Accounting & Tax

Shaw Restates over Westinghouse Investment

Shaw Group files restated results over estimated costs of projects and an investment in Westinghouse.
Stephen TaubAugust 31, 2007

The Shaw Group has filed its restated results for the first fiscal quarter ended November 2006. Its restated results include items that reduced previously reported pretax income totaling $5.3 million — $3.4 million after tax.

The engineering and construction company announced last April that it had launched a review to determine the scope of a potential error in the estimated cost of a U.S. Gulf Coast engineering, procurement, and construction petrochemical project. In its Friday filing, the company said management concluded that the financial results for the year ended August 31, 2006, contained two offsetting errors relating to the project, thus resulting in no financial-statement impact for the fiscal year.

In addition, Shaw found that the financial statements for the November 2006 three-month period contained a $6.5 million error related to the project. The company said it also had reconsidered the accounting for its earlier $1.1 billion investment in Westinghouse. Shaw said it concluded that the transaction should be accounted for as a single equity investment.

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Earlier, Shaw received a letter from the Securities and Exchange Commission that included comments pertaining to its accounting for its investment in Westinghouse, including the application of the equity method of accounting and the accounting for a put option and a customer-relationship agreement related to the investment.

In its latest filing, the company said the put option and related embedded derivative and the commercial-relationship agreement should not have been accounted for separately. Therefore, it restated its financial statements to reflect the total Westinghouse transaction cost of about $1.1 billion as “Investment in Westinghouse” in the November 30, 2006, balance sheet.

However, Shaw stressed that it has not finalized its consultations with the SEC staff related to accounting for the embedded foreign-currency component of the put option agreement entered into in connection with the investment in Westinghouse.

Shaw said it is working with its accounting firm, KPMG, to complete its audit for its restated financial statements for the fiscal year ending August 31, 2006. The company also warned that its preliminary restated interim consolidated financial statements for the first quarter do not put it in compliance with the filing requirements of the SEC.