc. (a Louisiana corporation) and its wholly-owned and majority-owned
subsidiaries (collectively referred to herein as the Company, Shaw, we, us or our) is a
leading global provider of technology, engineering, procurement, construction, maintenance,
fabrication, manufacturing, consulting, remediation and facilities management services to a diverse
client base that includes multinational oil companies and industrial corporations, regulated
electric utilities, independent and merchant power producers, government agencies and equipment
manufacturers. We have developed and acquired significant intellectual property, including
downstream petrochemical technologies, induction pipe bending technology and environmental
decontamination technologies.
Basis of Presentation
In the opinion of management, the accompanying balance sheets and related interim statements
of operations, cash flows and changes in shareholders equity include all adjustments, consisting
only of normal recurring items, necessary for their fair presentation in conformity with United
States (U.S.) generally accepted accounting principles (GAAP). Preparing financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Examples of such estimates and assumptions include the
percentage of completion method of revenue recognition, unapproved change orders and claims,
estimates of loss contingencies, stock-based compensation forfeiture rates, the potential outcome
of future tax consequences of events that have been recognized in our financial statements or tax
returns, estimates of the fair value and/or goodwill impairment for our reporting units and
determining when investment impairments are other-than-temporary. Actual results and outcomes may
differ from managements estimates and assumptions.
Interim results are not necessarily indicative of results for a full year. These unaudited
consolidated financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year
ended August 31, 2009 (2009 Form 10-K).
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.
Marketable Securities
We classify our marketable securities as either trading securities or available-for-sale.
These investments are recorded at fair value and are classified as short-term investments in the
accompanying consolidated balance sheets. Investments are made based on the Companys investment
policy, which specifies eligible investments and credit quality requirements.
Trading securities consist of investments held in trust to satisfy obligations under our
deferred compensation plans. The changes in fair values on trading securities are recorded as a
component of net income (loss) in other income (expense), net.
Available-for-sale securities consist of money market mutual funds, U.S. government and agency
obligations, corporate notes and bonds and certificates of deposit at major banks. The changes in
fair values, net of applicable taxes, on available-for-sale securities are recorded as unrealized
gains (losses) as a component of accumulated other comprehensive income (loss) in stockholders
equity. When, in the opinion of management, a decline in the fair value of an investment below its
cost or amortized cost is considered to be other-than-temporary, the investments cost or
amortized cost is written-down to its fair value and the amount written-down is recorded in the
statement of operations in other income (expense), net. The determination of other-than-temporary
decline includes, in addition to other relevant factors, a presumption that if the market value is
below cost by a significant amount for a period of time, a write-down may be necessary. The amount
of any write-down is determined by the difference between cost or amortized cost of the investment
and its fair value at the time the other-than-temporary decline is identified. During the three
months ended November 30, 2009, no other-than-temporary impairment was recognized.
Subsequent Events
We evaluated events occurring between the end of our fiscal quarter, November 30, 2009 and
January 6, 2010, when we issued the consolidated financial statements.
7
Table of Contents
Recently Adopted Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards
Codification (ASC) as the sole source of authoritative nongovernmental GAAP. The ASC supersedes
all non-grandfathered, non-SEC accounting literature but does not change how we account for
transactions or the nature of related disclosures made. Instead, when referring to guidance issued
by the FASB, we refer to topics in the ASC rather than individual pronouncements. This change
affects financial statements issued for interim and annual periods ending after September 15, 2009
and did not have a material effect on our consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance for business combinations in
accordance with ASC 805, Business Combinations (ASC 805). The guidance retains the fundamental
requirements that the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations but introduced a number of changes,
including the way assets and liabilities are valued, recognized and measured as a result of
business combinations. ASC 805 requires an acquisition date fair value measurement of assets
acquired and liabilities assumed. It also requires the capitalization of in-process research and
development at fair value and requires acquisition-related costs to be expensed as incurred. The
adoption of the ASC did not have a material effect on our consolidated financial statements.
On September 1, 2009, we adopted authoritative guidance that changes the accounting and
reporting for non-controlling interests in accordance with ASC 810, Consolidation.
Non-controlling interests are now reported as a component of equity separate from the parents
equity, and purchases or sales of equity interests that do not result in a change in control are to
be accounted for as equity transactions. In addition, net income attributable to a non-controlling
interest is now included in net income, and upon a loss of control, the interest sold, as well as
any interest retained, is now recorded at fair value with any gain or loss recognized in net
income. Adoption of the new guidance did not have a material impact on our consolidated financial
statements.
On September 1, 2009, we adopted the authoritative guidance on fair value measurement for
nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) in accordance with ASC
820, Fair Value Measurements and Disclosures. Adoption of the new guidance did not have a
material impact on our consolidated financial statements.
On
September 1, 2009, we adopted Accounting Standards
Update (ASU) 2009-05, Measuring Liabilities at Fair Value (ASU
2009-05). This update provides amendments to ASC Topic 820, Fair Value Measurements and
Disclosure, for the fair value measurement of liabilities. Adoption of the ASU 2009-05 had no
impact on our consolidated financial statements.
On September 1, 2009, we adopted FASB Staff Position (FSP) Emerging Issues Task Force (EITF)
No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities (ASC 260). ASC 260 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. Adoption of the new guidance
had no impact on our consolidated financial statements.
On September 1, 2009, we adopted EITF No. 08-3, Accounting by Lessees for Nonrefundable
Maintenance Deposits (ASC 840). ASC 840 requires a maintenance deposit paid by a lessee under an
arrangement accounted for as a lease that is refunded only if the lessee performs specified
maintenance activities to be accounted for as a deposit asset. Adoption of the new guidance did not
have a material impact on our consolidated financial statements.
On September 1, 2009, we adopted EITF No. 07-1, Accounting for Collaborative Arrangements
(ASC 808). ASC 808 applies to participants in collaborative arrangements that are conducted without
the creation of a separate legal entity for the arrangement. Adoption of the new guidance had no
impact on our consolidated financial statements.
On September 1, 2009, we adopted FSP FAS 132R-1, Employers Disclosures about Postretirement
Benefit Plan Assets (ASC 715). ASC 715 provides guidance on an employers disclosures about plan
assets of a defined benefit pension or other postretirement plan. The additional disclosure
requirements include expanded disclosure about an entitys investment policies and strategies, the
categories of plan assets, concentrations of credit risk and fair value measurements of plan
assets. ASC 715 is effective for our fiscal year ending August 30, 2010. We will amend our
disclosures accordingly beginning with our consolidated financial statements included in our fiscal
year 2010 Form 10-K.
On September 1, 2009, we adopted FASB FSP SFAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments (ASC 825). ASC 825 requires disclosures about fair value of
financial instruments in interim financial statements as well
as in annual financial statements. Adoption of the new guidance did not have a material impact
on our consolidated financial statements.
8
Table of Contents
Recent Accounting Guidance Not Yet Adopted
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements, a
consensus of the FASB Emerging Issues Task Force (ASU 2009-13). This update provides amendments to
the criteria of ASC Topic 605, Revenue Recognition, for separating consideration in
multiple-deliverable arrangements. The amendments to this update establish a selling price
hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for
financial statements issued for years beginning on or after June 15, 2010. We are currently
evaluating the effect the adoption of ASU 2009-13 will have on our results of operations, financial
position and cash flows but do not expect the adoption will have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R),
codified as ASU 2009 17. ASU 2009 17 amends FIN 46(R) and requires a company to perform an
analysis to determine whether its variable interests give it a controlling financial interest in a
variable interest entity. This analysis requires a company to assess whether it has the power to
direct the activities of the variable interest entity and if it has the obligation to absorb losses
or the right to receive benefits that could potentially be significant to the variable interest
entity. ASU 2009 17 requires an ongoing reassessment of whether a company is the primary
beneficiary of a variable interest entity, eliminates the quantitative approach previously required
for determining the primary beneficiary of a variable interest entity and significantly enhances
disclosures. ASU 2009 17 may be applied retrospectively in previously issued financial
statements with a cumulative-effect adjustment to retained earnings as of the beginning of the
first year restated. ASU 17 is effective for fiscal years beginning after November 15, 2009. We
are currently evaluating the impact that the adoption of ASU 2009 17 will have on our
consolidated financial statements.
Reclassifications
Certain prior year balances have been reclassified to conform to the current years
presentation. Such reclassifications did not affect total revenues, operating income or net income.
Note 2 Cash, Cash Equivalents and Short-term Investments
Our major categories of investments are as follows:
Money market mutual funds We invest in money market funds that seek to maintain a net asset
value of $1.00, while limiting overall exposure to credit, market and liquidity risks.
Certificates of deposit Certificates of deposit are short-term interest-bearing debt
instruments issued by various financial institutions with which we have an established banking
relationship.
U.S. government and agency securities These U.S. government secured debt instruments are
publicly traded and valued.
Foreign government and foreign government guaranteed securities These securities are
publicly traded and valued. Losses in this category are primarily due to market liquidity and
interest rate increases.
Corporate notes and bonds We evaluate our corporate debt securities based on a variety of
factors including, but not limited to, the credit rating of the issuer. The vast majority of our
corporate debt securities are rated investment grade by the major
rating agencies. Losses in this category are due primarily to market
liquidity and interest rate increases.
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At November 30, 2009, the components of our cash, cash equivalents and short-term investments
were as follows (in thousands):
Balance Sheet | ||||||||||||||||||||||||
Classification | ||||||||||||||||||||||||
Cash and | ||||||||||||||||||||||||
Cost | Unrealized | Unrealized | Recorded | Cash | Short-term | |||||||||||||||||||
Basis | Gain | (Loss) | Basis | Equivalents | Investments | |||||||||||||||||||
Cash |
$ | 299,825 | $ | | $ | | $ | 299,825 | $ | 299,825 | $ | | ||||||||||||
Money market mutual funds |
514,115 | | | 514,115 | 514,115 | | ||||||||||||||||||
Certificates of deposit |
290,793 | | | 290,793 | 30,093 | 260,700 | ||||||||||||||||||
Available-for-sale: |
||||||||||||||||||||||||
U.S. government and agency
securities |
22,603 | 68 | | 22,671 | | 22,671 | ||||||||||||||||||
Foreign government and foreign
government guaranteed securities |
33,902 | 151 | (141 | ) | 33,912 | | 33,912 | |||||||||||||||||
Corporate notes and bonds |
257,930 | 739 | (573 | ) | 258,096 | | 258,096 | |||||||||||||||||
Total |
$ | 1,419,168 | $ | 958 | $ | (714 | ) | $ | 1,419,412 | $ | 844,033 | $ | 575,379 | |||||||||||
The
proceeds and gross realized gains and losses from sales of
available-for-sale securities included in other income
(expense), net during the three months ended November 30, 2009 were as follows (in thousands):
Proceeds |
$ | 8,207 | ||
Realized gains |
$ | 3 | ||
Realized losses |
$ | |
There were no transfers of securities from the available-for-sale category to another
category during the period ended November 30, 2009. We evaluate whether unrealized losses on investments in securities indicate other-than-temporary
impairment. No other-than-temporary impairment losses were recognized during the three months
ended November 30, 2009.
Gross unrealized losses on investment securities for which other-than-temporary impairments have
not been recognized and the fair value of those securities aggregated by length of time that
individual securities have been in a continuous loss position, at November 30, 2009, were as
follows (in thousands):
Less than 12 Months | ||||||||
Fair | Unrealized | |||||||
Value | Loss | |||||||
Available for sale: |
||||||||
Foreign government guaranteed securities |
$ | 4,732 | $ | (141 | ) | |||
Corporate notes and bonds |
48,575 | (573 | ) | |||||
$ | 53,307 | $ | (714 | ) | ||||
At November 30, 2009, maturities of debt securities classified as available for sale were as
follows (in thousands):
Cost | Estimated | |||||||
Basis | Fair Value | |||||||
Due in one year or less |
$ | 14,108 | $ | 14,090 | ||||
Due in one year through five years |
300,327 | 300,589 | ||||||
$ | 314,435 | $ | 314,679 | |||||
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Note 3 Restricted and Escrowed Cash and Equivalents and Restricted Short-term Investments
At November 30, 2009, the components of our restricted and escrowed cash and restricted
short-term investments were as follows (in thousands):
Balance Sheet | ||||||||||||||||
Classification | ||||||||||||||||
Restricted and | ||||||||||||||||
Holding | Escrowed Cash | Restricted | ||||||||||||||
Recorded | Period | and Cash | Short-term | |||||||||||||
Basis | (Loss) | Equivalents | Investments | |||||||||||||
Cash |
$ | 13,806 | $ | | $ | 13,806 | $ | | ||||||||
Money market mutual funds |
5,657 | | 5,657 | | ||||||||||||
Certificates of deposit |
138,674 | | | 138,674 | ||||||||||||
Trading: |
||||||||||||||||
Stock and bond mutual funds |
9,019 | (1,637 | ) | | 9,019 | |||||||||||
U.S. government, agency and corporation
securities |
4,464 | (13 | ) | | 4,464 | |||||||||||
Corporate bonds and notes |
12,844 | (15 | ) | | 12,844 | |||||||||||
Total |
$ | 184,464 | $ | (1,665 | ) | $ | 19,463 | $ | 165,001 | |||||||
At November 30, 2009 and August 31, 2009, our restricted and escrowed cash and
equivalents and restricted short-term investments totaled $184.5 million and $161.9 million,
respectively and consisted of $0.4 million related to deposits designated to fund remediation costs
associated with a sold property; $13.2 million and $23.1 million, respectively, related to amounts
contractually required by various other projects and primarily dedicated to the payment of
suppliers; $0.2 million and $0.3 million, respectively, related to insurance loss reserves; $138.7
million and $138.1 million, respectively, related to cash secured letters of credit and $32.0
million related to investments held in trust to satisfy obligations under our non-qualified
deferred compensation plans at November 30, 2009. We are able to access the $138.7 million cash we
posted to secure letters of credit by delivering to the third party new letters of credit. At
November 30, 2009, we had sufficient capacity under our Credit Facility to reissue letters of
credit enabling us to access the $138.7 million in cash posted in lieu of letters of credit.
Note 4 Accounts Receivable, Concentrations of Credit Risk and Inventories
Accounts Receivable
Our accounts receivable, net, were as follows (in thousands):
November 30, 2009 | August 31, 2009 | |||||||
Trade accounts receivable, net |
$ | 682,189 | $ | 671,324 | ||||
Unbilled accounts receivable |
12,929 | 11,382 | ||||||
Retainage |
151,247 | 133,156 | ||||||
Total accounts receivable, including retainage, net |
$ | 846,365 | $ | 815,862 | ||||
Analysis of the change in the allowance for doubtful accounts follows (in thousands):
Beginning balance, August 31, 2009 |
$ | 28,269 | ||
Provision |
3,544 | |||
Write offs |
(1,524 | ) | ||
Other |
(274 | ) | ||
Ending balance, November 30, 2009 |
$ | 30,015 | ||
Included in our trade accounts receivable at November 30, 2009 and August 31, 2009, 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 challenged the appropriateness of our invoiced amounts, and we are
currently in litigation with the government entity. The amounts we ultimately collect could differ
from amounts currently recorded.
Concentrations of Credit
Amounts due from U.S. government agencies or entities were $132.3 million and $110.3 million
at November 30, 2009 and August 31, 2009, respectively.
Costs and estimated earnings in excess of billings on uncompleted contracts includes $236.2
million and $217.1 million at November 30, 2009 and August 31, 2009, respectively, related to U.S.
government agencies and related entities.
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Inventories
Major components of inventories were as follows (in thousands):
November 30, 2009 | August 31, 2009 | |||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||
Average | FIFO | Total | Average | FIFO | Total | |||||||||||||||||||
Raw Materials |
$ | 13,421 | $ | 105,281 | $ | 118,702 | $ | 13,940 | $ | 110,469 | $ | 124,409 | ||||||||||||
Work in Process |
2,360 | 37,976 | 40,336 | 2,778 | 40,923 | 43,701 | ||||||||||||||||||
Finished Goods |
93,494 | | 93,494 | 94,174 | | 94,174 | ||||||||||||||||||
$ | 109,275 | $ | 143,257 | $ | 252,532 | $ | 110,892 | $ | 151,392 | $ | 262,284 | |||||||||||||
Note 5 Equity Method Investments
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 variable interest entity
(VIE) as defined by ASC 810, the joint venture is consolidated in accordance with ASC 810. 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 (Investment in Westinghouse). On October 16, 2006,
we acquired a 20% equity interest (Westinghouse Equity) in two companies, which, together with
their subsidiaries, are collectively referred to as the Westinghouse Group (Westinghouse) for
approximately $1.1 billion. We financed this investment partially through our subsidiary Nuclear
Energy Holdings, LLC (NEH), issuing limited recourse to us (except NEH) Japanese Yen
(JPY)-denominated bonds (Westinghouse Bonds) for U.S Dollar (USD) equivalent of approximately
$1.0 billion. The various agreements are described in Note 6 of our 2009 Form 10-K.
In connection with our Investment in Westinghouse, we entered into JPY-denominated Put Option
Agreements (Put Option) with Toshiba Corporation (Toshiba), providing us the option to sell to
Toshiba all or part of our Westinghouse Equity during a defined Exercise Period. Per the Put
Option, the Exercise Period commenced upon the occurrence of a Toshiba Event which is caused by,
among other things, certain Toshiba financial metrics. Toshiba notified us on May 11, 2009, that it
experienced a Toshiba Event as of May 8, 2009, because it failed to maintain a minimum consolidated
net worth of JPY 800 billion. Due to the Toshiba Event, the Westinghouse Bond holders now have the
opportunity to direct us to exercise the Put Option.
Under GAAP, the Put Option is not considered a free-standing financial instrument or a
derivative instrument and consequently, is not separated from our equity investment in Westinghouse.
Therefore, neither the Put Option nor its foreign currency component are revalued at current
exchange rates. However, the JPY-denominated Westinghouse Bonds must be revalued at each quarters end to USD at current exchange rates.
See Note 7 Debt and Revolving Lines of Credit for additional information regarding our
Investment in Westinghouse, the Put Option and the Toshiba Event.
Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba,
and us on a calendar quarter basis with a March 31 fiscal year end. Consequently, we record our 20%
interest of the equity earnings (loss) and other comprehensive income (loss) reported to us by
Westinghouse two months in arrears of our current periods. Under this policy, Westinghouses
operating results for the three months ended September 30, 2009 and September 30, 2008 are included
in our financial results for the three months ended November 30, 2009 and 2008, respectively.
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Summarized unaudited income statement information for Westinghouse, before applying our
Westinghouse Equity Interest, was as follows (in thousands):
Three Months Ended | ||||||||
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
(unaudited) | (unaudited) | |||||||
Revenues |
$ | 1,109,438 | $ | 743,020 | ||||
Gross profit |
173,424 | 165,099 | ||||||
Income
(loss) before income taxes |
(3,963 | ) | 17,642 | |||||
Net income
(loss) |
(3,000 | ) | 12,664 |
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 of no less than 65%, but not to exceed 100%, of
Westinghouses net income. If the shareholders receive less than the target minimum dividend amount
in any year during the first six years, they 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. Accordingly, we recognize net income only to the extent of our pro rata
portion of Westinghouses actual earnings. We have received total dividends to date of $32.4
million, which does not include a dividend for Westinghouses fiscal year ended March 31, 2009.
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 | November 30, | August 31, | ||||||||||
Percentage | 2009 | 2009 | ||||||||||
Investment in Westinghouse |
20 | % | $ | 1,002,857 | $ | 1,008,442 | ||||||
Other |
23% 50 | % | 20,015 | 21,295 | ||||||||
Total investments in and
advances to unconsolidated
entities, joint ventures and
limited partnerships |
$ | 1,022,872 | $ | 1,029,737 | ||||||||
Earnings (losses) from unconsolidated entities, net of income taxes, for the three months
ended November 30, 2009 and November 30, 2008, are summarized as follows (in thousands):
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Investment in Westinghouse, net of income taxes of $(232)
and $990, respectively |
$ | (368 | ) | $ | 1,543 | |||
Other, net of income taxes of $131 and $(88), respectively |
208 | (139 | ) | |||||
Total earnings from unconsolidated entities, net of income taxes |
$ | (160 | ) | $ | 1,404 | |||
Note 6 Goodwill and Other Intangible Assets
The following table reflects the changes in the carrying value of goodwill by segment from
August 31, 2009 to November 30, 2009 (in thousands):
Fossil, | ||||||||||||||||||||||||
Renewables | ||||||||||||||||||||||||
& Nuclear | Maintenance | E&I | E&C | F&M | Total | |||||||||||||||||||
Balance at August 31, 2009 |
$ | 139,177 | $ | 42,027 | $ | 189,808 | $ | 112,575 | $ | 17,718 | $ | 501,305 | ||||||||||||
Currency translation adjustments |
| | | 177 | 449 | 626 | ||||||||||||||||||
Balance at November 30, 2009 |
$ | 139,177 | $ | 42,027 | $ | 189,808 | $ | 112,752 | $ | 18,167 | $ | 501,931 | ||||||||||||
We had tax-deductible goodwill of approximately $88.4 million and $92.1 million at November 30,
2009 and August 31, 2009, 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.
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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, 2009 |
$ | 43,954 | $ | (23,534 | ) | $ | 2,016 | $ | (1,479 | ) | ||||||
Adjustments |
| 13 | | | ||||||||||||
Amortization |
| (693 | ) | | (49 | ) | ||||||||||
Balance at November 30, 2009 |
$ | 43,954 | $ | (24,214 | ) | $ | 2,016 | $ | (1,528 | ) | ||||||
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 2010 |
$ | 2,079 | $ | 151 | ||||
2011 |
2,772 | 202 | ||||||
2012 |
2,770 | 135 | ||||||
2013 |
2,766 | | ||||||
2014 |
2,766 | | ||||||
Thereafter |
6,587 | | ||||||
Total |
$ | 19,740 | $ | 488 | ||||
Note 7 Debt and Revolving Lines of Credit
Our debt (including capital lease obligations) as of November 30, 2009 and August 31, 2009,
consisted of the following (in thousands):
November 30, 2009 | August 31, 2009 | |||||||||||||||
Short-term | Long-term | Short-term | Long-term | |||||||||||||
Notes payable on purchases of equipment; 0% to 1.3% interest; payments discounted at imputed rate of 5.9% interest; due
September 2010 through April 2011 |
$ | 14,813 | $ | 867 | $ | 10,610 | $ | 2,146 | ||||||||
Notes payable on purchases of equipment; 5.2% to 6.0% interest; due June 2011 through July 2012, and paid in full October 2009 |
| | 1,188 | 1,824 | ||||||||||||
Other notes payable |
806 | 1,060 | 2,805 | 2,277 | ||||||||||||
Capital lease obligations |
727 | 1,276 | 796 | 1,380 | ||||||||||||
Subtotal |
16,346 | 3,203 | 15,399 | 7,627 | ||||||||||||
Westinghouse Bonds (see description below) |
1,490,106 | | 1,387,954 | | ||||||||||||
Total |
$ | 1,506,452 | $ | 3,203 | $ | 1,403,353 | $ | 7,627 | ||||||||
Westinghouse Bonds
To partially finance our Investment in Westinghouse, in the first quarter of fiscal year 2007,
our subsidiary NEH issued JPY-denominated Westinghouse Bonds for USD equivalent net proceeds of
approximately $1.0 billion. The Westinghouse Bonds are limited recourse to us (except NEH) and are
collateralized primarily by the Westinghouse Equity. At the same time, we entered into the
JPY-denominated Put Option which, if exercised, requires Toshiba to pay us at least JPY 124.7
billion (approximately 97% of our original JPY-equivalent purchase price) which must be used to
repay the Westinghouse Bonds.
As discussed in Note 5 Equity Method Investments, Toshiba
failed to maintain a minimum consolidated net worth of JPY 800 billion, which was a Toshiba Event
under the Put Option and triggered the Exercise Period, allowing us to exercise the Put Option at
any time through February 28, 2013. A Toshiba Event is not an event of default or other
violation of the Bond Trust Deed or the Put Option, but due to the Toshiba Event, the Westinghouse
Bond holders now have the opportunity to direct us to exercise the Put Option. To do so, a
supermajority of the holders representing a majority of not less than an aggregate 75% of the
principal amount outstanding, must pass a resolution instructing the bond trustee to direct us to
exercise the Put Option. Specifically, in order for the bond trustee to direct us to exercise the
Put Option, the Westinghouse Bond holders must convene a meeting with a quorum of holders
representing no less than 75% of the Westinghouse Bonds principal amount outstanding during which a
75% majority of the required quorum approve a resolution instructing the bond trustee to take such
action. Alternatively, a written resolution instructing the bond trustee to direct us to exercise
the Put Option and signed by holders representing no less than 75% of the Westinghouse Bond
principal amount outstanding shall have the same effect (collectively an Extraordinary
Resolution).
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If we decide to exercise or an Extraordinary Resolution directs an exercise of the Put Option
following a Toshiba Event, Toshiba is required to pay us approximately JPY 129.0 billion (equal to
100% of the face value of the Westinghouse Bonds currently outstanding). However, if we exercise
the Put Option under other provisions of the Put Option, we would be required to fund the estimated
3% difference (equal to JPY 4.3 billion, or approximately $49.2 million using exchange rates at
November 30, 2009) between the anticipated Put Option proceeds and the principal amount owed on the
Westinghouse Bonds. If the Put Option expires unexercised on February 28, 2013, 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 should we
elect to pursue such financing.
In connection and concurrent with the acquisition of our Investment in Westinghouse, we also
executed a Commercial Relationship Agreement (CRA) with Toshiba that provides us with certain
exclusive opportunities to bid on projects where we would perform engineering, procurement and
construction services on future Westinghouse advanced passive AP1000TM nuclear power
plants, along with other commercial opportunities, such as the supply of piping for those units.
Neither our nor Toshibas obligations under the CRA will be affected should we exercise the Put
Option at the direction of an Extraordinary Resolution through its expiration in 2013.
The Westinghouse Bonds are as follows (in thousands):
November 30, | August 31, | |||||||
2009 | 2009 | |||||||
Westinghouse Bonds, face value JPY 50.98 billion due March 15, 2013; interest only payments; coupon rate of 2.20% |
$ | 426,875 | $ | 426,875 | ||||
Westinghouse Bonds, face value JPY 78 billion due March 15, 2013; interest only payments; coupon rate of 0.70%
above the six-month JPY LIBOR rate (0.50% and 0.60% at November 30, 2009 and August 31, 2009, respectively) |
653,125 | 653,125 | ||||||
Increase in debt due to foreign currency translation adjustments since date of issuance |
410,106 | 307,954 | ||||||
Total Westinghouse debt |
$ | 1,490,106 | $ | 1,387,954 | ||||
On October 16, 2006, we entered into an interest rate swap agreement through March 15,
2013 in the aggregate notional amount of JPY 78 billion. 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 JPY 78 billion
Westinghouse Bonds at 2.398%. At November 30, 2009 and August 31, 2009, the fair value of the swap
totaled approximately $31.4 million, and is included as a 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 November 30,
2009.
Credit Facility
On April 25, 2005, we entered into a five year $450.0 million Senior Secured Credit Facility
(Facility), which we have subsequently amended from time to time. From the effective date, the
Facility was available for issuing performance letters of credit and financial letters of credit
and was available for revolving credit loans. The terms performance letter of credit and
financial letter of credit have meanings customary for financings of this type.
On September 24, 2009, we entered into the Amended and Restated Credit Agreement (Restated
Agreement) with a group of lenders that provides new and extended lender commitments of
$1,214.0 million, all of which is available for the issuance of performance and financial letters
of credit and/or borrowings for working capital needs and general corporate purposes. Amounts
outstanding as performance and financial letters of credit reduce the amount otherwise available
for borrowing under the Facility. The Restated Agreement included new lenders to the Facility as
well as certain existing lenders who will exit the Facility in 2010 or 2011, following the
expiration of their existing commitment. Accordingly, the Restated Agreement contemplates three
groups of lenders, the 2010 Lenders, the 2011 Lenders and the 2012 Lenders, with the Facility
terminating with respect to such lenders on April 25, 2010, April 25, 2011 and October 25, 2012,
respectively. The Restated Agreement makes available $1,214.0 million in commitments through
April 25, 2010 (up from $1,053.0 million), $1,095.0 million from April 26, 2010 through April 25,
2011 (up from $874.0 million), and $1,000.0 million from April 26, 2011 through October 25, 2012, a
period in which there had been no previous commitments. The Facility is available for working
capital needs to fund fixed asset purchases, acquisitions, investments in joint ventures and
general corporate purposes. See Note 8 of our 2009 Form 10-K for additional information on the
Restated Agreement.
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The following table presents the outstanding and available amounts under our Facility at
November 30, 2009 (in millions):
Total Facility |
$ | 1,214.0 | ||
Less: outstanding performance letters of credit |
(390.7 | ) | ||
Less: outstanding financial letters of credit |
(170.1 | ) | ||
Less: outstanding revolving credit loans |
| |||
Remaining availability under the Facility |
$ | 653.2 | ||
At November 30, 2009, the portion of the Facility available for financial letters of credit
and/or revolving credit loans was $653.2 million, representing the total Facility ($1,214.0 million
at November 30, 2009) less outstanding letters of credit ($560.8 million at November 30,
2009.) Total fees associated with these letters of credit under the Facility were approximately
$3.2 million for each of the three months ended November 30, 2009 and November 30, 2008.
Under the Restated Agreement, interest is computed, at our option for each revolving credit
loan, using the defined base rate or the defined LIBOR rate, plus a margin. The terms base rate
and LIBOR rate have meanings customary for financings of this type. The margin is adjusted based
on the ratings of the Facility by Standard and Poors Rating Services or Moodys Investor Services
or, if the Facility is not rated, the margin is based on our leverage ratio as defined in the
agreement. The margins for revolving credit loans under the Facility may be in a range of:
(1) LIBOR plus 1.50% to 3.00% for the 2010 Lenders and the 2011 Lenders and LIBOR plus 2.5% to
4.25% for the 2012 Lenders; or (2) the defined base rate plus 0.00% to 0.50% for the 2010 Lenders
and the 2011 Lenders and 1.0% to 2.75% for the 2012 Lenders. Although there were no borrowings at
November 30, 2009, the interest rate that would have applied to any base rate borrowings under the
Facility was 4.5%.
For the three months ended November 30, 2009, we recognized $0.9 million of interest expense
associated with the amortization of financing fees related to our Facility, as compared to $0.8
million for the three months ended November 30, 2008. At November 30, 2009 and August
31, 2009, unamortized deferred financing fees related to our Facility were approximately $13.9
million and $5.0 million, respectively.
At November 30, 2009, we were in compliance with the financial covenants contained in the
Facility.
Other Revolving Lines of Credit
Shaw Nass, a consolidated VIE located in Bahrain, 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 November 30, 2009, Shaw Nass 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 (1.31% at
November 30, 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 November 30, 2009 and August 31, 2009, there were $24.7
million and $24.8 million of letters of credit outstanding under this facility, respectively.
A bank has extended to us a $50.0 million uncommitted, unsecured bilateral line of credit for
issuing performance letters of credit in Saudi Arabia. Fees under this facility are paid quarterly.
At November 30, 2009 and August 31, 2009, there were $29.8 million of letters of credit outstanding
under this facility.
Note 8 Income Taxes
Our consolidated effective tax rate was a 41% benefit as applied to the pre-tax loss for the
first quarter of fiscal 2010. In determining the quarterly provision for income taxes, we use an
estimated annual effective tax rate based on forecasted annual pre-tax income and permanent items,
statutory tax rates and tax planning opportunities in the various jurisdictions in which we
operate.
The impact of significant discrete items is separately recognized in the quarter in which they
occur. We recognize foreign currency gains and losses on the Japanese Yen-denominated Westinghouse
Bonds as discrete items in each reporting period due to their volatility and the difficulty in
estimating such gains and losses reliably.
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We expect the fiscal 2010 annual effective tax rate, excluding discrete items, applicable to
forecasted pre-tax income to be approximately 37%. Significant factors that could impact the annual
effective tax rate include managements 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 ASC 740-10, Income Taxes, effective September 1, 2007. Under
ASC 740-10, 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 first quarter of fiscal 2010, unrecognized tax benefits decreased by $1.0 million
due to a settlement and increased by additional tax provision of $0.2 million and accrued interest
of $0.4 million. As of November 30, 2009, our unrecognized tax benefits were $51.7 million, of
which $34.1 million would, if recognized, affect our effective tax rate.
Our subsidiaries file income tax returns in numerous tax jurisdictions, including U.S.
federal, most U.S. states and certain foreign 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, thus, with few exceptions, we are no
longer subject to U.S. (including federal, state and local) or foreign 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 from the resolution we currently anticipate, and those differences
could result in significant costs or benefits to us.
Certain tax years are under audit by relevant tax authorities including, recently, an
examination of our U.S. federal tax returns for fiscal years 2006-2008 by the Internal Revenue
Service (IRS). We have extended the statute of limitations on our U.S. federal returns for the 2004
and 2005 fiscal years involved in an IRS appeal (see Note 11 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 the IRS appeal of fiscal years 2004 and 2005 may be concluded in the foreseeable future,
and potentially in fiscal 2010, it is not possible at this time to estimate the impact of changes
in unrecognized tax benefits over the next 12 months at this time.
Note 9 Accumulated Other Comprehensive Income (Loss)
The after-tax components of accumulated other comprehensive income (loss) are as follows for
the quarterly periods presented (in thousands):
Equity in | ||||||||||||||||||||||||
Westinghouses | Interest | |||||||||||||||||||||||
Pre-tax other | Rate Swap | Accumulated | ||||||||||||||||||||||
Foreign | Comprehensive | Contract on | Other | |||||||||||||||||||||
Currency | Income (Loss), | JPY- | Pension | Unrealized | Comprehensive | |||||||||||||||||||
Translation | Net of | Denominated | Liability | Gain (Loss) on | Income | |||||||||||||||||||
Adjustments | Shaws tax | Bonds | Adjustments | Securities | (Loss) | |||||||||||||||||||
Balance at August 31, 2008 |
$ | 417 | $ | 26,060 | $ | (5,360 | ) | $ | (30,726 | ) | $ | | $ | (9,609 | ) | |||||||||
Current Period Change |
(15,258 | ) | (27,210 | ) | (7,273 | ) | 579 | | (49,162 | ) | ||||||||||||||
Balance at November 30, 2008 |
$ | (14,841 | ) | $ | (1,150 | ) | $ | (12,633 | ) | $ | (30,147 | ) | $ | | $ | (58,771 | ) | |||||||
Balance at August 31, 2009 |
$ | (9,922 | ) | $ | (54,657 | ) | $ | (19,217 | ) | $ | (38,170 | ) | $ | | $ | (121,966 | ) | |||||||
Current Period Change |
2,444 | (3,061 | ) | (41 | ) | 982 | 242 | 566 | ||||||||||||||||
Balance at November 30, 2009 |
$ | (7,478 | ) | $ | (57,718 | ) | $ | (19,258 | ) | $ | (37,188 | ) | $ | 242 | $ | (121,400 | ) | |||||||
The translation adjustments relate primarily to changes in the value of the USD in
relation to other currencies such as the British Pounds Sterling (GBP), Mexican Pesos, Canadian Dollars and the Euro.
Note 10 Share-Based Compensation
Restricted stock units totaling 547,707 shares were granted during the three months ended
November 30, 2009, at a weighted-average per share price of $27.87 vesting over approximately four
years. Restricted stock units totaling 2,339,651 shares were granted in the three months ended
November 30, 2008, at a weighted-average per share price of $17.88, vesting over approximately
three to four years. Of these, approximately 1,270,000 restricted stock units were classified as
liability awards at November 30, 2008, due to the limited availability of shares under our
share-based compensation plans. As a result of shareholder approval of the 2008 Omnibus Incentive
Plan on January 29, 2009, these liability awards were modified for accounting purposes to be equity
awards. 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.
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During the three months ended November 30, 2009 and November 30, 2008, options for the
purchase of 800,855 shares at a weighted-average price of $27.88 per share and 1,142,194 shares at
a weighted-average price of $17.89 per share, respectively, were awarded, with vesting over
approximately four years. The contractual lives of the awards during the three months ended
November 30, 2009 are consistent with those of prior years. There were no significant changes in
the assumptions or estimates used in the valuation of options awarded subsequent to our year-end
August 31, 2009.
During the three months ended November 30, 2009 and November 30, 2008, options were exercised
for the purchase of 18,027 shares at a weighted-average exercise price of $18.30 per share and
10,000 shares at a weighted-average exercise price of $4.19 per share, respectively.
For additional information related to these share-based compensation plans, see Note 11
Share-Based Compensation of our consolidated financial statements in our 2009 Form 10-K.
Note 11 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 proposed certain adjustments relating to the sourcing of income to one
of our overseas entities and to our U.S. parent company. We protested our disagreement with these
adjustments and the related penalties to the Appeals level within the IRS for fiscal years 2002
through 2005 and have now resolved through fiscal year 2003 the amount of income to be recognized
by our U.S. parent company. This agreement also effectively resolves the same matter for the 2004
and 2005 fiscal years. Other proposed adjustments to the 2004 and 2005 fiscal years, unrelated to
this matter, have been protested to the Appeals level. These protested adjustments cover
approximately $14.0 million of additional federal and state income tax for which the interest would
begin running from fiscal 2007. Tax and interest accrual provisions have been made in our financial
statements for the agreed adjustments in the two IRS audit cycles covering the 2002 through 2005
fiscal years and for uncertain tax provisions as discussed in Note 8 Income Taxes.
In a separate matter, agreement was reached with the Louisiana Department of Revenue (LDR)
whereby certain franchise tax for fiscal years 2001 through 2009 were resolved by payment of back
tax and interest in October 2009. LDR will move to dismiss its claim for any additional franchise
tax for fiscal years 2001 and 2002, and Shaw will likewise withdraw its refund claim for franchise
tax for fiscal years 2001 and 2002, as well as a protective refund suit filed by Shaw for its 2009
franchise tax fiscal year.
While management cannot predict the ultimate outcome of the above 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.
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 the 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).
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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 and cash
collateralized) was $754.0 million and $790.3 million at November 30, 2009 and August 31, 2009,
respectively. Of the amount of outstanding letters of credit at November 30, 2009, $583.8 million
are performance letters of credit issued to our customers. Of the $583.8 million, five customers
held $357.3 million or 61.2% of the outstanding letters of credit. The largest letter of credit
issued to a single customer on a single project is $117.5 million. Our borrowing capacity under our
Facility is reduced by the aggregate amount of our outstanding letters of credit.
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, consortiums 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
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 liquidated
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 (S.D.N.Y.)
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 Tribunals 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 managements 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 countrys 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 $13.6 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 customers 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 proceedings in the U.S. District Court came to an end when the
Court declined jurisdiction based on a finding of forum non conveniens. The customer has initiated
proceedings in the host country to contest the awards validity, oppose our enforcement actions and
overturn the award. We have made provisions in our financial statements based on managements
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.
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In connection with an international fixed price contract executed by our Fossil, Renewables &
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 (LCIA). In the request, we currently seek claims of approximately $24.4
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 August 12, 2009, the client, who
holds a $2.2 million performance letter of credit from us, filed its Statement of Defenses and
Counterclaim. Although the Statement of Defenses contests most of our claims, in the submittal our
client did concede three of our claims that have a total value of $12.5 million. The clients
counterclaim seeks an amount totaling approximately $26.0 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. The performance letter of credit was
reduced from $4.3 million to $2.2 million effective June 19, 2009. We have evaluated our claims and
our clients counterclaims and made provisions in our financial statements based on managements
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 statements of operations and cash flows. The USD value
of the claims and our letter of credit stated herein fluctuate due to changes in the exchange rate
of the GBP.
Our subsidiary, S&W, is nearing completion of work for Xcel Energy (d/b/a Public Service of
Colorado) on Xcels Comanche project in Colorado. There are material claims by S&W against Xcel for
contract changes relating to coordination of the work, delays and resulting impacts on our ability
to perform. The resulting change order request submitted by S&W was denied. As a result, S&W filed
a lawsuit, 2009-CV-6913, in the District Court, City and County of Denver, Colorado, against Xcel
on July 14, 2009, seeking damages in excess of $71.0 million. Xcel counterclaimed, alleging nearly
$56.0 million in damages or set-offs against S&W. We believe S&W has a sound legal and factual
basis for its claims, and we expect a favorable resolution to these matters. However, the
litigation could be lengthy, and if Xcel were to prevail completely or substantially in this
matter, the outcome could have a material adverse effect on our financial statements.
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 $17.3 million of such real estate assets recorded in other
assets on the accompanying balance sheet at November 30, 2009 as compared to $17.7 million at
August 31, 2009. 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 November 30,
2009, our E&I segment had $4.7 million of environmental liabilities recorded in other liabilities
in the accompanying balance sheets as compared to $5.0 million at August 31, 2009.
Note 12 Supplemental Disclosure to Earnings (Loss) Per Common Share
Weighted average shares outstanding for the three months ended November 30, 2009 and November
30, 2008 were as follows (in thousands):
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Basic |
83,420 | 83,103 | ||||||
Stock options |
| | ||||||
Restricted stock |
| | ||||||
83,420 | 83,103 | |||||||
The following table includes weighted-average shares excluded from the calculation of diluted
income per share for the three months ended November 30, 2009 and 2008 because they were
anti-dilutive (in thousands):
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Stock options |
4,436 | 3,486 | ||||||
Restricted stock |
2,826 | 986 |
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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 months ended November 30, 2009 and November 30, 2008 (in
thousands):
Three Months Ended | ||||||||
2009 | 2008 | |||||||
Service cost |
$ | 35 | $ | 520 | ||||
Interest cost |
2,089 | 2,159 | ||||||
Expected return on plan assets |
(1,869 | ) | (1,831 | ) | ||||
Amortization of net loss |
858 | 576 | ||||||
Other |
9 | 9 | ||||||
Total net pension expense |
$ | 1,122 | $ | 1,433 | ||||
We expect to contribute $12.8 million to our pension plans in fiscal year 2010. As of November
30, 2009, we have made $9.3 million in contributions to these plans.
Multi-employer Plans
We participate in various multi-employer pension plans under union and industry-wide
agreements. Generally, these plans provide defined benefits to substantially all employees covered
by collective bargaining agreements. Under the Employee Retirement Income Security Act (ERISA), a
contributor to a multiemployer plan is liable, upon termination or withdrawal from a plan, for its
proportionate share of a plans unfunded vested liability.
Note 14 Related Party Transactions
In January 2003, our subsidiary, S&W, was awarded a subcontract to perform engineering
services (ESA) by Bernhard Mechanical Contractors, Inc. (BMC) for a cogeneration plant on Louisiana
State Universitys (LSU) campus. Our Chairman, President and Chief Executive Officers brother is
an executive officer and a significant owner of BMC. The total consideration for the engineering
services provided was approximately $2.0 million. In connection with the ESA, we entered into an
assignable guaranty agreement (Guaranty) with BMC under which we agreed, subject to several
conditions precedent, to guarantee possible BMC obligations that could be owed by BMC to LSU
pursuant to a separate performance-based services and equipment contract. BMC and LSU are engaged
in protracted litigation, in which among many claims and counterclaims, LSU alleges that BMC
provided a faulty design for a gas-fired turbine. On December 23, 2009, BMC filed a third party
demand against S&W for contribution and indemnification in the event BMC is found liable for any
damages relating to the turbine design, plans or specifications S&W may have provided under the
ESA. Also on December 23, 2009, BMC filed an arbitration demand against S&W asserting the same
claims. S&W denies any liability to BMC and will answer these pleadings accordingly. We do not
believe the litigation will affect the probability of our obligation to make a payment under the
Guaranty, which we believe remains remote.
Our significant unconsolidated subsidiary that is accounted for using the equity method of
accounting is our Investment in Westinghouse (see Note 5 Equity Method Investments).
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.
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We enter into cost-reimbursable arrangements in which the final outcome or overall estimate at
completion may be materially different from 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 months ended November 30, 2009 and
2008, unapproved change orders and claims included in revenues increased (decreased) by approximately $(7.2) million and $18.1 million,
respectively.
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
November 30, 2009 and 2008, respectively, and excludes all unrecorded amounts and non-significant
unapproved change orders and claims.
Fiscal Year | Fiscal Year | |||||||
2010 | 2009 | |||||||
Amounts included in project estimates-at-completion at September 1 |
$ | 222.9 | $ | 63.6 | ||||
Changes in estimates-at-completion |
0.7 | 24.9 | ||||||
Approved by customer |
(14.4 | ) | (14.3 | ) | ||||
Amounts included in project estimates-at-completion at November 30 |
$ | 209.2 | $ | 74.2 | ||||
Amounts accrued in revenues (or reductions to contract costs) on a total project basis at November 30 |
$ | 79.7 | $ | 62.2 | ||||
Included in our project estimates-at-completion at November 30, 2009 and shown in the table
above are expected cost recoveries associated with a claim of approximately $100.0 million for
price adjustments on a new construction project. To date, we have recorded approximately $1.7
million in revenue in our financial statements, which is reflected in the Amounts accrued in
revenues above. The remainder of these costs is expected to be incurred over the life of the
contract. While the client has disputed the period covered in the calculation of the price
adjustment, we believe we are entitled to the amount claimed under our existing contract with the
client.
In addition, we have incorporated in our project estimate-at-completion approximately $65.8
million related to unapproved change orders associated with permitting delays on a coal-plant
construction project. Of this amount, we have recorded approximately $27.5 million based on
percentage completion accounting, which is included in the Amounts accrued in revenues in the
above table.
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 has not yet been incurred
(i.e. remaining percentage-of-completion revenue to be recognized on the related project).
If we collect amounts different than the amounts that we have recorded as unapproved change
orders/claims receivable, that difference will be reflected in the EAC used in determining contract
profit 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 unapproved change order/claims receivable within the next twelve
months.
Also included in unapproved change orders and claims are two matters currently in arbitration
or litigation. See Note 11 Contingencies and Commitments for additional information.
In addition to the unapproved change orders and claims discussed above, we have recorded as a
reduction to costs approximately $25.8 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.
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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 provisions for incentive
and award fees 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 EACs include an estimate of amounts that we expect to earn if we achieve a number
of agreed upon criteria. At November 30, 2009 and August 31, 2009, our project estimates included
$33.0 million and $32.9 million, respectively, related to estimated achievement of these criteria.
On a percentage-of-completion basis, we have recorded $29.6 million and $29.4 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 consolidated balance
sheets based on our progress as of November 30, 2009, and August 31, 2009, respectively. If we do
not achieve the criteria at the amounts we have estimated, project revenues and profit may be
materially reduced. These incentive revenues are being recognized using the
percentage-of-completion method of accounting.
Note 16 Business Segments
Our reportable segments are Fossil, Renewables & Nuclear; Maintenance; Environmental &
Infrastructure (E&I); Energy and Chemicals (E&C); Fabrication and Manufacturing (F&M); Investment
in Westinghouse and Corporate.
The Fossil, Renewables & Nuclear segment provides a range of project-related services,
including design, engineering, construction, procurement, technology and consulting services,
primarily to the global fossil, renewable 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 provides integrated engineering, design and construction services and executes
remediation solutions, including the identification of contaminants in soil, air and water for
government and private-sector clients worldwide.
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 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 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. Please see Notes 5 and 7 for
additional information with respect to the circumstances in which the Westinghouse Bond holders may
direct us to exercise the Put Option and sell the Westinghouse Equity to Toshiba.
The Corporate segment includes 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.
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Our segments revenues, gross profit and income (loss) before income taxes and earnings from
unconsolidated entities for the three months ended November 30, 2009 and November 30, 2008 were as
follows:
Three Months Ended | ||||||||
(In millions, except percentages) | 2009 | 2008 | ||||||
Revenues: |
||||||||
Fossil, Renewables & Nuclear |
$ | 579.5 | $ | 676.6 | ||||
Maintenance |
293.4 | 334.1 | ||||||
E&I |
528.3 | 401.4 | ||||||
E&C |
339.3 | 321.7 | ||||||
F&M |
117.9 | 164.7 | ||||||
Corporate |
0.1 | 1.9 | ||||||
Total revenues |
$ | 1,858.5 | $ | 1,900.4 | ||||
Gross profit: |
||||||||
Fossil, Renewables & Nuclear |
$ | 33.0 | $ | 51.8 | ||||
Maintenance |
20.2 | 11.7 | ||||||
E&I |
47.5 | 34.5 | ||||||
E&C |
34.2 | 52.4 | ||||||
F&M |
20.7 | 35.7 | ||||||
Corporate |
(0.9 | ) | 2.0 | |||||
Total gross profit |
$ | 154.7 | $ | 188.1 | ||||
Gross profit percentage: |
||||||||
Fossil, Renewables & Nuclear |
5.7 | % | 7.7 | % | ||||
Maintenance |
6.9 | 3.5 | ||||||
E&I |
9.0 | 8.6 | ||||||
E&C |
10.1 | 16.3 | ||||||
F&M |
17.6 | 21.7 | ||||||
Corporate |
NM | NM | ||||||
Total gross profit percentage |
8.3 | % | 9.9 | % | ||||
Income (loss) before income taxes and earnings from unconsolidated entities: |
||||||||
Fossil, Renewables & Nuclear |
$ | 18.4 | $ | 35.9 | ||||
Maintenance |
17.5 | 8.3 | ||||||
E&I |
30.4 | 18.6 | ||||||
E&C |
22.2 | 41.8 | ||||||
F&M |
12.6 | 30.4 | ||||||
Investment in Westinghouse |
(111.7 | ) | (171.2 | ) | ||||
Corporate |
(16.5 | ) | (22.0 | ) | ||||
Total income (loss) before income taxes and earnings from unconsolidated entities |
$ | (27.1 | ) | $ | (58.2 | ) | ||
NM Not Meaningful |
Our segments assets were as follows:
November 30, | August 31, | |||||||
(In millions) | 2009 | 2009 | ||||||
Assets |
||||||||
Fossil, Renewables & Nuclear |
$ | 1,761.3 | $ | 1,629.9 | ||||
Maintenance |
201.6 | 180.7 | ||||||
E&I |
1,054.5 | 1,002.8 | ||||||
E&C |
817.4 | 853.4 | ||||||
F&M |
690.7 | 698.0 | ||||||
Investment in Westinghouse |
1,193.1 | 1,171.2 | ||||||
Corporate |
839.1 | 846.9 | ||||||
Total segment assets |
6,557.7 | 6,382.9 | ||||||
Elimination of investment in consolidated subsidiaries |
(412.1 | ) | (412.1 | ) | ||||
Elimination of intercompany receivables |
(418.1 | ) | (414.0 | ) | ||||
Income taxes not allocated to segments |
0.4 | 0.4 | ||||||
Total consolidated assets |
$ | 5,727.9 | $ | 5,557.2 | ||||
Major Customers
Revenues related to U.S. government agencies or entities owned by the U.S. government were
$465.2 million for the three months ended November 30, 2009, representing approximately 25% of our
total revenues. For the three months ended November 30, 2008, we recorded revenues related to the
U.S. government of approximately $324.6 million, representing approximately 17% of our total
revenues. These revenues were primarily related to work performed in our E&I segment.
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Note 17 Fair Value Measurements
We follow the authoritative guidance for fair value measurements relating to financial and
nonfinancial assets and liabilities, including presentation of required disclosures in our
condensed consolidated financial statements. This guidance defines fair value as the price that
would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants at the measurement date. The guidance also establishes a
fair value hierarchy, which requires maximizing the use of observable inputs when measuring fair
value.
The three levels of inputs that may be used are:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Significant unobservable inputs that are not corroborated by market data.
There have been no material changes to the valuations techniques utilized in the fair value
measurement of assets and liabilities presented on the Companys balance sheet as disclosed in our
2009 Form 10-K.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents information as of November 30, 2009, about our financial assets and
financial liabilities that are measured at fair value on a recurring basis and indicates the fair
value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):
Fair | Fair Value Measurements Using | |||||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Certificates of deposit |
$ | 399,374 | $ | | $ | 399,374 | $ | | ||||||||
Stock and bond mutual funds |
9,019 | 9,019 | | | ||||||||||||
U.S. government, agency and corporation securities |
27,134 | | 27,134 | | ||||||||||||
Foreign government and foreign government guaranteed securities |
33,912 | | 33,912 | | ||||||||||||
Corporate notes and bonds |
270,940 | | 270,940 | | ||||||||||||
Foreign exchange |
||||||||||||||||
Total |
$ | 740,380 | $ | 9,019 | $ | 731,361 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Interest rate swap liability |
$ | 31,435 | $ | | $ | 31,435 | $ | | ||||||||
Derivatives Not Designated as Hedging Instruments |
||||||||||||||||
Foreign currency forward assets |
$ | 1,633 | $ | | $ | 1,633 | $ | | ||||||||
Foreign currency forward liabilities |
$ | 9 | $ | | $ | 9 | $ | |
Location and Amount of Gain (Loss) | ||
Recognized in Income on Derivatives | ||
Three Months Ended | ||
November 30, 2009 | ||
Derivatives Designated as
Hedging Instruments |
||
Interest rate swap liability |
Other comprehensive income - See Note 9 - Accumulated Other Comprehensive Income (Loss) | |
Derivatives Not Designated as
Hedging Instruments |
||
Foreign currency forward contracts |
Other foreign currency transaction gains (losses), net $0.8 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 firms credit risk. Our
counterparty to this instrument is a major U.S. bank. As discussed in Note 7 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.
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We manage our currency exposures with 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 our cost of capital. Derivative liabilities are valued using a discount rate that incorporates
our credit risk.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Effective September 1, 2009, we adopted the fair value measurement guidance for all
nonfinancial assets and liabilities recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. These assets and liabilities include items such as goodwill and
long lived assets that are measured at fair value resulting from impairment, if deemed necessary.
During the first quarter of fiscal year 2010, we did not record any fair market value adjustments
to those financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring
basis.
Note 18 Supplemental Cash Flow Information (in thousands)
Three Months Ended | ||||||||
November 30, | November 30, | |||||||
2009 | 2008 | |||||||
Non-cash investing and financing activities: |
||||||||
Additions to property, plant and equipment |
$ | 17,551 | $ | | ||||
Interest rate swap contract on Japanese
Yen-denominated bonds, net of deferred tax of
$25 and $4,669, respectively |
$ | 41 | $ | 7,273 | ||||
Equity in Westinghouses accumulated other
comprehensive income, net of deferred tax of
$(1,924) and $(17,470), respectively |
$ | (3,061 | ) | $ | (27,210 | ) | ||
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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 continued depressed global economic conditions; |
| changes in demand for our products and services; |
| our ability to obtain new contracts for large-scale domestic and international projects and the timing of the performance of these contracts; |
| changes in the nature of the individual markets in which our customers operate; |
| project management risks, including additional costs, reductions in revenues, claims, disputes and the payment of liquidated damages; |
| the nature of our contracts, particularly fixed-price contracts, and the impact of possible misestimates and/or cost escalations associated with our contracts; |
| ability of our customers to unilaterally terminate our contracts; |
| our ability to collect funds on work performed for domestic and foreign government agencies and private sector customers that are facing financial challenges; |
| delays and/or defaults in customer payments; |
| unexpected adjustments and cancellations to our backlog as a result of current economic conditions or otherwise; |
| the failure to meet schedule or performance requirements of our contracts; |
| our dependence on one or a few significant customers, partners, subcontractors and equipment manufacturers; |
| potential contractual and operational costs related to our environmental and infrastructure operations; |
| risks associated with our integrated environmental solutions businesses; |
| reputation and financial exposure due to the failure of our partners to perform their contractual obligations; |
| the presence of competitors with greater financial resources and the impact of competitive technology, products, services and pricing; |
| weakness in our stock price might indicate a decline in our fair value requiring us to further evaluate whether our goodwill has been impaired; |
| the inability to attract and retain qualified personnel, including key members of our management; |
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| work stoppages and other labor problems including union contracts up for collective bargaining; |
| potential professional liability, product liability, warranty and other potential claims, which may not be covered by insurance; |
| unavoidable delays in our project execution due to weather conditions, including hurricanes and other natural disasters; |
| changes in environmental factors and laws and regulations that could increase our costs and liabilities and affect the demand for our services; |
| the limitation or modification of the Price-Anderson Acts indemnification authority; |
| our dependence on technology in our operations and the possible impact of system and information technology interruptions; |
| protection and validity of patents and other intellectual property rights; |
| risks related to our Investment in Westinghouse; |
| changes in the estimates and assumptions we use to prepare our financial statements; |
| our use of the percentage-of-completion accounting method; |
| 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; |
| our ability to obtain waivers or amendments with our lenders or sureties or to collateralize letters of credit or surety bonds upon non-compliance with covenants in our credit facility or surety indemnity agreements; |
| covenants in our Restated Credit Agreement that restrict our ability to pursue our business strategies; |
| our indebtedness, which could adversely affect our financial condition and impair our ability to fulfill our obligations under our credit facility; |
| outcomes of pending and future litigation and regulatory actions; |
| downgrades of our debt securities by rating agencies; |
| foreign currency fluctuations; |
| our ability to successfully identify, integrate and complete acquisitions; |
| liabilities arising from multi-employer plans entered into by any of our subsidiaries; |
| a determination to write-off a significant amount of intangible assets or long-lived assets; |
| changes in the political and economic conditions of the foreign countries where we operate; |
| significant changes in the market price of our equity securities; |
| 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; |
| the ability of our customers to obtain financing to fund their projects; |
| 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, Renewables & Nuclear segment; and |
| the U.S. administrations support of the nuclear power option and loan guarantee program. |
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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 2009 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.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discusses our financial position at November 30, 2009, and the results of our
operations for the three months ended November 30, 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 2009 Form 10-K.
General Overview
We are a leading global provider of technology, engineering, procurement, construction,
maintenance, fabrication, manufacturing, consulting, remediation and facilities management
services. We provide our services to government and private sector clients in the energy,
chemicals, environmental, infrastructure and emergency response markets. Some of our clients
include regulated electric utilities, independent and merchant power producers, multi-national oil
companies and industrial corporations, government agencies and equipment manufacturers. Through
organic growth and a series of strategic acquisitions, we have significantly expanded and
diversified our expertise and service portfolio.
Currently, we are organized under the following reportable segments:
| Fossil, Renewables & Nuclear |
| Maintenance |
| Environmental & Infrastructure (E&I) |
| Energy & Chemicals (E&C) |
| Fabrication & Manufacturing (F&M) |
| Investment in Westinghouse |
| Corporate |
Fossil, Renewables & Nuclear Segment
Our Fossil, Renewables & Nuclear segment provides a range of services, including design,
engineering, construction, procurement, technology and consulting services, primarily to the
fossil, renewables and nuclear power generation industries.
Nuclear
Power Generation. During the first nine months of 2009, approximately 20% of the electric power
generated in the U.S. was from nuclear power plants. We provide a wide range of technical services
to meet the demands of this growing sector, including engineering, design, procurement,
construction and project management that support the domestic and international nuclear power
markets. As part of the Westinghouse CRA, we have been awarded a technical services contract for
four AP1000 nuclear power units in the Peoples Republic of China (China) and three EPC contracts
to build six domestic AP1000 units two each for Georgia Power, South Carolina Electric & Gas and
Progress Energy. We recently reached several international milestones including supervising the
placement of the first nuclear concrete and the first major structural module at the worlds first
AP1000 nuclear power plant at the Sanmen nuclear power plant in Chinas Zhejiang province. 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 its majority owner Toshiba on new nuclear plant work, should
position us to capitalize on the long-term growth within this industry.
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Clean
Coal-Fired Generation. The U.S. has significant coal reserves and during the first nine months of 2009,
approximately 44% of electric power generated in the U.S. comes from coal-fired power plants.
Electric power companies in the U.S. have historically pursued construction of new coal-fired power
plants, because, although coal-fired capacity is capital intensive to build, it generally has
relatively lower operating costs as compared to other fossil fuels. Recently, however, uncertainty
surrounding potential regulations targeting carbon emissions, as well as the global economic
downturn and low natural gas prices, have caused the development of coal and other solid fuel-fired
power plants to slow significantly. Nevertheless, we believe that coal will continue to be a
significant component of future domestic energy generation, and we intend to continue positioning
our resources to capture a significant market share of any new build or expansion projects.
Air Quality Control (AQC). Our AQC business includes domestic and international markets for
flue gas desulfurization (FGD) retrofits, installation of mercury emission controls, fine-particle
pollution control, carbon capture and selective catalytic reduction (SCR) processes used at
existing coal-fired electric power plants. We believe we are the market leader for EPC FGD
projects.
Existing U.S. government and state environmental AQC regulations have driven the need to
retrofit existing coal-fired power plants with modern pollution-control equipment. In July 2008,
the D.C. Circuit Court of Appeals issued an opinion in North Carolina v. EPA, vacating and
remanding the Clean Air Interstate Rule (CAIR), a pollution reduction program designed to reduce
power plant emissions through various air quality standards. As a result of the Courts decision,
the current CAIR standards remain in place until the Environmental Protection Agency (EPA) makes
modifications. These rulings provide some temporary stability to the emission standards. Although
the EPA is required to revise the current CAIR rule and the status of any new emissions legislation
remains undecided, we anticipate that the revised CAIR rule and any future CAIR-related legislation
will continue to impose stringent requirements on air emissions, which is expected to have a
positive effect on future demand for our AQC services.
Mercury emission controls and the SCR process for nitrogen oxide emission controls and AQC
services are in continued demand. We believe the domestic market for both these services could
increase if the current federal and state government trends toward increased regulation continue,
and we believe there will be select international markets for pursuing the SCR and fine particle
control work.
Gas-Fired Generation. During the first nine months of 2009, approximately 24% of the electric power generated in
the U.S. was generated by natural gas-fired power plants. We continue to observe renewed interest
in gas-fired electric generation as electric utilities and independent power producers look to
diversify their options. In many states, recent initiatives to reduce carbon dioxide and other
greenhouse gas emissions and immediate demand for additional electric power generation capacity
seem to be stimulating renewed demand for gas-fired power plants. Gas-fired plants generally are
less expensive to construct than coal-fired and nuclear power plants but tend to have comparatively
higher and potentially more volatile operating costs. In addition, gas fired generation has the
potential to complement wind, solar and other alternative generation facilities because gas fired
facilities can be brought on-line quickly to smooth the inherently variable generation of these
alternative energy sources. We expect power producers to increase capital spending on gas-fired
power plants to take advantage of recent lower natural gas prices and the prospect that these
prices may remain low for some time because of gas field development projects in the U.S. as well
as potential liquefied natural gas (LNG) imports. Although the effect of current economic
conditions on the timing or financing of such projects is unclear, we expect that gas-fired power
plants will continue to be an important component in the development of long-term power generation
in the U.S. and internationally. We believe our capabilities and expertise position us well to
capitalize on opportunities in this market.
Renewable Energy Generation. During the first nine months of 2009, approximately 4% of the electric power
generated in the U.S. was from renewable sources such as biomass, geothermal, solar, wind and other
energy sources. We are actively pursuing international and domestic projects using a variety of
renewable energy technologies, including geothermal, biomass and solar. Although the current
economic climate and uncertainty of climate-control legislation have slowed development of many of
these projects, we believe renewable energy projects will likely be a significant part of the
energy market in the near future.
Maintenance Segment
Our Maintenance segment is a market leader, providing a full range of integrated asset life
cycle capabilities that complement 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 to enable the highest return on critical
production assets within their facilities. Maintenance segment services are provided at client work
sites located primarily in North America.
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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 offer fossil plant maintenance services for
energy generation facilities in North America. Our nuclear refueling outage expertise, paired with
our construction planning and execution skills, give us the ability to expand in this market as
energy demand continues to increase.
Chemical Plant/Refinery Maintenance and Capital Construction. We have a continuous presence in
various U.S. field locations serving alternative energy, petrochemicals, specialty chemicals, oil
and gas, manufacturing and refining markets. Our Maintenance segment also includes a capital
construction component serving a variety of customers in various industries, including existing
chemicals and petrochemicals clients as well as power customers. 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 have 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.
E&I Segment
Our E&I segment provides engineering, design and construction, construction management,
regulatory, scientific, logistics support, operations and maintenance and program management
services to both commercial clients and federal, state and local government clients worldwide. Our
staff is strategically positioned throughout the U.S. and abroad to provide full-service solutions
to clients facing complex environmental and infrastructure challenges.
Program Management. We oversee large U.S. federal, state and local government programs
including capital improvement, emergency response and disaster recovery projects and programs, as
well as private sector commercial programs. In doing so, we implement the necessary planning,
management and organizational activities and technical services, with quality and safety in mind.
We typically staff projects with a full complement of experienced professionals, provide our
clients with a single point of contact and manage all administrative duties required for each job.
Our integrated business teams work together to provide expertise across all business lines and
consistency throughout each program.
Design-Build. We execute all design-build phases using our proficiencies in engineering,
design, operations, construction and construction management for large infrastructure projects. Our
current hurricane protection project in New Orleans, Louisiana, is the largest design-build
domestic civil works project ever undertaken by the U.S. Army Corps of Engineers (USACE). Also, the
U.S. Department of Energy (DOE) contracted us, through our joint venture Shaw Areva Mox Services,
LLC, to design, license and construct the Mixed Oxide (MOX) Fuel Fabrication Facility in Aiken,
South Carolina, a first-of-a-kind facility in the U.S. to process weapons-grade plutonium into
nuclear fuel. As part of our sustainability efforts, we help our clients achieve Leadership in
Energy and Environmental Design certification for facilities by using green building practices. We
continue to develop engineering, design and construction strategies to promote the use of
sustainable development techniques. Some of those strategies include retrofitting buildings for
energy efficiency and weatherizing structures, with the goal of providing a return on investment
for our clients.
Environmental Remediation. We have extensive experience in environmental remediation for both
government and private-sector clients, including those in the chemical, energy, real estate,
manufacturing and transportation fields. We have executed many complex remediation and restoration
projects for the U.S. government, including remediating military bases with unexploded ordnance
exposure and residual fuel and chemical contamination, as well as former nuclear weapons production
and atomic testing sites. Our technological capabilities, such as laboratory assessments,
field-testing and analysis, support a wide range of client needs, including
but not limited to groundwater modeling, contaminant transport and soil washing. We hold
patented technologies in the bioaugmentation field, implementing microbial culture techniques to
remediate groundwater contaminants, and spearheading the use of ozone, a common element in the
earths atmosphere, to eliminate organic contaminants.
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Coastal, Maritime and Natural Resource Design and Restoration. We provide engineering and
design services, including navigation, sediment management, port and waterway development, coastal
engineering, environmental services, levee development and construction, shoreline protection and
restoration and marine security. We perform wetland construction, mitigation, restoration and
related work for clients around the world. We are involved in projects generated by the Coastal
Wetlands Planning Protection and Restoration Act, which provides federal funds to restore and
conserve coastal wetlands and barrier islands.
Transportation and General Infrastructure. We offer program management for infrastructure
projects related to transportation, water and wastewater systems. We offer a full range of
technical and management services to design, plan, engineer, construct, renovate, operate and
maintain highways, railways, transit systems, waterways and airports. We provide airport-related
services for runways, taxiways, aprons, terminals and concourses. Bridge and roadwork, transit and
highway tunnels, parking structures and vehicle maintenance facilities are also included in our
broad scope of services. Large U.S. municipal agencies, such as the New York City Department of
Environmental Protection and the San Francisco Public Utilities Commission, have engaged us for
major water infrastructure needs, which include water system improvements and wastewater services
such as planning, collection and treatment, as well as plant construction services. Additionally,
we execute urban planning projects and provide clients with a long-term vision that supports viable
growth opportunities for their region.
Other Federal Services. We offer program management, operations, engineering, design,
construction, consulting and technology-based solutions to help various U.S. government clients
including DOE, USACE, the Department of Defense (DoD), the EPA, Federal Transit Administration
(FTA) and Federal Emergency Management Agency (FEMA) meet goals and manage challenges associated
with the operation of large federal facilities and programs. Our core services include
environmental remediation and restoration, regulatory compliance, facilities management and
operations and emergency response services. Environmental restoration activities support client
compliance with government requirements such as the Comprehensive Environmental Response
Compensation and Liability Act, also known as the Superfund law, and the Resource Conservation and
Recovery Act. Additionally, we support our clients efforts to comply with Clean Water Act, Clean
Air Act and Toxic Substances Control Act requirements. We are a significant service provider for
U.S. government operations at the EPA Test and Evaluation facility and other National Risk
Management Research Laboratory facilities, where we provide operational support and research
services.
E&C Segment
Our E&C segment provides a full range of project-related services including proprietary
technology, project management, engineering, procurement, construction, commissioning/start-up and
consulting to the oil and gas, refining, and petrochemical industries globally. Our ability to
develop, design, commercialize and integrate a wide range of process technologies and perform
projects that range from small consulting studies to large EPC projects differentiate us from many
of our competitors. From our main offices in Houston, Texas; Baton Rouge, Louisiana; Cambridge,
Massachusetts; Toronto, Canada; Mumbai, India and Milton Keynes, England, we deliver services
through five major business lines: ethylene, petrochemicals, refining, upstream and consulting.
While the current global economic climate has impacted E&C segments prospects in the
short-term, as the economy recovers, we anticipate that expenditures by our major oil and
petrochemical clients will revert to prior levels.
Ethylene. One of Shaws core proprietary technologies is ethylene process technology.
Ethylene is an olefin that serves as a base chemical of the petrochemical industry. Since our first
ethylene plant was built in 1941, we have designed and/or built more than 120 grassroots units,
which provide a significant portion of the worlds ethylene supply. Produced by the steam cracking
of hydrocarbon feedstocks, ethylene and its co-product, propylene, are key building blocks for
other petrochemicals and polymers. The economic slowdown and the large amount of ethylene currently
entering the market from recently completed projects have contributed to reduced demand and the
delay of many planned projects. Exceptions are in the Middle East, where projects are generally
proceeding because of the availability of low-cost feedstock, and China, which seems to be affected
less by the slowdown than other regions.
We believe the delay in new, grassroots project activity will be somewhat offset by
opportunities to revamp existing facilities, as owners seek to maximize productivity. We anticipate
that debottleneck and revamp projects and technology upgrades might bring additional opportunities
in the next one to two years.
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Petrochemicals. The economic downturn has resulted in a decrease in global demand for durable
goods made from petrochemicals and a corresponding decline in production and new construction.
However, we expect Middle East and Chinese clients may continue to focus on strategic plans and investments. In the rest of Asia, we anticipate
that investments may ramp up as the economy recovers. We also expect that the Middle Easts demand
for polymers may increase, especially for specialty commodities and engineering plastics. With our
portfolio of technologies in polystyrene, acrylonitrile butadiene styrene (ABS), intermediate
polycarbonates and others, Shaw is well positioned to participate in the expected economic upturn.
Additional opportunities may arise as major oil and petrochemical companies look for ways to
integrate their refining and petrochemical facilities to improve profitability. We have extensive
expertise in the design and construction of ethylene and downstream derivative plants, which
provide the source of many higher value chemical products used to produce packaging, pipe,
polyester, antifreeze, electronics and tires all vital products in todays market.
Refining. Demand for technology and services in the petroleum refining industry has been
driven primarily by our clients requirements to process heavier, poorer quality feedstocks into a
variety of lighter, cleaner products. Adaptability and increased flexibility are key as refiners
around the world consider expanding beyond their traditional fuels market by integrating their
facilities with petrochemical operations.
In the last year, the refining sector slowed with the economic downturn, and shrinking margins
led to reduced investments. The Middle East appears to be the strongest region for future growth,
where oil producers are striving to own more of the supply chain by also exporting finished oil
products and even petrochemicals. In the U.S., refinery utilization is decreasing, but
reconfiguration of refineries to produce cleaner fuels and meet environmental legislation may
create new opportunities for our services. In Europe, we expect strong diesel demand to drive
investment decisions.
Shaws fluid catalytic cracking (FCC) technology, jointly licensed with our international
partner, remains a key technology in new refineries being built around the world, primarily due to
the FCCs ability to boost production of gasoline and polymer-grade propylene. This same technology
is being used to enhance the performance of existing assets through its ability to process poorer
quality feedstocks, increase capacity and improve product yields, quality and energy efficiency.
Modifications, or revamps, of existing FCCs to increase refinery profit margins may result in
opportunities in the U.S. and Europe, where most of the worlds catalytic crackers are located.
In addition to FCC, Shaw offers related technologies including deep catalytic cracking (DCC)
and catalytic pyrolysis process (CPP), which boost production of ethylene and propylene. The recent
popularity of these technologies is driven by the growing global trend toward integrating
refineries and petrochemical facilities.
Upstream. Upstream has been successful in winning project management consultancy (PMC) work
in the offshore sector and is currently pursuing additional onshore opportunities in the Middle
East. In response to the rising global demand for liquefied petroleum gas (LPG), production is
forecast to increase dramatically by 2012, mainly in the Middle East and North Africa. We are
active in this market, with recent awards for front-end engineering design (FEED) and detailed
engineering services for an LPG project in Algeria.
Syngas (short for synthesis gas), a clean gas that can be used for power generation or
converted to substitute natural gas (SNG) or high value clean fuels has characteristics which make
it an attractive future fuel source. Syngas can be produced through a number of processes including
coal gasification and steam reforming of natural gas or liquid hydrocarbons. This area may grow
with rising demand for electricity and the push for reductions in greenhouse gas emissions,
especially carbon dioxide, and we are pursuing opportunities in this growing business.
Consulting. We offer consulting services to the energy, power, process, petrochemical,
refining and government market segments, as well as to the broader investment and financial
community. Previously known as Stone & Webster Management Consultants, the business name was
changed to Shaw Consultants International in 2009. It originally was founded in Boston more than
100 years ago.
The global economic downturn has slowed the pace of new consulting engagements, as operating
companies and the financial community experienced uncertainty regarding project finance
availability and hydrocarbon and energy pricing. However, we expect consulting activity to increase
during the early stages of the anticipated economic recovery in 2010.
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F&M Segment
We believe our F&M segment is among the largest worldwide suppliers of fabricated piping
systems. Demand for our F&M segments products is typically driven by capital projects in the
electric power, chemical and refinery industries.
We provide support and work for both external clients and our internal business units. F&M
provides pipe and structural steel fabrication for projects such as the E&I segments DOE work and
several of the Fossil, Renewables & Nuclear segments power projects, as well as the E&C segments
largest current project. Our F&M segment is nearing completion on a new facility that will assemble
modules for the construction of nuclear power plants.
Pipe Fabrication. We fabricate fully integrated piping systems for heavy industrial clients
around the world. We believe our expertise and proven capabilities in furnishing complete piping
systems to a global market have positioned us among the largest suppliers of fabricated piping
systems for power generation facilities in the U.S. and worldwide. Piping systems are normally on
the critical path schedule for heavy industrial plants that convert raw or feedstock materials to
products and piping system integration accounts for a significant portion of the total man-hours
associated with constructing power generation, chemical and other processing facilities.
We fabricate complex piping systems using carbon steel, stainless, nickel, titanium and
aluminum pipe. We fabricate the pipe by cutting it to specified lengths, welding fittings, flanges
or other components on the pipe and/or bending the pipe to precise client specifications using our
unique pipe-bending technology. We believe our Shaw Cojafex induction pipe-bending technology is
the most advanced, sophisticated and efficient pipe bending technology of its kind. We utilize the
Cojafex technology and related equipment to bend carbon steel and alloy pipe for industrial,
commercial and architectural applications. Delivering pipe bent to client specifications can
provide significant savings in labor, time and material costs compared to field fabrication and
greater strength than pipes and fittings welded together.
Additionally, we implemented a robotics program that we believe results in increased
productivity and quality levels. By utilizing robotics, as well as automated and semi-automated
welding processes and production technology, we are able to provide our clients a complete range of
fabrication services.
We operate pipe fabrication facilities in Louisiana, Arkansas, South Carolina, Utah, Mexico
and Venezuela and through a joint venture in Bahrain. Our South Carolina facility is certified to
fabricate piping for nuclear energy plants and maintains a nuclear piping American Society of
Mechanical Engineers certification.
Through 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 welded into the specifications requested by our clients. We have structural
steel fabrication facilities in Louisiana and Mexico, which is our newest facility offering the
latest in advanced technology and efficiency for structural steel fabrication.
Manufacturing and Distribution. We operate pipe fitting manufacturing facilities in Louisiana
and New Jersey. Products from these facilities ultimately are sold to third-party operating plants,
engineering and construction firms, as well as to our other business segments within the company.
We maintain an inventory of pipe and pipe fittings enabling 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, Texas, Georgia and New Jersey that distribute
our products and products manufactured by third parties.
Module Facility. We are constructing and expect to begin operations of a modular facility in
Lake Charles, Louisiana in early fiscal year 2010. The Shaw Modular Solutions facility is believed
to be the first of its kind in the U.S. and will build modules for the construction of domestic
AP1000 nuclear power plants. The new facility will utilize our industry-leading technologies and
our proprietary operations management systems. We have received orders for the first six nuclear
reactors to be built domestically in more than 30 years, all of which are designed to use AP1000
technology and will have modules fabricated in our Lake Charles facility.
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Investment in Westinghouse Segment
Our Investment in Westinghouse segment includes a 20% equity interest in Westinghouse. We
financed our Westinghouse Equity purchase from Toshiba partially through our subsidiary NEH issuing
limited recourse to us (except NEH) JPY-denominated bonds. 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
owners and operators of nuclear power. We believe that Westinghouse products and services are being
used in approximately half of the worlds operating nuclear plants, including 60% of those in the
U.S. Internationally, Westinghouse technology is being used for six reactors under construction in
South Korea, and four reactors under construction in China and is under consideration for numerous
new nuclear reactors in multiple countries.
In connection with our Investment in Westinghouse, we entered into JPY-denominated Put Option
Agreements with Toshiba (Put Option), providing us the option to sell all or part of our
Westinghouse Equity to Toshiba during a defined Exercise Period. The Exercise Period commences
upon the earlier of March 31, 2010, or the occurrence of a Toshiba Event which is caused by,
among other things, Toshiba failing to maintain certain financial metrics. Toshiba notified us on
May 11, 2009, that it experienced a Toshiba Event as of May 8, 2009, because it failed to maintain
a minimum consolidated net worth of JPY 800 billion. Because of the Toshiba Event, the Westinghouse
Bond holders who funded our Investment in Westinghouse currently have the opportunity, under
certain circumstances, to direct us to exercise the Put Option.
As of the date of this report, the bondholders have not directed us to exercise the Put
Option, and the company has no knowledge of any intent to do so in the future. The bondholders
direction to exercise the Put Option would not affect Toshibas or our obligations under the
Westinghouse CRA, which provides us with certain exclusive opportunities to bid on projects where
the company would provide EPC services on future Westinghouse AP1000 nuclear power plants and other
commercial opportunities such as supplying piping for those units. In June 2009, Toshiba reported
that it raised approximately $3.0 billion in equity, and thus may no longer fail to meet the
minimum financial metrics.
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
Westinghouses operations is available to us for Westinghouses calendar quarter periods.
The Westinghouse segment financial results continue to experience significant volatility as a
result of the effect of foreign currency exchange rate fluctuations on the value of the
Westinghouse Bonds. The Westinghouse Bonds are JPY-denominated, limited recourse to us (except NEH)
and, under GAAP, are revalued for financial reporting purposes to USD at the exchange rate in
effect on the last day of the quarter. Our option to sell the Westinghouse Equity to Toshiba for a
minimum amount of JPY provides us with a natural hedge against fluctuations in the exchange rate
associated with the Westinghouse Bonds. However, unlike the Westinghouse Bonds, the Put Option is
not revalued to current exchange rates under GAAP. Consequently, at each quarter end we recognize,
for financial reporting purposes, a loss or gain on the revaluation of the Westinghouse Bonds based
upon the JPY/USD exchange rate then in effect but do not recognize what would be the offsetting
gain or loss on the revaluation of the Put Option. As a result, our statement of operations
frequently contains significant earnings volatility.
For additional information, see Note 5 Equity Method Investments and Note 7 Debt and Revolving Lines of Credit included in Part I, Item 1 Financial
Statements and in Liquidity below.
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 that are not
allocated to other segments. Our Corporate segments assets primarily include cash and cash
equivalents held by the corporate entities, property and equipment related to our corporate
headquarters and certain information technology costs.
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Overview of Results and Outlook
We generated strong operating income during the first quarter of fiscal year 2010 driven by
the operating performance of our major business segments. Our E&I segment continued its excellent
performance on its major U.S. government contracts, while execution improved on the EPC contracts for fossil fuel fired power projects. Earnings also
improved in our Maintenance segment driven by strong performance and higher margins on outage work
executed at existing nuclear power plants. While our E&C and F&M segments continued to perform well
from an operational perspective, earnings declined as expected because of the reduced volumes of
new awards received during fiscal year 2009. We believe the global economic slowdown delayed or
altered client investment decisions during fiscal year 2009 for new refinery, petrochemical and
chemical projects. Our consolidated earnings were adversely impacted by a $102 million
non-operating, non-cash, foreign exchange translation loss in our Investment in Westinghouse
segment resulting from translating the Westinghouse Bonds from JPY to USD for financial reporting
purposes. The JPY/ USD exchange rate was 86.6 at November 30, 2009, the highest the JPY has been in
comparison to the USD since we made our investment in Westinghouse. Finally, we continue to
generate significant operating cash flow, which contributed to another record cash balance.
Our Fossil, Renewables & Nuclear segments financial results reflect the continued execution
of a number of EPC projects for new coal and gas-fired power plants, a number of projects targeting
emission reductions at existing coal-fired power plants, and a services contract for four new
AP1000 reactors in China. Work on our domestic AP1000 nuclear power projects continues to ramp up,
but these efforts are not yet contributing meaningfully to the companys overall financial results.
Our Maintenance segment had a very solid first quarter fiscal year 2010 performance. While the
first and third quarters of our fiscal year are typically stronger for Maintenance than the second
and fourth quarters, results for this quarter were driven by higher margins in the power and
construction sectors.
Our E&I segment generated strong revenue and earnings, primarily driven by increased volume in
our federal sector and improved execution throughout the business. Construction activity on a
hurricane protection project for the USACE in southeast Louisiana and our MOX project for the DOE
in South Carolina continue to drive E&Is earnings. U.S. government spending remains strong and the
E&I segment is well positioned to benefit from an expected increase in government spending
throughout 2010 under the American Recovery and Reinvestment Act of 2009 (ARRA).
Our E&C segments results declined from the levels seen in fiscal year 2009, reflecting the
impact of lower bookings throughout the previous year. While E&C continues to successfully execute
projects in its backlog, a majority of the high-margin engineering services contracts that drove
record earnings in fiscal 2009 have now been completed. Nonetheless, we remain optimistic that
bookings will increase towards the second half of fiscal 2010 if, and to the extent, the economy
experiences a recovery.
Our F&M segments results also declined from the levels experienced in fiscal year 2009, as
F&M experienced margin pricing pressure and a reduction in new bookings throughout fiscal 2009 (excluding the transfer of
nuclear scope from our Fossil, Renewables & Nuclear segment).
However, our new state-of-the-art module facility in Lake Charles, Louisiana continues to progress
toward initial operations, and the nuclear work is expected to begin impacting financial results in
late 2010.
During
the quarter, we generated $108.0 million in operating cash flow, driven primarily by
milestone payments on our domestic AP1000 nuclear power projects, as well as strong cash flow from
our E&I and F&M segments.
The global economic conditions and the reduced availability of credit pose risks to our
businesses as clients may defer or cancel capital-intensive 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 helps 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 projects 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 by our clients to pay us on a timely basis could materially
adversely affect our business. We are positioning ourselves to take advantage of additional work
that may become available from the ARRA, but we are unable to predict how, when or to what extent
this potential additional work 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 Managements Discussion and Analysis of Financial Condition and
Results of Operations located in our 2009 Form 10-K.
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Consolidated Results of Operations
Consolidated Revenues:
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | 1,858.5 | $ | 1,900.4 | $ | (41.9 | ) | (2.2 | )% |
Consolidated revenues declined slightly during the three months ended November 30, 2009 as
compared to the prior fiscal year. While revenues in our E&I segment increased significantly, this
increase was offset by lower revenues in the majority of our other operating segments as compared
to the same period in the prior fiscal year.
Consolidated Gross Profit:
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | 154.7 | $ | 188.1 | $ | (33.4 | ) | (17.8 | )% |
The decrease in our consolidated gross profit for the three months ended November 30, 2009
compared to the prior fiscal year was due primarily to lower margins in our E&C and F&M segments,
as well as lower margins in our Fossil, Renewables & Nuclear segment, as many of the air quality
control system projects that drove margins in the prior fiscal year are nearing completion.
Offsetting these declines was increased gross profit in our E&I segment, due primarily to increased
volume, as well as increased gross profit in our Maintenance segment.
See Segment Results of Operations for additional information describing the performance of
each of our reportable segments.
Consolidated Selling, General & Administrative Expenses (SG&A):
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | 75.8 | $ | 73.1 | $ | 2.7 | 3.7 | % |
Consolidated
selling, general and administrative expenses increased for the three months ended November
30, 2009 as compared to the same periods in the prior fiscal year due primarily to increases in
business development and proposal costs, partially offset by lower non-income related tax expense
and lower utilization of contract labor as compared to the prior year period.
Consolidated Interest Expense:
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | 10.4 | $ | 11.6 | $ | (1.2 | ) | (10.3 | )% |
Consolidated interest expense for the three months ended November 30, 2009 decreased primarily
due to lower interest expense on our Japanese Yen-denominated bonds, including accretion and
amortization.
Consolidated Income Taxes:
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | (11.2 | ) | $ | (22.7 | ) | $ | 11.5 | 50.7 | % |
Our consolidated tax rate, based on income before income taxes, minority interest and earnings
from unconsolidated entities, for the three months ended November 30, 2009 and 2008, was a benefit
of 41% and 39%, respectively. We treat unrealized foreign currency gains and losses on the
JPY-denominated Westinghouse Bonds as discrete in each reporting period due to their volatility and
the difficulty in reliably estimating such gains and losses. For the three months ended November
30, 2009 and 2008, we recorded provisions for other discrete items totaling $0.4 million and $2.4
million, respectively, primarily for uncertain tax positions and other identified adjustments. 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 or losses, the mix and
amount of earnings in various tax jurisdictions, changes in certain non-deductible expenses and the
provision for uncertain tax positions. We expect our fiscal 2010 annual effective tax rate,
excluding discrete items, to be approximately 37%.
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Consolidated Earnings from Unconsolidated Entities, net of income taxes:
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | (0.2 | ) | $ | 1.4 | $ | (1.6 | ) | (114.3 | )% |
The decrease in earnings from unconsolidated entities for the three months ended November 30,
2009, as compared to the same period in the prior fiscal year, was primarily due to lower earnings
from our Investment in Westinghouse segment.
Consolidated Net Income (loss):
(dollars in millions) | November 30, 2009 | November 30, 2008 | $ Change | % Change | ||||||||||||
Three months ended |
$ | (16.1 | ) | $ | (34.1 | ) | $ | 18.0 | 52.8 | % |
The increase in consolidated net income for the three months ended November 30, 2009, as
compared to the prior fiscal year was due primarily to lower non-operating, non-cash foreign
exchange translation losses from our Investment in Westinghouse segment. The current periods
non-operating non-cash foreign exchange translation loss is $102.3 million pre-tax, or $62.8
million after-tax, compared to a loss of $161.2 million pre-tax, or $98.2 million after tax, in the
prior fiscal year.
Segment Results of Operations
The following comments and tables compare selected summary financial information related to
our segments for the three months ended November 30, 2009 and 2008 (dollars in millions).
Three Months Ended | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
Revenues: |
||||||||||||||||
Fossil, Renewables & Nuclear |
$ | 579.5 | $ | 676.6 | $ | (97.1 | ) | (14.4 | )% | |||||||
Maintenance |
293.4 | 334.1 | (40.7 | ) | (12.2 | ) | ||||||||||
E&I |
528.3 | 401.4 | 126.9 | 31.6 | ||||||||||||
E&C |
339.3 | 321.7 | 17.6 | 5.5 | ||||||||||||
F&M |
117.9 | 164.7 | (46.8 | ) | (28.4 | ) | ||||||||||
Corporate |
0.1 | 1.9 | (1.8 | ) | NM | |||||||||||
Total revenues |
$ | 1,858.5 | $ | 1,900.4 | $ | (41.9 | ) | (2.2 | )% | |||||||
Gross profit: |
||||||||||||||||
Fossil, Renewables & Nuclear |
$ | 33.0 | $ | 51.8 | $ | (18.8 | ) | (36.3 | )% | |||||||
Maintenance |
20.2 | 11.7 | 8.5 | 72.6 | ||||||||||||
E&I |
47.5 | 34.5 | 13.0 | 37.7 | ||||||||||||
E&C |
34.2 | 52.4 | (18.2 | ) | (34.7 | ) | ||||||||||
F&M |
20.7 | 35.7 | (15.0 | ) | (42.0 | ) | ||||||||||
Corporate |
(0.9 | ) | 2.0 | (2.9 | ) | NM | ||||||||||
Total gross profit |
$ | 154.7 | $ | 188.1 | $ | (33.4 | ) | (17.8 | )% | |||||||
Gross profit percentage: |
||||||||||||||||
Fossil, Renewables & Nuclear |
5.7 | % | 7.7 | % | ||||||||||||
Maintenance |
6.9 | 3.5 | ||||||||||||||
E&I |
9.0 | 8.6 | ||||||||||||||
E&C |
10.1 | 16.3 | ||||||||||||||
F&M |
17.6 | 21.7 | ||||||||||||||
Corporate |
NM | NM | ||||||||||||||
Total gross profit percentage |
8.3 | % | 9.9 | % | ||||||||||||
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Three Months Ended | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
Income (loss) before income
taxes and earnings from
unconsolidated entities: |
||||||||||||||||
Fossil, Renewables & Nuclear |
$ | 18.4 | $ | 35.9 | $ | (17.5 | ) | (48.7 | )% | |||||||
Maintenance |
17.5 | 8.3 | 9.2 | 110.8 | ||||||||||||
E&I |
30.4 | 18.6 | 11.8 | 63.4 | ||||||||||||
E&C |
22.2 | 41.8 | (19.6 | ) | (46.9 | ) | ||||||||||
F&M |
12.6 | 30.4 | (17.8 | ) | (58.6 | ) | ||||||||||
Investment in Westinghouse |
(111.7 | ) | (171.2 | ) | 59.5 | 34.8 | ||||||||||
Corporate |
(16.5 | ) | (22.0 | ) | 5.5 | NM | ||||||||||
Total income (loss) before
income taxes and earnings
from unconsolidated entities |
$ | (27.1 | ) | $ | (58.2 | ) | $ | 31.1 | 53.4 | % | ||||||
NM | Not Meaningful. |
The following table presents our revenues by geographic region generally based on the site
location of the project for the three months ended November 30, 2009 and 2008.
Three Months Ended | ||||||||||||||||
2009 | 2008 | |||||||||||||||
(In Millions) | % | (In Millions) | % | |||||||||||||
United States |
$ | 1,455.5 | 78 | % | $ | 1,525.1 | 80 | % | ||||||||
Asia/Pacific Rim |
269.0 | 15 | 204.8 | 11 | ||||||||||||
Middle East |
92.7 | 5 | 107.1 | 6 | ||||||||||||
Canada |
3.6 | | 5.8 | | ||||||||||||
Europe |
25.1 | 1 | 35.2 | 2 | ||||||||||||
South America and Mexico |
3.5 | | 16.6 | 1 | ||||||||||||
Other |
9.1 | 1 | 5.8 | | ||||||||||||
Total revenues |
$ | 1,858.5 | 100 | % | $ | 1,900.4 | 100 | % | ||||||||
Business Segment Analysis
Fossil, Renewables & Nuclear Segment
Our Fossil, Renewables & Nuclear segment continued to execute major electric power generation
and air emission reduction projects across the globe. Reduced demand for electricity in the U.S.
and the decline in the stock prices for electric utilities throughout much of 2009 continue to
impact electric utilities access to capital and investment decisions. However, the segments EPC
work on three contracts for six new AP1000 nuclear power reactors in the U.S. continues to ramp up.
In addition, work continues on our services contract for four new AP1000 nuclear power reactors in
China.
Revenues
Revenues decreased $97.1 million, or 14.4%, to $579.5 million for the three months ended
November 30, 2009 from $676.6 million in the same period in the prior fiscal year. This decrease
was due primarily to the nearing or reaching completion on several air quality control system
projects. This decrease in revenues was partially offset by progress on gas-fired construction
projects in the U.S., as well as work on nuclear AP1000 units both domestically and in China.
Gross profit and gross profit percentage
Gross profit decreased $18.8 million, or 36.3%, to $33.0 million for the three months ended
November 30, 2009 from $51.8 million in the same period in the prior fiscal year. Our gross profit
percentage decreased to 5.7% for the three months ended November 30, 2009 from 7.7% in the same
period in the prior fiscal year. The decrease in our gross profit and gross profit percentage was
primarily due to lower overall volume and profits associated with a reduction in air quality
control system projects, partially offset by an increase in gas-fired construction projects in the
U.S. and execution of the initial stages of our domestic nuclear power projects.
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Income (loss) before income taxes and earnings (losses) from unconsolidated entities
Income (loss) before income taxes and earnings (losses) from unconsolidated entities decreased
$17.5 million, or 48.7%, to $18.4 million for the three months ended November 30, 2009, from $35.9
million in the same period in the prior fiscal year, primarily attributable to the decrease in
gross profit described above along with an increase in selling, general and administrative expenses
related to increased business development and proposal activities.
Maintenance Segment
Our Maintenance segment experienced stronger performance during the first quarter of fiscal
2010 as compared to the same period of fiscal 2009, despite a reduction in the overall volume of
business, as our execution on new and renewed nuclear maintenance contracts has improved.
Revenues
Revenues decreased $40.7 million, or 12.2%, to $293.4 million for the three months ended
November 30, 2009, from $334.1 million in the same period in the prior fiscal year. This decrease
was due primarily to lower volume in the power sector, as we performed fewer outages as compared to
the prior year period, based on customer-driven outage schedules.
Gross profit and gross profit percentage
Gross profit increased $8.5 million, or 72.6%, to $20.2 million for the three months ended
November 30, 2009, from $11.7 million in the same period in the prior fiscal year. Gross profit
percentage increased to 6.9% for the three months ended November 30, 2009, from 3.5% in the same
period in the prior fiscal year. The increase in our gross profit and gross profit percentage was
primarily due to improved execution on new and renewed nuclear outage work in the power sector, as
well as various cost reduction initiatives.
Income (loss) before income taxes and earnings (losses) from unconsolidated entities
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities increased $9.2 million, or 110.8%, to $17.5 million for the three months ended November
30, 2009, from $8.3 million in the same period in the prior fiscal year, primarily attributable to
the increase in gross profit and gross profit percentage described above.
E&I Segment
The financial results of our E&I segment continue to improve, driven primarily by our
execution of a hurricane protection project for the U.S. Army Corps of Engineers in southeast
Louisiana and execution of our MOX project for the DOE in South Carolina. The E&I segment remains
well positioned to compete for projects that may be funded under the ARRA throughout fiscal year
2010.
Revenues
E&I revenues increased $126.9 million, or 31.6%, to $528.3 million for the three months ended
November 30, 2009 from $401.4 million for the same period in the prior fiscal year. This increase
was primarily attributable to our work on a hurricane protection project with the USACE in
southeast Louisiana and increased construction activity from our MOX project for the DOE in South
Carolina. The increase in revenues was partially offset by prior year services related to the
September 2008 hurricane activity in the gulf region of the U.S.
Gross profit and gross profit percentage
E&I gross profit increased $13.0 million, or 37.7%, to $47.5 million for the three months
ended November 30, 2009, from $34.5 million for the same period in the prior fiscal year. Gross
profit percentage increased to 9.0% for the three months ended November 30, 2009, from 8.6% in 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 USACE in southeast Louisiana. In addition, the
increase in activity on our MOX project for the DOE contributed to both the gross profit and gross
profit percentage increase as compared to the prior year period. Gross profit percentage also
increased as a result of lower overhead costs as a percentage of current period revenue as compared
to the prior year.
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Income (loss) before income taxes and earnings (losses) from unconsolidated entities
Income (loss) before income taxes and earnings (losses) from unconsolidated entities increased
$11.8 million, or 63.4%, to $30.4 million for the three months ended November 30, 2009, from $18.6
million in the same period in the prior fiscal year, primarily attributable to the increase in
gross profit described above, partially offset by an increase in selling, general and
administrative expenses related to increased proposal activities.
E&C Segment
Revenues for E&C increased primarily due to increased activity on a major international EPC
ethylene project, partially offset by a reduction in volume for engineering service contracts.
However, E&C experienced an expected decline in profits during our first quarter of fiscal 2010
from record levels experienced in the prior fiscal year primarily as a result of the completion of
a number of high-margin engineering services contracts and a decrease in bookings related to the
deterioration of the global economy. Nonetheless, we are seeing signs of renewed client interest in
the early phases of major capital investments such as studies and front-end engineering and design
contracts, which precede the engineering, procurement and construction phase of major projects. We
remain optimistic that bookings in the E&C segment may increase if and to the extent that global
economic conditions improve.
Revenues
E&Cs revenues increased $17.6 million, or 5.5%, to $339.3 million for the three months ended
November 30, 2009, from $321.7 million for the same period in the prior fiscal year. Included in
these revenues were customer furnished material and pass through revenues of $99.1 million and
$103.1 million for the three months ended November 30, 2009 and November 30, 2008, respectively,
for which we recognize no gross profit or loss. This increase in revenues was due primarily to
increased activity on the major international EPC ethylene project described above, partially
offset by a lower volume of engineering services contracts, primarily in the petrochemical sector,
as compared to the same period in the prior fiscal year.
Gross profit and gross profit percentage
Gross profit decreased $18.2 million, or 34.7%, to $34.2 million for the three months ended
November 30, 2009, from $52.4 million in the same period in the prior fiscal year. Gross profit
percentage decreased to 10.1% for the three months ended November 30, 2009 from 16.3% in the same
period in the prior fiscal year. The decrease in gross profit and gross profit percentage was
primarily due to the work-off of several high-margin engineering services contracts that
contributed to the record performance seen in the prior fiscal year. In addition, the prior years
results included an approximate $8.3 million decrease in estimated costs at completion related to
an excess accrual for foreign withholding taxes.
Income (loss) before income taxes and earnings (losses) from unconsolidated entities
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities decreased $19.6 million, or 46.9%, to $22.2 million for the three months ended November
30, 2009, from $41.8 million in the same period in the prior fiscal year, primarily as a result of
the decrease in gross profit and gross profit percentage described above along with an increase in
selling, general and administrative expenses related to increased business development and proposal
activities.
F&M Segment
Our F&M segment experienced an expected decline in volume and profits for the first quarter of
fiscal year 2010 as a result of lower non-nuclear bookings throughout the prior fiscal year and an
increase in pricing pressure as a result of global economic conditions. We expect this downturn in
volume and profits to continue through the first half of fiscal year 2010 but subsequently to
improve to the extent that the modular assembly and pipe fabrication work associated with the
AP1000 work subcontracted from our Fossil, Renewables & Nuclear segment commences.
Revenues
Revenues decreased $46.8 million, or 28.4%, to $117.9 million for the three months ended
November 30, 2009, from $164.7 million in the same period in the prior fiscal year. This decrease
was due primarily to lower volume across the majority of our U.S. operations.
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Gross Profit and Gross Profit Percentage
Gross profit decreased $15.0 million, or 42.0%, to $20.7 million for the three months ended
November 30, 2009, from $35.7 million in the same period in the prior fiscal year. Gross profit
percentage decreased to 17.6% for the three months ended November 30, 2009, from 21.7% in the same
period in the prior fiscal year. The decreases in gross profit and gross profit percentage were
primarily due to reduced client demand for pipe fabrication services overall, resulting in
increased available capacity in our competitors facilities and in a more competitive pricing
environment.
Income (loss) before income taxes and earnings (losses) from unconsolidated entities
Income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated
entities decreased $17.8 million, or 58.6%, to $12.6 million for the three months ended November
30, 2009, from $30.4 million in the same period in the prior fiscal year, primarily attributable to
the decrease in gross profit and gross profit percentage described above.
Investment in Westinghouse Segment
Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, on
a calendar quarter basis. Financial information about Westinghouses operations is available to us
for Westinghouses calendar quarter periods. As a result, we record our Westinghouse Equity
earnings (loss) and other comprehensive income (loss) reported to us by Westinghouse based upon
Westinghouses calendar quarterly reporting periods, or two months in arrears of our current
periods. Under this policy, Westinghouses operations for the three months ended September 30,
2009, are reflected in our results of operations for the three months ended November 30, 2009.
The impact of the Investment in Westinghouse segment on our income (loss) before income taxes,
for the three months ended November 30, 2009, was $(111.7) million, compared to $(171.2) million in
the three months ended November 30, 2008. Results for the three months ended November 30, 2009 and
November 30, 2008 included the following:
Three Months Ended | ||||||||
(dollars in millions) | 2009 | 2008 | ||||||
Interest expense on Japanese
Yen-denominated bonds including
accretion and amortization |
$ | (9.3 | ) | $ | (9.9 | ) | ||
Foreign currency translation gains
(losses) on Japanese Yen-denominated
bonds, net |
(102.3 | ) | (161.2 | ) | ||||
General and administrative expenses |
(0.1 | ) | (0.1 | ) | ||||
Income (loss) before income taxes |
$ | (111.7 | ) | $ | (171.2 | ) | ||
Additionally, our net income (loss) for the three months ended November 30, 2009 includes a
loss from our Westinghouse Equity interest of $0.4 million, compared to net income of $1.5 million
for the three months ended November 30, 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. Please see our
disclosure under Liquidity below as well as in Notes 5 and 7 in the accompanying financial
statements with respect to the circumstances in which we may be required to put the Westinghouse
Equity to Toshiba and repay the Westinghouse Bonds.
Corporate Segment
Selling, general and Administrative Expenses
SG&A decreased $1.7 million, or 7.3%, to $21.7 million for the three months ended November 30,
2009, from $23.4 million in the same period in the prior fiscal year. This decrease was primarily
due to lower professional fees and a reduction in the amount of contractors as compared to the same
period in the prior fiscal year, partially offset by severance costs. In addition, the prior years
results included $5.0 million of non-income related tax expense.
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.
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Liquidity and Capital Resources
Liquidity
At November 30, 2009, our cash and cash equivalents, restricted and escrowed cash and
short-term investments increased $70.6 million, or 4.6%, to $1,603.9 million from $1,533.3 million
at August 31, 2009. In addition to our cash and cash equivalents, restricted and escrowed cash and
short-term investments, we had $653.2 million of revolving credit available for borrowings under
our Credit Facility at November 30, 2009. On September 24, 2009, and as described below under
Credit Facility, we extended and increased the amount available to us under a new amended and
restated credit facility.
Operating cash flow was generated by all operating segments during first quarter of fiscal
year 2010 except our Corporate and Investment in Westinghouse segments. The cash flow was generated
by earnings in each segment as well as from positive working capital movements. Our uses of cash in
first quarter of fiscal year 2009 were primarily related to the timing of working capital movements
on projects being executed in our E&C, Fossil, Renewables & Nuclear and Maintenance segments during
the period. In the first quarter of fiscal year 2010, we invested approximately $64.6 million for
property and equipment, including capital construction costs
related to F&Ms new module assembly facility in Lake Charles, Louisiana.
As our revenues have grown, so have our requirements to issue letters of credit to our
clients. While 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 clients reducing letter of credit and
surety requirements on new work. Our need for letter of credit capacity may increase as we begin
executing future nuclear construction projects. Increases in outstanding performance letters of
credit reduce the available borrowing capacity under our Facility. During the first quarter of
fiscal year 2010, we increased the commitments under our Facility and extended its duration until
October 2012. See additional details below.
Our excess cash is generally invested in money market funds governed under rule 2a-7 of the
U.S. Investment Company Act of 1940 and rated AAA/Aaa by S& P and/or Moodys Investors Service,
respectively, in interest bearing deposit accounts with commercial banks rated at least A/A2 or
better by Standard & Poors and/or Moodys Investors Service, respectively, or public company debt
rated at least A/A2 or better by Standard & Poors and Moodys Investor Service at the time of
purchase with maturities up to two years. Throughout most of fiscal 2009, we invested our cash in
short-term U.S. government treasuries and money market funds that invest in U.S. government
securities. Toward the latter part of fiscal year 2009, we shifted the majority of our investments
to money market funds and bank certificate of deposits. At November 30, 2009, our restricted cash
and short-term investments included $138.7 million related to cash and short-term investments used
to voluntarily secure letters of credit. In December 2009, subsequent to the close of the first
quarter, we pledged an additional $90.0 million in cash to collateralize existing letters of
credit. We expect to continue to voluntarily cash collateralize certain letters of credit in 2010
if the bank fees avoided on those letters of credit exceed the return on other investment
opportunities.
In November 2009, we made a £5.0 million (Approximately $8.3 million) voluntary cash
contribution to our underfunded pension plan in the United Kingdom. In March 2009, we made a £8.0
million (approximately $11.4 million) voluntary cash contribution to the same pension plan in the
United Kingdom.
Approximately $142.2 million of our cash at November 30, 2009, was held in 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 fund our operations for the next twelve months with cash generated from
operations and 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 reinvest a portion of our excess cash to support the growth of our
business lines, including, but not limited to, the purchase of equipment that we have historically
leased as well as the advanced purchase of materials and equipment on projects to capture market
discounts and provide protection from potential future price escalation. In addition to the Lake
Charles, Louisiana module assembly facility, we continue to evaluate the possibility of
constructing additional fabrication facilities outside the U.S. and may seek partners to share in
the ownership and funding of any such facilities.
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Our strong cash position, combined with the global economic slowdown, has created
opportunities for us to obtain price and schedule certainty with our EPC projects by undertaking an
early procurement program. Accordingly, we may seek to procure certain commodities, subcontracts
and construction equipment early in a projects life cycle. If successful, this strategy will
provide price and schedule certainty but may require us to expend our cash earlier than customary
under such contracts. We have identified approximately $900.0 million of early procurement
opportunities that may result in cash outflows of up to $400.0 million during fiscal year 2010. It
is our intent to balance any potential cancellation exposure associated with early procurements
with our termination rights and obligations under the respective prime contracts.
Credit Facility
On September 24, 2009, we entered into the Restated Credit Agreement with a group of lenders
that provides new and extended lender commitments of $1,214.0 million, all of which is available
for the issuance of performance and financial letters of credit and / or borrowings for working
capital needs and general corporate purposes. The Restated Credit Agreement includes new lenders to
the Facility as well as certain existing lenders who will exit the Facility in 2010 or 2011,
following the expiration of their existing commitment. Accordingly, the Restated Credit Agreement
contemplates three groups of lenders, the 2010 Lenders, the 2011 Lenders and the 2012
Lenders, with the Facility terminating with respect to such lenders on April 25, 2010, April 25,
2011 and October 25, 2012, respectively. The Restated Credit Agreement makes available
$1,214.0 million in commitments through April 25, 2010 (up from $1,053.0 million), $1,095.0 million
from April 26, 2010 through April 25, 2011 (up from $874.0 million), and $1,000.0 million from
April 26, 2011 through October 25, 2012, a period for which there had been no previous commitments.
The Restated Credit Agreement allows the Company to seek new or increased lender commitments
under this Facility subject to the consent of the Administrative Agent and, in some instances,
those lenders who issue letters of credit under the Facility on the Companys behalf, and/or seek
other supplemental credit facilities on a pari passu basis with the Facility, of up to an aggregate
of $400.0 million. Additionally, the Company may pledge up to $300.0 million of its unrestricted
cash on hand to secure additional letters of credit incremental to amounts available under the
Facility, provided that the Company and its subsidiaries have unrestricted cash and cash
equivalents of at least $500.0 million available immediately following the pledge. The borrowing
base restrictions that were set forth in the original credit agreement are not included in the
Restated Credit Agreement. The Restated Credit Agreement contains a revised pricing schedule with
respect to letter of credit fees and interest rates payable by the Company.
The Restated Credit Agreement contains customary financial covenants and other restrictions.
The covenants set forth in the Restated Credit Agreement generally conform to the covenants set
forth in the original credit agreement, except that the Restated Credit Agreement, among other
things (1) replaces the consolidated fixed charge coverage ratio covenant of the original credit
agreement with a debt service coverage ratio covenant, and (2) increases certain maximum allowable
amounts and certain threshold triggers and adds certain additional exceptions with respect to the
dividend, investment, indebtedness, lien, asset sale, letter of credit, acquisition, lease, and
additional collateral covenants, thus providing the company with greater financial flexibility in
business decisions and strategies. The Restated Credit Agreement contains defaulting lender
provisions.
The Restated Credit Agreement limits our ability to declare or pay dividends or make any
distributions of capital stock (other than stock splits or dividends payable in our own capital
stock) or redeem, repurchase or otherwise acquire or retire any of our capital stock. If
unrestricted cash and cash equivalents after giving effect to any dividend or stock repurchase is
at least $500.0 million, we are limited to aggregate dividend payments and/or stock repurchases
during the life of the Restated Credit Agreement to $250.0 million. In situations where our
unrestricted cash and cash equivalents is less than $500.0 million, our ability to pay dividends or
repurchase our shares is limited to $25.0 million per fiscal year.
The Restated Credit Agreement is secured by, among other things: (1) a first priority security
interest in all of the Companys tangible and intangible assets (including, without limitation,
equipment, real estate and intellectual property) and a pledge of all of the capital stock of the
Companys material domestic subsidiaries; (2) guarantees by the Companys material domestic
subsidiaries; and (3) a pledge of 66% of the capital stock of certain of the Companys foreign
subsidiaries. The Restated Credit Agreement permits the release of such liens if (a) the Company
obtains a corporate credit rating of at least BBB- from S&P and Baa3 from Moodys Investment
Services, (b) all liens securing any supplemental credit facilities are released, and (c) other
conditions specified in the Restated Credit Agreement are satisfied.
During the first quarter, no borrowings were made under the credit facility; however, we had
outstanding letters of credit of approximately $560.8 million as of November 30, 2009, and those
letters of credit reduce what is otherwise available for borrowing under our Facility.
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At November 30, 2009, we were in compliance with the covenants contained in our Restated
Credit Agreement.
See Note 7 Debt and Revolving Lines of Credit included in our consolidated financial
statements for a description of: (1) the terms and interest rates related to our Facility and
revolving lines of credit; (2) amounts available and outstanding for performance letters of credit,
financial letters of credit and revolving loans under our Facility; and (3) a description of our
Facility financial covenants and matters related to our compliance with those covenants during the
first quarter of fiscal 2010.
Other Revolving Lines of Credit
Additionally, 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 Debt and Revolving Lines of Credit included in
our consolidated financial statements beginning on page F-1 for additional information.
If we decide to repay or refinance the Westinghouse Bonds, we may use some of our existing
cash and/or seek to raise capital from the debt and/or equity markets. There can be no assurance
that should we wish to repay or refinance the Westinghouse Bonds we will be able to raise
sufficient capital, or if sufficient capital will be available to us, on terms acceptable to us.
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 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.
We also have performance letters of credit that are cash collateralized. For additional
information on our cash collateralized letters of credit, see Part 1, Item 1 Financial Statements,
Note 3.
At November 30, 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 |
$ | 754.0 | $ | 348.5 | $ | 164.7 | $ | 185.3 | $ | 55.5 | ||||||||||
Surety bonds |
744.9 | 578.9 | 141.1 | 24.9 | | |||||||||||||||
Total Commercial Commitments |
$ | 1,498.9 | $ | 927.4 | $ | 305.8 | $ | 210.2 | $ | 55.5 | ||||||||||
(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 December 1, 2009. |
Of the amount of outstanding letters of credit at November 30, 2009, $583.8 million were
issued to customers in connection with contracts (performance letters of credit). Of the $583.8
million, five customers held $357.3 million, or 61.2%, of the outstanding letters of credit. The
largest amount of letters of credit issued to a single customer on a single project was $117.5
million.
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At November 30, 2009 and August 31, 2009, we had total surety bonds of $744.9 million and
$729.7 million, respectively. However, based on our percentage-of-completion on contracts covered
by these surety bonds, our estimated potential liability at November 30, 2009 and August 31, 2009
was $308.7 million and $282.1 million, respectively.
Fees related to these commercial commitments were $4.5 million and $4.0 million, for the three
months ended November 30, 2009 and 2008 respectively.
See Note 7 Debt and Revolving Lines of Credit to our consolidated financial statements in
Part I, Item 1 of this Form 10-Q for a discussion of long-term debt, and Note 11 Contingencies
and Commitments to our consolidated financial statements in Part I, Item 1 of this report for a
discussion of contingencies and commitments.
Critical Accounting Policies
Item 7 of Part II of our 2009 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.
Backlog of Unfilled Orders
General. Our backlog represents managements estimate of the amount of awards that we expect
to result in future revenues. Backlog is based on legally binding agreements for projects that
management believes are probable to proceed. Awards are evaluated by our 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, including the economic, financial and regulatory
viability of the project and the likelihood of the contract proceeding.
New bookings and ultimately the amount of backlog of unfilled orders is largely a reflection
of the broad global economic trends. The volume and timing of executing the work in our backlog is
important to us in anticipating our operational needs. Backlog is not a measure defined in 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.
All contracts contain client termination for convenience clauses and many of the contracts in
backlog provide for cancellation fees in the event clients cancel projects. These cancellation fees
usually provide for reimbursement of our out-of-pocket costs, revenues associated with work
performed prior to cancellation and, to varying degrees, a percentage of the profits we would have
realized had the contract been completed.
The process to add new awards to backlog is generally consistent among our segments and is
based on us receiving a legally binding agreement with clients plus managements assessment that
the project will likely proceed. Additional details relating to each segments booking process
follows:
Fossil, Renewables & Nuclear and E&C Segments. We define our backlog in our Fossil, Renewables
& Nuclear and E&C segments to include projects for which we have received legally binding
commitments from our clients and our pro rata share of projects for which our consolidated joint
venture entities have received legally binding commitments. These commitments typically take the
form of a written contract for a specific project or a purchase order, and sometimes require that
we estimate anticipated future revenues, often based on engineering and design specifications that
have not been finalized and may be revised over time. The value of work subcontracted to our F&M
segment is removed from the backlog of the Fossil, Renewables & Nuclear and E&C segments and is
shown in the backlog of our F&M segment.
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E&I Segment. Our E&I segments backlog includes the value of awarded contracts including the
estimated value of funded and unfunded work and anticipated revenue of consolidated joint venture
entities. The unfunded backlog generally represents U.S. government 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 or an indefinite delivery, indefinite quantity contract is awarded with terms defining
possible future task order awards within the scope of the contract). Because of appropriation
limitations in the U.S. government budget processes, firm funding is usually made for only one year
at a time and, in some cases, for periods less than one year. Some contracts may contain a number
of one-year options. Amounts included in backlog are based on the contracts total awarded value
and our estimates regarding the amount of the award that will ultimately result in the
recognition of revenues. These estimates may be based on indications of future values provided
by our clients, our estimates of the work required to complete the contract, our experience with
similar awards and similar clients 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 contract
value. The programs are monitored, 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 revenue 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 extends beyond five years but has defined contract values that
differ from many other contracts with government agencies. Accordingly, we included the entire
value of the MOX contract not yet executed in our backlog of unfilled orders. The value of work
subcontracted to our F&M segment is removed from the backlog of our E&I segment and is shown in the
backlog of our F&M segment.
Maintenance Segment. We define our backlog in the Maintenance segment to include projects that
are based on legally binding contracts from our clients and our pro rata share of consolidated
joint venture entities. These commitments typically take the form of a written contract or a
specific project purchase order and can cover periods ranging from three to five years. Many of
these contracts cover reimbursable work to be designated and executed over the term of the
agreement. Accordingly, certain of the backlog amounts are based on the underlying
contracts/purchase orders, our clients historic maintenance requirements as well as our future
cost estimates based on the clients 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 legally binding commitment from our clients. 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 under
alliance type agreements. A significant amount of our F&M segments backlog results from
inter-company awards received from our Fossil, Renewables & Nuclear, E&I and E&C segments. In such
cases, we include the value of the subcontracted work our F&M segments backlog and exclude it from
the corresponding affiliate segment.
At November 30, 2009 and August 31, 2009, our backlog was as follows:
November 30, 2009 | August 31, 2009 | |||||||||||||||
By Segment | (In Millions) | % | (In Millions) | % | ||||||||||||
Fossil, Renewables & Nuclear |
$ | 12,295.5 | 55 | $ | 12,795.1 | 56 | ||||||||||
Maintenance |
1,716.5 | 8 | 1,808.1 | 8 | ||||||||||||
E&I |
5,462.6 | 25 | 5,439.0 | 24 | ||||||||||||
E&C |
1,086.3 | 5 | 1,298.6 | 6 | ||||||||||||
F&M |
1,480.8 | 7 | 1,374.8 | 6 | ||||||||||||
Total backlog |
$ | 22,041.7 | 100 | % | $ | 22,715.6 | 100 | % | ||||||||
November 30, 2009 | August 31, 2009 | |||||||||||||||
By Industry | (In Millions) | % | (In Millions) | % | ||||||||||||
E&I |
$ | 5,462.6 | 25 | $ | 5,439.0 | 24 | ||||||||||
Power Generation |
15,007.0 | 68 | 15,478.1 | 68 | ||||||||||||
Chemical |
1,542.5 | 6 | 1,761.1 | 7 | ||||||||||||
Other |
29.6 | 1 | 37.4 | 1 | ||||||||||||
Total backlog |
$ | 22,041.7 | 100 | % | $ | 22,715.6 | 100 | % | ||||||||
November 30, 2009 | August 31, 2009 | |||||||||||||||
By Geographic Region | (In Millions) | % | (In Millions) | % | ||||||||||||
Domestic |
$ | 20,559.8 | 93 | $ | 20,978.2 | 92 | ||||||||||
International |
1,481.9 | 7 | 1,737.4 | 8 | ||||||||||||
Total backlog |
$ | 22,041.7 | 100 | % | $ | 22,715.6 | 100 | % | ||||||||
The decrease in backlog as compared to August 31, 2009 was driven primarily by slow bookings
during the first quarter of fiscal year 2010. New bookings during the first quarter were led by
E&I, which continues to benefit from awards from U.S. government entities. F&M added additional
domestic nuclear scope to its backlog of unfilled orders during the quarter, and Maintenance added
additional contracts in the power and process sectors.
47
Table of Contents
Included in backlog is our share of the full EPC contracts for two new AP1000 nuclear reactors
to be located in Georgia and two new AP1000 nuclear reactors to be located in Florida. Not included
in our backlog is the majority of the work to be performed on an EPC contract for two new AP1000
nuclear reactors to be located in South Carolina for which the contract has been awarded, but for
which certain client authorizations had not been received at November 30, 2009. During the fiscal
quarter ending May 31, 2009, we received notice from our client of an adjustment in the
construction schedule for the aforementioned two new AP1000 nuclear reactors to be located in
Florida relating to early construction activities. Under the revised schedule, these activities
will not be performed for these units until the combined operating license (COL) is issued by the
Nuclear Regulatory Commission for the plant. While the commercial operation dates for the two units
have been extended by a minimum of 20 months, our client continues to consider its options
regarding the schedule for this project. During the fiscal year, we expect to continue to perform
certain engineering and field support services and have not removed or altered the corresponding
contract value from our backlog. However, the amount of revenues and contract profit expected to be
generated from this project in the fiscal year is likely to be immaterial when considered in
relation to our consolidated operations. We expect that any adverse cost impacts associated with
the schedule delay will be recovered from the client.
The majority of our consolidated backlog is comprised of contracts with regulated electric
utility companies, national or international oil companies and the U.S. government (which alone
comprises 93% of our Environmental & Infrastructure segments backlog). We believe these clients
provide us with a stable book of business and possess the financial strength to endure the economic
challenges that may persist from the downturn experienced during the prior fiscal year.
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 1 General Information 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 2009 Form 10-K. Our exposures to market risk have not changed materially since
August 31, 2009.
ITEM 4. CONTROLS AND PROCEDURES
Managements 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 SECs rules and forms. This information is accumulated and communicated to our
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 November 30,
2009. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective at November 30, 2009.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months
ended November 30, 2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
48
Table of Contents
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been and may from time to time be named as a defendant in legal actions claiming
damages in connection with engineering and construction projects, technology licenses and other
matters. These are typically claims that arise in the ordinary course of business, including
employment-related claims and contractual disputes or claims for personal injury or property damage
that occur in connection with services performed relating to project or construction sites.
Contractual disputes normally involve claims relating to the timely completion of projects,
performance of equipment or technologies, design or other engineering services or project
construction services provided by our subsidiaries. See Note 11 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
There have been no material changes to the Risk Factors disclosure included in our Annual
Report on Form 10-K for the year ended August 31, 2009, filed with the SEC on October 29, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
49
Table of Contents
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.
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
2.1 | Investment Agreement, dated as
of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy
Holdings Corporation (US) Inc.,
a Delaware corporation (the US
Company), The Shaw Group Inc.
(the Company) and Nuclear
Energy Holdings, L.L.C. (NEH)
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 2.01 | ||||||||
2.2 | Investment Agreement, dated as
of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy
Holdings (UK) Limited, a company
registered in England with
registered number 5929672 (the
UK Company), the Company and
NEH
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 2.02 | ||||||||
3.1 | Amendment to and Restatement of
the Articles of Incorporation of
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 as of 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 | ||||||||
4.1 | Specimen Common Stock Certificate
|
The Shaw Group Inc. Annual Report on Form 10-K for the fiscal year ended August 31, 2007 | 1-12227 | 4.1 | ||||||||
4.2 | Rights Agreement, dated as of
July 9, 2001, between the
Company and First Union National
Bank, as Rights Agent, including
the Form of Articles of
Amendment to the Restatement of
the Articles of Incorporation of
the Company as Exhibit A, the
form of Rights Certificate as
Exhibit B and the form of the
Summary of Rights to Purchase
Preferred Shares as Exhibit C
(Exhibit A-1 and A-2)
|
The Shaw Group Inc. Registration Statement on Form 8-A filed on July 30, 2001 | 1-12227 | 99.1 | ||||||||
4.3 | The Shaw Group Inc. hereby
agrees to furnish copies of
instruments defining the rights
of holders of long-term debt of
The Shaw Group Inc. and its
consolidated subsidiaries to the
Commission upon request. |
|||||||||||
*10.1 | The Shaw Group Inc. Omnibus
Incentive Plan
|
The Shaw Group Inc. on Quarterly Report on Form 10-Q for the period February 28, 2009 | 1-12227 | 10.8 | ||||||||
*10.2 | The Shaw Group Inc. 2008 Omnibus
Incentive Plan Incentive Stock
Option Agreement Form of
Agreement
|
The Shaw Group Inc. on Quarterly Report on Form 10-Q for the period February 28, 2009 | 1-12227 | 10.9 | ||||||||
*10.3 | The Shaw Group Inc. 2008 Omnibus
Incentive Plan Non-Qualified
Stock Option Form of Agreement
|
The Shaw Group Inc. on Quarterly Report on Form 10-Q for the period February 28, 2009 | 1-12227 | 10.18 | ||||||||
*10.4 | The Shaw Group Inc. 2008 Omnibus
Incentive Plan Restricted Stock
Unit Award Agreement
|
The Shaw Group Inc. on Quarterly Report on Form 10-Q for the period February 28, 2009 | 1-12227 | 10.19 |
50
Table of Contents
SEC File or | Exhibit | |||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||
Number | Document Description | Statement | Number | Reference | ||||||
*10.5 | The Shaw Group Inc. 2001
Employee Incentive Compensation
Plan, amended and restated
through November 2, 2007
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended November 30, 2007 | 1-12227 | 10.4 | ||||||
*10.6 | Form of Incentive Stock Option
Agreement under The Shaw Group
Inc. 2001 Employee Incentive
Compensation Plan
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 | 1-12227 | 10.6 | ||||||
*10.7 | Form of Non-Qualified Stock
Option Agreement under The Shaw
Group Inc. 2001 Employee
Incentive Compensation Plan
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 | 1-12227 | 10.5 | ||||||
*10.8 | Form of Restricted Stock
Agreement under The Shaw Group
Inc. 2001 Employee Incentive
Compensation Plan
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 12, 2004 | 1-12227 | 10.3 | ||||||
*10.9 | Form of Restricted Stock Unit
Agreement under the Shaw Group
Inc. 2001 Employee Incentive
Compensation Plan
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended November 30, 2007 | 1-12227 | 10.6 | ||||||
*10.10 | The Shaw Group Inc. Stone &
Webster Acquisition Stock Option
Plan
|
The Shaw Group Inc. Registration Statement on Form S-8 filed on June 12, 2001 | 333-62856 | 4.6 | ||||||
*10.11 | The Shaw Group Inc. 1993
Employee Stock Option Plan,
amended and restated through
October 8, 2001
|
The Shaw Group Inc. Annual Report on Form 10-K for the fiscal year ended August 31, 2001 | 1-12227 | 10.1 | ||||||
*10.12 | The Shaw Group Inc. 2005
Non-Employee Director Stock
Incentive Plan, amended and
restated through November 2,
2007
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended November 30, 2007 | 1-12227 | 10.5 | ||||||
*10.13 | Form of Nonqualified Stock
Option Agreement under the 2005
Non-Employee Director Stock
Incentive Plan
|
The Shaw Group Inc. Current Report on Form 8-K filed on January 31, 2006 | 1-12227 | 10.2 | ||||||
*10.14 | Form of Phantom Stock Agreement
under the 2005 Non-Employee
Director Stock Incentive Plan
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 | 1-12227 | 10.8 | ||||||
*10.15 | Written description of the
Companys compensation policies
and programs for non-employee
directors
|
The Shaw Group Inc. Proxy Statement for the 2009 Annual Meeting of Shareholders contained in The Shaw Group Inc.s Schedule 14A filed on December 24, 2008 | 1-12227 | (Contained at pages 12 to 15 in the 2009 Proxy Statement) |
51
Table of Contents
SEC File or | Exhibit | |||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||
Number | Document Description | Statement | Number | Reference | ||||||
*10.16 | Flexible Perquisites Program for certain executive officers |
The Shaw Group Inc. Current Report on Form 8-K filed on November 1, 2004 | 1-12227 | Description contained under Item 1.01 of the referenced Form 8-K | ||||||
*10.17 | The Shaw Group Inc. 2005
Management Incentive Plan
|
The Shaw Group Inc. Current Report on Form 8-K filed on March 3, 2006 | 1-12227 | 10.1 | ||||||
*10.18 | Written description of the
Companys incentive compensation
policies programs for executive
officers, including performance
targets for fiscal year end 2008
|
The Shaw Group Inc. Proxy Statement for the 2009 Annual Meeting of Shareholders contained in The Shaw Group Inc.s Schedule 14A filed on December 24, 2008 | 1-12227 | (Contained at pages 30 to 80 in the 2009 Proxy Statement) | ||||||
*10.19 | 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 | ||||||
*10.20 | 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 | ||||||
*10.21 | Employee Indemnity Agreement
dated as of July 12, 2007
between the Company and Brian K.
Ferraioli
|
The Shaw Group Inc. Annual Report on Form 10-K for the fiscal year ended August 31, 2007 | 1-12227 | 10.34 | ||||||
*10.22 | Amended and Restated Employment
Agreement dated as of December
31, 2008 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 | ||||||
*10.23 | Amended and Restated Employment
Agreement dated as of December
31, 2008 by and between the
Company and George P. Bevan
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 | 1-12227 | 10.13 | ||||||
*10.24 | Amended and Restated Employment
Agreement dated as of March 23,
2009 by and between the Company
and Frederick W. Buckman
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended May 31, 2009 | 1-12227 | 10.20 | ||||||
*10.25 | Employment Agreement of David L.
Chapman, Sr. dated April 6, 2002
|
The Shaw Group Inc. Current Report on Form 8-K filed December 24, 2003 | 1-12227 | 99.1 | ||||||
*10.26 | Amendment to Employment
Agreement of David L. Chapman,
Sr., dated November 29, 2004
(with an effective date of April
1, 2005)
|
The Shaw Group Inc. Current Report on Form 8-K filed on January 12, 2005 | 1-12227 | 10.1 | ||||||
*10.27 | Letter Agreement between the
Company and David L. Chapman,
Sr. dated as of March 12, 2008
|
The Shaw Group Inc. Current Report on Form 8-K filed on March 17, 2008 | 1-12227 | 10.1 |
52
Table of Contents
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
*10.28 | Offer Letter dated as of August
31, 2007, by and between the
Company and Michael J. Kershaw
|
The Shaw Group Inc. Current Report on Form 8-K filed on December 21, 2007 | 1-12227 | 10.1 | ||||||||
*10.29 | Amended and Restated Employment
|
The Shaw Group Inc. Quarterly Report | 1-12227 | 10.16 | ||||||||
Agreement dated as of December
31, 2008 by and between the
Company and Lou Pucher
|
on Form 10-Q for the quarter ended February 28, 2009 | |||||||||||
*10.30 | Amended and Restated Employment
Agreement of G. Patrick Thompson
dated as of December 31, 2008
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 | 1-12227 | 10.12 | ||||||||
*10.31 | The Shaw Group Inc. 401(k) Plan
|
The Shaw Group Inc. Registration Statement on Form S-8 filed on May 4, 2004 | 333-115155 | 4.6 | ||||||||
*10.32 | The Shaw Group Inc. 401(k) Plan
for Certain Hourly Employees
|
The Shaw Group Inc. Registration Statement on Form S-8 filed on May 4, 2004 | 333-115155 | 4.6 | ||||||||
*10.33 | The Shaw Group Deferred Compensation Plan |
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 | 1-12227 | 10.10 | ||||||||
*10.34 | The Shaw Group Deferred
Compensation Plan Form of
Adoption
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 | 1-12227 | 10.11 | ||||||||
*10.35 | Trust Agreement, dated as of
January 2, 2007 by and between
the Company and Fidelity
Management Trust Company for The
Shaw Group Deferred Compensation
Plan Trust
|
The Shaw Group Inc. Quarterly Report on Form 10-Q for the quarter ended February 28, 2007 | 1-12227 | 10.6 | ||||||||
10.36 | Asset Purchase Agreement, dated
as of July 14, 2000, among Stone
& Webster, Incorporated, certain
subsidiaries of Stone & Webster,
Incorporated and the Company
|
The Shaw Group Inc. Current Report on Form 8-K filed on July 28, 2000 | 1-12227 | 2.1 | ||||||||
10.37 | Composite Asset Purchase
Agreement, dated as of January
23, 2002, by and among the
Company, The IT Group, Inc. and
certain subsidiaries of The IT
Group, Inc., including the
following amendments:(i)
Amendment No. 1, dated January
24, 2002, to Asset Purchase
Agreement, (ii) Amendment No. 2,
dated January 29, 2002, to Asset
Purchase Agreement, and (iii) a
letter agreement amending
Section 8.04(a)(ii) of the Asset
Purchase Agreement, dated as of
April 30, 2002, between The IT
Group, Inc. and the Company
|
The Shaw Group Inc. Current Report on Form 8-K filed on May 16, 2002 | 1-12227 | 2.1 |
53
Table of Contents
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
10.38 | Amendment No. 3, dated May 2,
2002, to Asset Purchase
Agreement by and among the
Company, The IT Group, Inc. and
certain subsidiaries of The IT
Group, Inc.
|
The Shaw Group Inc. Current Report on Form 8-K filed on May 16, 2002 | 1-12227 | 2.2 | ||||||||
10.39 | Amendment No. 4, dated May 3,
2002, to Asset Purchase
Agreement by and among the
Company, The IT Group, Inc. and
certain subsidiaries of the IT
Group, Inc.
|
The Shaw Group Inc. Current Report on Form 8-K filed on May 16, 2002 | 1-12227 | 2.3 | ||||||||
10.40 | $450,000,000 Credit Agreement
dated as of April 25, 2005, by
and among the Company, BNP
Paribas and The Other Lenders
Signatory Thereto, BNP Paribas
Securities Corp., Bank of
Montreal, Credit Suisse First
Boston, UBS Securities LLC,
Regions Bank and Merrill Lynch
Pierce, Fenner & Smith,
Incorporated
|
The Shaw Group Inc. Current Report on Form 8-K filed on April 28, 2005 | 1-12227 | 10.1 | ||||||||
10.41 | Amendment No. 1 dated as of
October 3, 2005, to that certain
$450,000,000 Credit Agreement
dated April 25, 2005, by and
among the Company, BNP Paribas
and The Other Lenders Signatory
Thereto, BNP Paribas Securities
Corp., Bank of Montreal, Credit
Suisse First Boston, UBS
Securities LLC, Regions Bank and
Merrill Lynch Pierce, Fenner &
Smith, Incorporated
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 4, 2005 | 1-12227 | 10.1 | ||||||||
10.42 | Amendment No. 2 dated as of
February 27, 2006, to that
certain $450,000,000 Credit
Agreement dated April 25, 2005,
by and among the Company, BNP
Paribas and The Other Lenders
Signatory Thereto, BNP Paribas
Securities Corp., Bank of
Montreal, Credit Suisse First
Boston, UBS Securities LLC,
Regions Bank and Merrill Lynch
Pierce, Fenner & Smith,
Incorporated
|
The Shaw Group Inc. Current Report on Form 8-K filed on February 28, 2006 | 1-12227 | 10.1 | ||||||||
10.43 | Amendment No. 3 dated as of June
20, 2006, to that certain
$450,000,000 Credit Agreement
dated April 25, 2005, by and
among the Company, BNP Paribas
and The Other Lenders Signatory
Thereto, BNP Paribas Securities
Corp., Bank of Montreal, Credit
Suisse First Boston, UBS
Securities LLC, Regions Bank and
Merrill Lynch Pierce, Fenner &
Smith, Incorporated
|
The Shaw Group Inc. Annual Report on Form 10-K for the fiscal year ended August 31, 2006 | 1-12227 | 10.38 |
54
Table of Contents
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
10.44 | Amendment No. 4 dated as of
October 13, 2006, among the
Company, as borrower; the
subsidiaries of the Company
signatories thereto, as
guarantors; BNP Paribas, as
administrative agent; BNP
Paribas Securities Corp., as
joint lead arranger and sole
bookrunner; Bank of Montreal, as
joint lead arranger; Credit
Suisse First Boston, acting
through its Cayman branch, as
co-syndication agent; UBS
Securities LLC, as
co-syndication agent; and the
other lenders signatory thereto
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.1 | ||||||||
10.45 | Waiver dated as of January 18,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005, as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on January 18, 2007 | 1-12227 | 10.1 | ||||||||
10.46 | Waiver dated as of March 19,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005 as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on March 19, 2007 | 1-12227 | 10.1 | ||||||||
10.47 | Waiver dated as of April 16,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005 as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on April 17, 2007 | 1-12227 | 10.1 | ||||||||
10.48 | Waiver dated as of July 16,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005 as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on July 16, 200 | 1-12227 | 10.1 | ||||||||
10.49 | Waiver dated as of August 30,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005 as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on September 6, 2007 | 1-12227 | 10.1 |
55
Table of Contents
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
10.50 | Waiver dated as of November 26,
2007, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005 as amended
|
The Shaw Group Inc. Current Report on Form 8-K filed on November 30, 2007 | 1-12227 | 10.1 | ||||||||
10.51 | Amendment No. 5 dated January
14, 2008, among the Company, as
borrower, BNP Paribas, as
administrative agent, and the
other lenders signatory to that
certain Credit Agreement dated
April 25, 2005, as amended.
|
The Shaw Group Inc. Current Report on Form 8-K filed on January 18, 2008 | 1-12227 | 10.1 | ||||||||
10.52 | Letter Agreement dated as of
December 30, 2008 among the
Company, Merrill Lynch and BNP
Paribas, as Agent
|
The Shaw Group Inc. Current Report on Form 8-K filed on January 6, 2009 | 1-12227 | 10.1 | ||||||||
10.53 | Put Option Agreement, dated as
of October 13, 2006, between NEH
and Toshiba related to shares in
the US acquisition company
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.2 | ||||||||
10.54 | Put Option Agreement, dated as
of October 13, 2006, between NEH
and Toshiba related to shares in
the UK acquisition company
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.3 | ||||||||
10.55 | Shareholders Agreement, dated as
of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy
Holdings (US) Inc. the US
Company, NEH, TSB Nuclear Energy
Investment US Inc., a Delaware
corporation and a wholly owned
subsidiary of Toshiba and
Ishikawajima-Harima Heavy
Industries Co., Ltd., a
corporation organized under the
laws of Japan (IHI)
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.4 | ||||||||
10.56 | Shareholders Agreement, dated as
of October 4, 2006, by and among
Toshiba, Toshiba Nuclear Energy
Holdings (UK) Inc., the UK
Company, NEH, IHI and TSB
Nuclear Energy Investment UK
Limited, a company registered in
England with registered number
5929658
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.5 | ||||||||
10.57 | Bond Trust Deed, dated October
13, 2006, between NEH and The
Bank of New York, as trustee
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.6 |
56
Table of Contents
SEC File or | Exhibit | |||||||||||
Exhibit | Report or Registration | Registration | or Other | |||||||||
Number | Document Description | Statement | Number | Reference | ||||||||
10.58 | Parent Pledge Agreement, dated
October 13, 2006, between the
Company and The Bank of New York
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.7 | ||||||||
10.59 | Issuer Pledge Agreement, dated
October 13, 2006, between NEH
and The Bank of New York
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.8 | ||||||||
10.60 | Deed of Charge, dated October
13, 2006, among NEH, The Bank of
New York, as trustee, and Morgan
Stanley Capital Services Inc.,
as swap counterparty
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.9 | ||||||||
10.61 | Transferable Irrevocable Direct
Pay Letter of Credit (Principal
Letter of Credit) effective
October 13, 2006 of Bank of
America in favor of NEH
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.10 | ||||||||
10.62 | Transferable Irrevocable Direct
Pay Letter of Credit (Interest
Letter of Credit) effective
October 13, 2006 of Bank of
America in favor of NEH
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.11 | ||||||||
10.63 | Reimbursement Agreement dated as
of October 13, 2006, between the
Company and Toshiba
|
The Shaw Group Inc. Current Report on Form 8-K filed on October 18, 2006 | 1-12227 | 10.12 | ||||||||
10.64 | Amended and Restated Credit
Agreement, dated as of September
24, 2009, among the Company, as
borrower; the Companys
subsidiaries signatories
thereto, as guarantors; BNP
Paribas, as administrative
agent; and the other agents
lenders signatory thereto.
|
The Shaw Group Inc. Current Report on Form 8-K filed on September 25, 2009 | 1-12227 | 10.1 | ||||||||
10.65 | Amended and Restated Employment
Agreement dated as of December
17, 2009 by and between the
Company and John Donofrio
|
1-12227 | ||||||||||
*10.66 | Form of Section 16 Officer
Restricted Stock Unit Award
Agreement under The Shaw Group
Inc. 2008 Omnibus Incentive Plan
|
1-12227 | ||||||||||
*10.67 | Form of Employee Incentive Stock
Option Award Agreement under The
Shaw Group Inc. 2008 Omnibus
Incentive Plan
|
1-12227 | ||||||||||
*10.68 | Form of Employee Nonqualified
Stock Option Award Agreement
under The Shaw Group Inc. 2008
Omnibus Incentive Plan
|
1-12227 |
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Table of Contents
SEC File or | Exhibit | |||||||
Exhibit | Report or Registration | Registration | or Other | |||||
Number | Document Description | Statement | Number | Reference | ||||
*10.69 | Form of Employee Restricted
Stock Unit Award Agreement under
The Shaw Group Inc. 2008 Omnibus
Incentive Plan
|
1-12227 | ||||||
*10.70 | Form of Canadian Employee
Incentive Stock Option Award
Agreement under The Shaw Group
Inc. 2008 Omnibus Incentive Plan
|
1-12227 | ||||||
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 |
58
Table of Contents
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: January 6, 2010 | /s/ Brian K. Ferraioli | |||
Brian K. Ferraioli | ||||
Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
||||
59