Risk Management

Shaw Group Restates, Names New CFO

The new CFO at industrial services giant The Shaw Group will inherit a second quarter restatement, a $74 million quarterly loss, and a record-break...
Marie LeoneJuly 12, 2007

Engineering and construction heavy weight The Shaw Group will restate its financial results for the first quarter of fiscal 2007, reporting a loss of $23.8 million after taxes, an increase of $3.5 million from its previous filing, said interim chief financial officer Dirk Wild during a conference call on Thursday. The adjustment, which is being blamed on incorrect cost estimates related to a domestic chemical industry project, is not material, added Wild. Shaw generates $5 billion in revenues annually.

The call was likely Wild’s last as CFO. Company chairman, CEO and president J.M. Bernhard told call participants that Brian Ferraioli had accepted an offer to become Shaw’s new finance chief, replacing Wild, who will assume his previous position of senior vice president and operations controller. Ferraioli begins work at the Baton Rouge-based company at the end of the month. He is the former vice present and controller of Foster Wheeler Ltd. Prior to that, he served as CFO of Foster Wheeler USA, as well as Foster Wheeler Power Systems.

Shaw also announced that former CFO Robert Belk is returning to the company after a medical leave of absence. Belk will become executive vice president, and tend to various client, investor, banking, and government relationships.

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The company estimated a net loss of $74 million, after taxes, for the second quarter, which includes a $16 million charge related to the acquisition of an interest in Westinghouse’s nuclear power business; a $24 million impairment charge related to investments made in five joint ventures to construct private housing for the U.S. military; a $10 million accrual for potential tax liabilities; and a $21 million payout to settle legal disputes with third-party owners and vendors involved in a domestic project.

Commenting on the accounting charges, Bernhard explained there is a 60 percent to 70 percent chance that Shaw will restructure, or sell its interest in, at least two of the military housing joint ventures. In addition, the CEO pointed out that the company adopted a new strategy for dealing with vendor claims at the beginning of the year. Instead of waiting for legal arbitration to play out, Shaw would accept the best settlement offered, and refocus management’s attention on existing and future projects. The decision to end the arbitration resulted in the release of $70 million in cash that was being held in reserves pending the arbitration’s outcome. Bernhard noted that less than $15 million worth of other claims remain unresolved.

Further, Wild pointed out that in May, Shaw set a backlog record, recording $13.3 billion worth of work in its project pipeline. Asked by a securities analyst if the company had enough working capital to finance the robust lineup of future deals, Wild answered yes, noting that the company’s contract formula regarding working capital is simple: “costs incurred and costs committed should equal cash on hand.”

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