UNITED STATES
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 February 28, 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)

225-932-2500
(Registrant’s telephone number, including area code)

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

Yes þ    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No þ

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, is as follows: common stock, no par value, 83,556,256 shares outstanding as of April 1, 2009.

 

 

TABLE OF CONTENTS

PART 1 - FINANCIAL STATEMENTS
Item 1. — Financial Statements			3
Consolidated Balance Sheets — February 28, 2009 (Unaudited) and August 31, 2008			3
Consolidated Statements of Operations (Unaudited) — For the Three and Six Months Ended February 28, 2009 and February 29, 2008			4
Consolidated Statements of Cash Flows (Unaudited) — For the Six Months Ended February 28, 2009 and February 29, 2008			5
Notes to Consolidated Financial Statements (Unaudited)			6
Cautionary Statement Regarding Forward-Looking Statements			31
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. — Quantitative and Qualitative Disclosures About Market Risk			57
Item 4. — Controls and Procedures			57
PART II — OTHER INFORMATION
Item 1. — Legal Proceedings			59
Item 1A. — Risk Factors			59
Item 4. — Submission of Matters to a Vote of Security Holders			60
Item 6. — Exhibits			61
SIGNATURES			63
EXHIBIT INDEX			64
EX-10.8
EX-10.9
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-10.15
EX-10.16
EX-10.17
EX-10.18
EX-10.19
EX-31.1
EX-31.2
EX-32.1
EX-32.2

EXPLANATORY NOTE

     The comparative prior fiscal period financial statements of The Shaw Group Inc., a Louisiana Corporation, (Shaw, we, us and our) for the three and six months ended February 29, 2008, included in this Quarterly Report on Form 10-Q, reflect a restatement to correct accounting errors.

     As reported in our Current Report on Form 8-K dated October 30, 2008, in connection with the preparation of our Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (2008 Form 10-K), we determined that the net income for the three months ended February 29, 2008 should be reduced due primarily to an error on a fixed-price coal power project in our Fossil & Nuclear segment relating to the estimated cost at completion on that project. As a result, we restated the three months ended February 29, 2008 and reflected this restatement in the quarterly information provided in our 2008 Form 10-K. The restatement of the three and six month ended February 29, 2008 is reflected within this Form 10-Q. We did not amend any previously filed reports.

     See Notes 1 and 20 of our consolidated financial statement included in Part I, Item 1 — Financial Statements of this Quarterly Report on Form 10-Q for additional information.

PART I — FINANCIAL INFORMATION

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

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

THE SHAW GROUP INC. AND SUBSIDIARIES

financial liabilities. Such assets and liabilities, which include our costs and estimated earnings in excess of billings on uncompleted contracts, advanced billings and billings in excess of costs and estimated earnings on uncompleted contracts, deferred contract costs, property and equipment (net) and goodwill, will be subject to the provisions of SFAS 157 on September 1, 2009. For additional information, see Note 17 — Fair Value Measurements.

     On September 1, 2008, we adopted and elected not to apply the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.

     On December 1, 2008, we adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 was intended to enhance the current disclosure framework in Statement 133. The Statement requires that objectives of using derivative instruments be disclosed in terms of underlying risk and accounting designation. The adoption of SFAS 161 did not have a material impact on our financial statements.

Reclassifications

     Certain fiscal year 2008 amounts have been reclassified to conform to the fiscal year 2009 presentation.

Note 2 — Restricted and Escrowed Cash

     At February 28, 2009 and August 31, 2008, we had restricted and escrowed cash of $13.3 million and $8.9 million, respectively. At February 28, 2009 and August 31, 2008, our restricted cash consisted of: $0.4 million and $0.7 million, respectively, related to deposits designated to fund remediation costs associated with a sold property; $0.4 million and $1.0 million, respectively, related to insurance loss reserves; and $12.5 million and $7.2 million, respectively, related to amounts contractually required by various other projects and primarily dedicated to the payment of suppliers or the securing of letters of credit.

     In March, 2009, we voluntarily elected to cash collateralize an outstanding performance letter of credit of approximately $56.4 million which was previously issued under our credit facility in support of our project execution activities.

Note 3 — Accounts Receivable and Concentrations of Credit Risk

     Our accounts receivable, net, were as follows (in thousands):

     Analysis of the change in the allowance for doubtful accounts follows (in thousands):

     Included in our trade accounts receivable at February 28, 2009 and August 31, 2008 were approximately $9.0 million of outstanding invoices due from a local government entity resulting from revenues earned in providing disaster relief, emergency response and recovery services. The local government entity has raised issues with our invoiced amounts, and we are currently in litigation with the government entity. The amount we ultimately collect from this trade receivable could differ from amount noted above.

Note 5 — Equity Method Investments and Variable Interest Entities

     We execute certain contracts with third parties through joint ventures, limited partnerships and limited liability companies. If a joint venture is determined to be a VIE as defined by FIN 46(R), the joint venture is consolidated in accordance with FIN 46(R). If consolidation of the VIE or joint venture is not required, we generally account for these joint ventures using the equity method of accounting with our share of the earnings (losses) from these investments reflected on one line in the consolidated statement of operations.

Equity Method Investments

     Our significant unconsolidated subsidiary that is accounted for using the equity method of accounting is our Investment in Westinghouse. On October 16, 2006, we acquired a 20% equity interest (Westinghouse Equity) in Westinghouse Group (Westinghouse) and entered into various agreements that are described in Note 2 of our 2008 Form 10-K.

     In connection with our Investment in Westinghouse, we entered into a Japanese Yen (JPY) denominated Put Option Agreement (Put Option) providing us the option to sell all or part of our Westinghouse Equity to Toshiba Corporation (Toshiba). If we were to sell 100% of our Westinghouse Equity, Toshiba is required to pay us 124.7 billion JPY (approximately 97% of our original JPY-equivalent purchase price, which we financed partially through JPY-denominated long-term bonds (Westinghouse Bonds)). We can exercise the Put Option from March 31, 2010 to March 15, 2013, and the proceeds can only be used to repay the Westinghouse Bonds.

     Because the Westinghouse Bonds are JPY-denominated, the risk to bondholders of a possible proceeds shortfall due to currency fluctuations is substantially mitigated. However, we would remain at risk for the estimated 3% difference (equal to 4.3 billion JPY, or approximately $43.6 million using exchange rates at February 28, 2009) between the anticipated proceeds from the exercise of the Put Option and the amount owed on the Westinghouse Bonds. If we allow the Put Option to expire unexercised, we will be required to repay the Westinghouse Bonds using some combination of internally generated cash flows, additional or new borrowings or proceeds from the issuance of equity. We may not be able to obtain credit in the future on terms similar to the terms reflected in the Westinghouse Bonds.

     Westinghouse maintains its accounting records for reporting to its majority owner, Toshiba, on a calendar quarter basis with a March 31 fiscal year end. Financial information about Westinghouse’s operations is available to us for Westinghouse’s calendar quarter periods. As a result, we record our 20% interest of the equity earnings (loss) and other comprehensive income (loss) reported to us by Westinghouse based upon Westinghouse’s calendar quarterly reporting periods, or two months in arrears of our current periods. Under this policy, Westinghouse’s operating results for the three and six months ended December 31, 2008 and December 31, 2007 are included in our financial results for the three and six months ended February 28, 2009 and February 29, 2008, respectively.

Summarized unaudited income statement information for Westinghouse before applying our Westinghouse Equity Interest was as follows (in thousands):

     As part of our Investment in Westinghouse, we entered into shareholder agreements on October 4, 2006, that set a targeted minimum dividend of approximately $24.0 million annually for the first six years we hold our Westinghouse Equity. Under the shareholder agreements, the shareholders are due to receive as dividends agreed percentages no less than 65%, but not to exceed 100%, of Westinghouse’s net income. If the shareholders receive less than the target minimum dividend amount in any year during the first six years, we retain the right to receive this shortfall to the extent Westinghouse earns net income in the future. Our right to receive any shortfalls between the target minimum dividend amount and the dividends actually paid by Westinghouse during the first six years of our investment (or such shorter period in the event of earlier termination) survives the sale of our Westinghouse Equity, although this right is dependent upon Westinghouse earning net income at some future time. On January 2, 2009, we received a dividend of $29.1 million from Westinghouse, and have received total dividends to date of $32.4 million.

     Our investments in and advances to unconsolidated entities, joint ventures and limited partnerships and our overall percentage ownership of those ventures that are accounted for under the equity method (in thousands, except percentages) were as follows:

     On November 4, 2008 we sold our interests in Little Rock Family Housing LLC, Hanscom Family Housing LLC and Patrick Family Housing LLC. With this sale we have sold all remaining interests in our housing privatization projects. We received no proceeds as part of the sale transaction but were released from certain liabilities, obligations and funding of further equity.

     Earnings (losses) from unconsolidated entities, net of income taxes, for the three and six months ended February 28, 2009 and February 29, 2008, are summarized as follows (in thousands):

Guarantees Related to Military Housing Privatization Construction Entities

     Although we sold our interests in the Pacific Northwest Communities, LLC military housing privatization project in November of 2007, one of our wholly-owned subsidiaries, Shaw Infrastructure, Inc., provided indemnity to the buyer for certain potential claims or lawsuits up to a maximum of $5.9 million. No amounts have been paid or are pending to be paid under the terms of this indemnification obligation. In February 2009, Pacific Northwest Communities, LLC was dismissed from the lawsuit to which this indemnity liability applies. As such, no exposure to liability under this indemnification obligation currently exists.

     We also entered into an indemnity agreement with a third party to guarantee the payment and performance bonds issued on behalf of construction entities performing services on another series of military housing privatization projects that were being built by us and

our joint venture partner. This indemnity agreement supports surety bonds issued on our behalf at the following military sites: Hanscom Air Force Base, Patrick Air Force Base, Little Rock Air Force Base and Fort Leonard Wood. Under this indemnity agreement, the parent of our joint venture partner and we were jointly and severally liable for the performance of the bonded construction work up to a maximum of $30.0 million. However, each partner’s individual maximum liability was capped at $15.0 million. In February 2007, we recorded a liability for the maximum exposure of $15.0 million. We have paid $13.8 million under this indemnity agreement, and while the indemnity agreement remains in full force and effect, no amounts are outstanding, due or payable.

Note 6 — Goodwill and Other Intangible Assets

     The following table reflects the changes in the carrying value of goodwill by segment from August 31, 2008 to February 28, 2009 (in thousands):

     We had tax deductible goodwill of approximately $99.6 million and $107.2 million at February 28, 2009 and August 31, 2008, respectively. The difference between the carrying value of goodwill and the amount deductible for taxes is primarily due to the amortization of goodwill allowable for tax purposes.

     During the three months ended February 28, 2009, our market capitalization temporarily fell below our net book value due to the steep decline in the value of equity securities occurring primarily as a result of the significant deterioration in global economic conditions and the credit crisis. We do not believe that this temporary event made it more likely than not that the fair value of our reporting units was below their carrying value, and we determined that we were not required to accelerate our impairment tests.

     The gross carrying values and accumulated amortization of amortizable intangible assets are presented below (in thousands):

     The following table presents the scheduled future annual amortization for our customer relationships and intangible assets (in thousands):

     On October 16, 2006, we entered into an interest rate swap agreement through March 15, 2013 in the aggregate notional amount of 78 billion JPY. We designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate. Under the agreement, we make fixed interest payments at a rate of 2.398%, and we receive a variable interest payment equal to the six-month JPY London Interbank Offered Rate (LIBOR) plus a fixed margin of 0.7%, effectively fixing our interest rate on the floating rate portion of the 78 billion JPY Westinghouse Bonds at 2.398%. At February 28, 2009 and August 31, 2008, the fair value of the swap totaled approximately $27.7 million and $8.8 million, respectively, and is included as a non-current liability and in accumulated other comprehensive loss, net of deferred taxes, in the accompanying consolidated balance sheets. There was no material ineffectiveness of our interest rate swap for the period ended February 28, 2009.

Credit Facility

     On December 30, 2008, we received a commitment from an existing lender to extend $45.0 million of its commitment until April 25, 2011. As a result, the aggregate amount effective under our Credit Facility (Facility) remains at $1.053 billion until April 25, 2010 and reduces to $874.0 million during the period from April 26, 2010 to April 25, 2011.

     On October 15, 2008, we received a new incremental commitment through the original maturity date of the Facility of $3.0 million, which increased the amount effective under the Facility to $1.053 billion until April 25, 2010. On October 15, 2008, we also entered into Amendment No. 6 to the Facility to, among other things, extend the maturity from April 25, 2010 to April 25, 2011 for $829 million of the then existing commitments. We also retained our ability to seek additional commitments from lenders to increase the Facility up to a total capacity of $1.25 billion through April 25, 2011 subject only to the consent of lenders who actually issued

letters of credit on our behalf. With Amendment No. 6, we also received consent to pledge up to $200.0 million of our unrestricted cash on hand to collateralize additional letters of credit, incremental to the letters of credit available under the Facility, provided that at the time we pledge such cash and immediately thereafter, we have at least $500.0 million in unrestricted cash on hand. The amended Facility retained other substantive terms that were applicable to the Facility prior to the effectiveness of Amendment No. 6.

     On January 14, 2008, we entered into Amendment No. 5 to our Facility to increase, among other things, the approved capacity under the Facility from $1.0 billion to $1.25 billion and increase the amount effective under the Facility at that time from $850.0 million to $1.0 billion. The amended Facility retained its original maturity date of April 25, 2010, as well as other substantive terms that were applicable to the Facility prior to the effectiveness of Amendment No. 5. On January 30, 2008, in accordance with the Facility increase provisions set forth in Amendment No. 5, we received an additional commitment of $50.0 million, which increased the overall aggregate amount effective under the Facility to $1.05 billion.

     The following table presents the outstanding and available amounts under our Facility at February 28, 2009 (in millions):

     At February 28, 2009, the portion of the Facility available for financial letters of credit and/or revolving credit loans is limited to the lesser of: (1) $506.8 million at February 28, 2009, representing the total Facility ($1.053 billion at February 28, 2009) less outstanding performance letters of credit ($546.2 million at February 28, 2009); or (2) $214.7 million at February 28, 2009, representing $425.0 million less the current outstanding amount of financial letters of credit ($210.3 million at February 28, 2009). Total fees associated with these letters of credit under the Facility were approximately $3.2 million and $6.4 million for the three and six months ended February 28, 2009, respectively, as compared to $3.4 million and $6.7 million for the three and six months ended February 29, 2008, respectively.

     The interest rate margins for revolving credit loans under the Facility are in the range of: (1) LIBOR plus 1.50% to 3.00%; or (2) the defined base rate plus 0.00% to 0.50%. Although there were no borrowings at February 28, 2009, the interest rate that would have applied to any borrowings under the Facility was 3.5%.

     For the three and six months ended February 28, 2009, we recognized $0.7 million and $1.5 million, respectively, of interest expense associated with the amortization of financing fees related to our Facility, as compared to $0.7 million and $1.4 million for the three and six months ended February 29, 2008, respectively. At February 28, 2009 and August 31, 2008, unamortized deferred financing fees related to our Facility were approximately $6.6 million and $5.3 million, respectively.

     At February 28, 2009, we were in compliance with the covenants contained in the Facility.

Other Revolving Lines of Credit

     Shaw Nass, a consolidated VIE, has an available credit facility with a total capacity of 3.0 million Bahraini Dinars (BHD) or approximately $8.0 million, of which BHD 1.5 million is available for bank guarantees and letters of credit. At February 28, 2009, this VIE had no borrowings under its revolving line of credit and approximately $0.4 million in outstanding bank guarantees under the facility. The interest rate applicable to any borrowings is variable (2.19% at February 28, 2009) plus 2.25% per annum. We have provided a 50% guarantee related to this credit facility.

     We have an uncommitted, unsecured standby letter of credit facility with a bank. Fees under this facility are paid quarterly. At February 28, 2009 and August 31, 2008, there were $27.8 million and $27.3 million of letters of credit outstanding under this facility, respectively.

     On March 12, 2008, a bank extended to us a $25.0 million uncommitted, unsecured bilateral line of credit for the issuance of performance letters of credit in Saudi Arabia. On May 21, 2008, the bank increased its uncommitted line of credit from $25.0 million

to $50.0 million. Fees under this facility are paid quarterly. At February 28, 2009 and August 31, 2008, there were $49.0 million of letters of credit outstanding under this facility.

Note 8 — Income Taxes

     Our consolidated effective tax rate for the three months ended February 28, 2009 was 41% while the consolidated effective rate for the six months ended February 28, 2009 was a 1% benefit as applied to the pre-tax loss. In determining the quarterly provision for income taxes, we use an estimated annual effective tax rate based on forecasted annual pre-tax income, permanent items, statutory tax rates and tax planning opportunities in the various jurisdictions in which we operate.

     The impact of significant discrete items is recognized separately in the quarter in which they occur. The foreign currency gains and losses associated with our Japanese Yen-denominated Westinghouse Bonds are recognized as discrete items in each reporting period due to their volatility and the difficulty in estimating such gains and losses reliably. For the three months ended February 28, 2009, we recorded other discrete items totaling $3.2 million, primarily as a provision for uncertain tax positions. The six months of fiscal 2009 includes net discrete items of $5.6 million relating to provisions for uncertain tax positions as well as a benefit for the retroactive effect of the renewal of the Work Opportunity Tax Credit.

     We expect the fiscal 2009 annual effective tax rate, excluding discrete items, applicable to forecasted pre-tax income to be approximately 38%. Significant factors that could impact the annual effective tax rate include management’s assessment of certain tax matters, the location and amount of our taxable earnings, changes in certain non-deductible expenses and expected credits.

     We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN 48) effective September 1, 2007. Under FIN 48, we provide for uncertain tax positions, and the related interest, and adjust unrecognized tax benefits and accrued interest accordingly. We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense.

     During the second quarter of fiscal 2009, unrecognized tax benefits increased by $9.5 million relating to temporary positions (a deferred tax asset was recorded in the same amount) and an additional tax provision of $3.0 million along with accrued interest of $0.4 million. For the six months of fiscal 2009, unrecognized tax benefits increased by $9.5 million relating to temporary positions as well as an additional tax provision of $8.7 million and accrued interest of $1.2 million and decreased by $8.1 million for a position that has not been claimed in amended returns (a deferred tax asset was reduced by the same amount). As of February 28, 2009, our unrecognized tax benefits were $41.4 million, of which $31.0 million would, if recognized, affect our effective tax rate.

     Our subsidiaries file income tax returns in numerous tax jurisdictions, including the U.S., most U.S. states and certain non-U.S. jurisdictions. Tax returns are also filed in certain jurisdictions where our subsidiaries execute project-related work. The statute of limitations varies by the various jurisdictions in which we operate. With few exceptions, we are no longer subject to U.S. (including federal, state and local) or non-U.S. income tax examinations by tax authorities for years before fiscal year 2002. Although we believe our calculations for our tax returns are correct and the positions taken thereon are reasonable, the final outcome of tax audits could be materially different either favorable or unfavorable and, consequently, materially impact our future results.

     Certain tax years are under audit by relevant tax authorities including the current ongoing examination of the fiscal year 2004 and 2005 U.S. federal tax returns by the Internal Revenue Service (IRS). We have extended the statute of limitations on our U.S. federal returns for the 2004 and 2005 years being audited and for the 2002 and 2003 fiscal years involved in the IRS Appeal (see Note 10 — Contingencies and Commitments). In addition, many U.S. states suspend the state statute of limitations for any year for which the U.S. federal statute has been extended.

     While certain of the audits and the IRS appeal may be concluded in the foreseeable future, including in fiscal year 2009, it is not possible at this time to estimate the impact of changes over the next 12 months in unrecognized tax benefits.

Note 9 — Share-Based Compensation

     On January 28, 2009, our shareholders approved our 2008 Omnibus Incentive Plan (Omnibus Plan). The Omnibus Plan is a comprehensive incentive compensation plan that provides for various stock-based awards, as well as cash awards. The total number of

shares reserved for issuance under the Omnibus Plan is 4,500,000 shares. The Compensation Committee of our Board of Directors, or another committee if designated by our Board of Directors, will administer the Omnibus Plan. The Omnibus Plan terminates ten years from January 28, 2009.

     Upon the Omnibus Plan’s approval by our shareholders, our existing equity compensation plans including The Shaw Group Inc. 2001 Employee Incentive Compensation Plan and 2005 Director Plan (collectively the Prior Plans) terminated. No new awards will be granted under the Prior Plans, and there is no longer any authority to issue the remaining shares of common stock available under the Prior Plans. All awards granted under the Prior Plans that were outstanding as of January 28, 2009 remain outstanding and continue to be governed by the Prior Plans. Additionally, as a result of shareholder approval of the Omnibus Plan, 1,281,512 restricted stock units with an average market value of $17.95 per share previously classified as liability awards were modified for accounting purposes to be equity awards. Awards classified as liabilities result in variable compensation expense based upon the closing price of our stock at the date of each reporting period while equity awards result in fixed compensation expense based upon the weighted-average price per share on the date of grant. On January 28, 2009, the price used to re-measure the liability awards was our closing stock price of $29.39, and the modified equity awards have a weighted-average price per share of $29.39

     Restricted stock units totaling 2,374,632 shares were granted during the six months ended February 28, 2009 at a weighted-average per share price of $17.96 vesting over approximately three to four years. Of the 2,374,632 shares of restricted stock units granted, 1,281,512 shares were modified and regranted on January 28, 2009 under the Omnibus Plan. Restricted stock awards and restricted stock units totaling 231,526 shares were granted in the six months ended February 29, 2008 at a weighted-average per share price of $65.93, vesting over approximately four years.

     During the six months ended February 28, 2009 and February 29, 2008, options for the purchase of 1,184,709 shares at a weighted-average price of $18.10 per share and 392,602 shares at a weighted-average price of $66.35 per share, respectively, were awarded, with vesting over approximately four years. The contractual lives of the awards during the six months ended February 28, 2009 are consistent with those of prior years. Since the year ended August 31, 2008, the expected term assumption used in our valuation of options awarded was changed to 3.7 years.

     During the six months ended February 28, 2009 and February 29, 2008, options for the purchase of 20,381 shares at a weighted-average exercise price of $8.89 per share and 1,819,833 shares at a weighted-average exercise price of $19.25 per share, respectively, were exercised.

     For additional information related to these share-based compensation plans, see Note 11 — Share-Based Compensation of our consolidated financial statements in our 2008 Form 10-K.

Note 10 — Contingencies and Commitments

Tax Matters

     In connection with the IRS examinations of our U.S. federal tax returns for the 2002 through 2005 fiscal years, the IRS has proposed certain adjustments relating to the sourcing of procurement income to one of our overseas entities and the dividend of such income to our U.S. parent company. We disagree with these adjustments and the related penalties that have been proposed and have protested such matters to the Appeals level within the IRS for fiscal years 2002 and 2003 and plan to make a similar protest to the Appeals level for fiscal years 2004 and 2005. Discussions are underway at the Appeals level that may lead to a resolution of the amount of procurement income to be recognized by our U.S. parent company. A penalty may, however, be assessed separate from the settlement of the procurement income amount. We may litigate the penalty amount that may be assessed.

     In a separate matter, the Louisiana Department of Revenue (LDR) has filed a collection suit against our Louisiana domiciled parent corporation for franchise taxes in the amount of $1.7 million for fiscal years 2001 and 2002 plus interest of $1.6 million (computed through June 15, 2008). The LDR’s lawsuit sets forth their theory that cash pooled by our parent corporation and invested on behalf of our operating subsidiaries creates additional asset and revenue apportionment to Louisiana. We plan to make the appropriate filings in opposition to such lawsuit and also provide evidence that, if we were permitted a unitary or consolidated franchise filing covering all of our U.S. entities, the resulting tax liability would be similar in the 2001, 2002 and subsequent fiscal years to the total of the tax liabilities on all our Louisiana franchise tax returns as filed. We are also under audit by the LDR for fiscal years 2003-2006.

     While management cannot predict the ultimate outcome of either the IRS or LDR matters, provisions have been made in our financial statements where appropriate. The matters if decided adversely to us or settled by us, individually or in the aggregate, could have a material adverse effect on our financial statements.

Military Housing Privatization Entities

     See Note 5 — Equity Method Investments and Variable Interest Entities for discussion of commitments and contingencies related to privatization entities.

Liabilities Related to Contracts

     Our contracts often contain provisions relating to the following matters:

	•		warranties, requiring achievement of acceptance and performance testing levels;
	•		liquidated damages, if the project does not meet predetermined completion dates; and
	•		penalties or liquidated damages for failure to meet other cost or project performance measures.

     We attempt to limit our exposure under these penalty or liquidated damage provisions and attempt to pass certain cost exposure for craft labor and/or commodity-pricing risk to customers. We also have claims from customers as well as vendors, subcontractors and others that are subject to negotiation or the contractual dispute resolution processes defined in the contracts (see Note 15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims, Unapproved Change Orders and Incentives for further discussion).

Other Guarantees

     Our lenders issue letters of credit on our behalf to customers or sureties in connection with our contract performance and, in limited circumstances, on certain other obligations of third parties. We are required to reimburse the issuers of these letters of credit for any payments that they make pursuant to these letters of credit. The aggregate amount of outstanding financial and performance letters of credit (including foreign and domestic, secured and unsecured) was $834.2 million and $805.1 million at February 28, 2009 and August 31, 2008, respectively. Of the amount of outstanding letters of credit at February 28, 2009, $623.8 million are performance letters of credit issued to our customers. Of the $623.8 million, five customers held $339.2 million or 54% of the outstanding letters of credit. The largest letter of credit issued to a single customer on a single project is $114.2 million.

     In the ordinary course of business, we enter into various agreements providing financial or performance assurances to customers on behalf of certain unconsolidated partnerships, joint ventures or other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities and are generally a guaranty of our own performance. These assurances have various expiration dates ranging from mechanical completion of the facilities being constructed to a period extending beyond contract completion. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. Amounts that may be required to be paid in excess of our estimated cost to complete contracts in progress are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For fixed price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where cost exceeds the remaining amounts payable under the contract we may have recourse to third parties such as owners, co-venturers, subcontractors or vendors.

Legal Proceedings

     During fiscal year 2005, the U.S. District Court for the District of Delaware rendered a judgment against us and in favor of Saudi American Bank (SAB) in the amount of $11.4 million inclusive of interest and attorneys’ fees but exclusive of post-judgment legal interest while pending appeal. In the suit against us (and others), SAB claimed that as part of our July 2000 Stone & Webster Incorporated asset acquisition, we assumed certain liabilities under an existing loan agreement and guarantee. We appealed the

decision to the U.S. Court of Appeals for the Third Circuit, which issued its decision on December 30, 2008. In that decision, the Third Circuit reversed the District Court’s summary judgment ruling, vacated the District Court’s awards to SAB and remanded the matter to the District Court for further consideration consistent with the Third Circuit’s findings. On January 13, 2009, SAB filed a petition for rehearing. On February 24, 2009, the Third Circuit granted that petition and that same day issued a new, broader opinion that again reversed, vacated and remanded the District Court’s decision. Consistent with those findings, we expect to prevail upon the District Court’s consideration; however, in the event that we are unsuccessful, there could be a material adverse effect on our financial statements for the period in which any judgment becomes final. We have not recorded any liability for this contingency.

     We currently have pending before the American Arbitration Association (AAA) the case of Stone & Webster, Inc. (S&W) v. Mitsubishi Heavy Industries, Ltd. and Mitsubishi Power Systems, Inc. (collectively, Mitsubishi). In that matter, S&W seeks approximately $38.0 million in damages from Mitsubishi. Mitsubishi denies liability and has asserted a counterclaim totaling approximately $29.0 million. On November 16, 2007, a majority of the AAA Tribunal transmitted a “Partial Final Award” granting certain relief to S&W contingent upon further proceedings with the Tribunal. Mitsubishi filed in U.S. District Court for the Southern District of New York a petition to vacate the award. On November 14, 2008, S&W filed with the S.D.N.Y. a petition and motion to confirm the Tribunal’s Partial Final Award. We anticipate the District Court will address the parties’ motions, while the Tribunal simultaneously moves forward with its further proceedings. We previously made provisions in our financial statements based on management’s judgment about the probable outcome of this case. If Mitsubishi prevails on its counterclaim and/or its petition to vacate as described above, we may not receive our claim for liquidated damages. In such an event, the individual or combined rulings could have a material adverse effect on our financial statements for the period in which any judgment becomes final.

     In connection with a services contract signed in 2000 for the construction of two nuclear power plants in Asia, we asserted claims against our customer before the host country’s arbitration association. In that arbitration, we sought an approximate $49.6 million increase in the contract target price that, if awarded, would eliminate potential penalties associated with cost incentive/penalty provisions set forth in the contract. If the arbitration association failed to award the target cost increase or it awarded an increase less than the requested amount, we faced an assessment of up to approximately $12.8 million in such penalties. Further, we sought from the customer approximately $22.2 million for reimbursement of severance and pension payments, unpaid invoices, increased overhead and outstanding fixed fee amounts. The client presented a counterclaim asserting $4.3 million in damages relating to alleged defective work and an additional $23.6 million for completion damages, though the contract limits such damages to $20.0 million. The customer further sought to keep $7.2 million in cash drawn on a previously issued letter of credit against the claims asserted. On September 3, 2008, the arbitration association rendered an award granting most of our claims and dismissing all of the customer’s counterclaims. We have initiated proceedings to enforce the award in both the host country and in the U.S. District Court for the Middle District of Louisiana. The customer has initiated proceedings in the host country to contest the award’s validity, oppose our enforcement actions and overturn the award. We have made provisions in our financial statements based on management’s judgment about the probable outcome of this case. If the customer prevails on its counterclaim for defective work and completion damages and/or its challenge of the existing award to us to increase the target contract price and other claims for compensation, the individual or combined rulings could have a material adverse effect on our financial statements.

     In connection with an international fixed price contract executed by our Fossil & Nuclear segment that is subject to a schedule of rates for changes and where our services include fabrication, erection and construction, we filed a Request for Arbitration with the London Court of International Arbitration. In the request, we currently seek claims of approximately $22 million in additional compensation from our client, the prime contractor on the project, related to delay and disruption, loss of profit on descoped areas and changed labor practices. In addition, we have requested additional compensation relative to remeasurements of quantities and scope variations from our client of approximately $14.5 million. On February 5, 2009, the client, who holds a $3.8 million performance letter of credit from us, filed a response that denied our claims and stated it had counterclaims totaling approximately $56.5 million related to certain alleged costs associated with completing work that the client removed from our scope and damages suffered because of our alleged failure to complete work in a timely manner. We have evaluated our claims and our client’s counterclaims and made provisions in our financial statements based on management’s judgment about the probable outcome of this arbitration. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if the client were to prevail completely or substantially in this matter, the outcome could have a material adverse effect on our statement of operations and statement of cash flows. The value of the claims and our letter of credit stated herein in U.S. dollars do fluctuate because of changes in the exchange rate of the Pound Sterling (GBP).

     See Note 15 — Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims, Unapproved Change Orders and Incentives for additional information related to our claims on major projects .

Environmental Liabilities

     LandBank, a subsidiary of our Environmental and Infrastructure (E&I) segment, acquires and remediates environmentally impaired real estate. The real estate is recorded at cost, which typically reflects some degree of discount due to environmental issues related to the real estate. As remediation efforts are expended, the book value of the real estate is increased to reflect improvements made to the asset. We had $26.5 million of such real estate assets recorded in other assets on the accompanying balance sheet at February 28, 2009 as compared to $27.5 million at August 31, 2008. Additionally, LandBank records a liability for estimated remediation costs for real estate that is sold, but for which the environmental obligation is retained. We also record an environmental liability for properties held by LandBank if funds are received from transactions separate from the original purchase to pay for environmental remediation costs. At February 28, 2009, our E&I segment had $5.1 million of environmental liabilities recorded in other liabilities in the accompanying balance sheets as compared to $5.7 million at August 31, 2008.

Employment Contracts

     We have entered into employment agreements with each of our senior corporate executives and certain other key employees. In the event of termination, these individuals may be entitled to receive their base salaries, bonuses and certain other benefits for the remaining term of their agreement and all options and similar awards may become fully vested. Additionally, for certain executives, in the event of death, their estates are entitled to certain payments and benefits.

Note 11 — Supplemental Disclosure to Earnings (Loss) Per Common Share

     Weighted average shares outstanding for the three and six months ended February 28, 2009 and February 29, 2008 were as follows (in thousands):

     The following table includes weighted-average shares excluded from the calculation of diluted income per share for the three and six months ended February 28, 2009 and February 29, 2008 because they were anti-dilutive (in thousands):

     The foreign currency translation adjustments relate primarily to changes in the value of the U.S. dollar in relation to British pounds, Mexican pesos, Canadian dollars and the Euro.

     In February 2009, we amended the terms and conditions of one of our pension plans and ceased future service and benefit accruals for all plan participants. This action meets the definition of a curtailment under FASB Statement No. 88 and resulted in a curtailment gain of approximately $2.7 million during the second quarter.

     We expect to contribute $16.7 million to our pension plans in the fiscal year 2009 calculated at the February 28, 2009 foreign currency exchange rates. At February 28, 2009, we have made $3.9 million in contributions to these plans.

Note 14 — Related Party Transactions

     We subcontracted a portion of our work with a company owned by an individual who, at the time, was one of our directors. Our Board had previously determined that this individual was considered non-independent. We had a balance of $0.2 million due to this company at February 28, 2009. We believe this subcontracted work was performed under similar terms as would have been negotiated with an unrelated party.

     On May 31, 2008, our interest in Shaw Waste Solutions, LLC (SWS) was purchased by an entity created by a former employee of ours and two minority shareholders of SWS who were also employees of SWS in exchange for cash of approximately $0.1 million and a promissory note for $2.25 million. Interest on the note is due semi-annually with a balloon payment due at the end of the five-year term.

     At February 28, 2009 and August 31, 2008, the amounts due to our Chief Executive Officer for a non-compete agreement associated with his employment contract, including interest earned, were $18.1 million and $18.0 million, respectively, and are included in current assets and current liabilities.

Note 15 —		Long-Term Construction Accounting for Revenue and Profit/Loss Recognition Including Claims, Unapproved Change Orders and Incentives

     Claims include amounts in excess of the original contract price (as it may be adjusted for approved change orders) that we seek to collect from our customers for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs and are included in estimated revenues when recovery of the amounts is probable and the costs can be reasonably estimated. Backcharges and claims against vendors, subcontractors and others are included in our cost estimates as a reduction in total estimated costs when recovery of the amounts is probable and the costs can be reasonably estimated. As a result, the recording of claims increases gross profit or reduces gross loss on the related projects in the periods the claims are reported. Profit recognition on claims is deferred until the change order has been approved or the disputed amounts have been settled. Claims receivable are included in costs and estimated earnings in excess of billings on uncompleted contracts, including claims on the accompanying consolidated balance sheets.

     We enter into cost-reimbursable arrangements in which the final outcome or overall estimate at completion may be materially different than the original contract value. While the terms of such contracts indicate costs are to be reimbursed by our customers, we typically process change notice requests to document agreement as to scope and price. Due to the nature of these items, we have not classified and disclosed the amounts as unapproved change orders. While we have no history of significant losses on this type of work, potential exposure exists relative to costs incurred in excess of agreed upon contract value.

Unapproved Change Orders and Claims

     Our consolidated revenues include amounts for unapproved change orders and claims on projects recorded on a percentage-of-completion basis. For the three and six months ended February 28, 2009, our revenues were increased by approximately $2.1 million and $20.2 million, respectively, related to unapproved change orders and claims.

     The table below (in millions) summarizes information related to our significant unapproved change orders and claims from project owners that we have recorded on a total project basis at February 28, 2009 and February 29, 2008, respectively, and excludes all unrecorded amounts and individually small-unapproved change orders and claims.

     The difference between the amounts included in project estimates-at-completion (EAC) used in determining contract profit or loss and the amounts recorded in revenues (or reductions to contract costs) on uncompleted contracts are the forecasted costs for work which have not yet been incurred (i.e. remaining percentage-of-completion revenue recognition on the related project).

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

     We have recorded $24.6 million in claim revenues in the current period’s financial results associated with recovery of our expected costs resulting from schedule delays and productivity impacts caused by owner-responsible contractors who are working on the same site as one of our on-going projects. The expected recovery was based on our assessment of the claim(s) and its probable resolution.

     Also included in unapproved change orders and claims is the matter currently in arbitration disclosed in additional detail in Note 10 — Contingencies and Commitments.

     In addition to the unapproved change orders and claims discussed above, we have recorded as a reduction to costs approximately $15.1 million, based on percentage completion accounting, in expected recoveries for backcharges, liquidated damages and other cost exposures resulting from supplier or subcontractor caused impediments to our work. Such impediments may be caused by the failure of suppliers or subcontractors to provide services, materials, or equipment compliant with provisions of our agreements, resulting in delays to our work or additional costs to remedy.

     Should we not prevail in these matters, the outcome could have an adverse effect on our statement of operations and statement of cash flows.

Project Incentives

     Our contracts contain certain incentive and award fees that provide for increasing or decreasing our revenue based on some measure of contract performance in relation to agreed upon performance targets. The recognition of revenues on contracts containing

provisions for incentive and award fees follows Statement of Position (SOP) 81-1, which provides that all components of contract revenues, including probable incentive payments such as performance incentives and award fees, should be considered in determining total estimated revenues.

     Our revenue estimates-at-completion include an estimate of amounts which we expect to earn if we achieve a number of agreed upon criteria. At February 28, 2009 and August 31, 2008, our project estimates included $40.6 million and $68.2 million, respectively, related to estimated achievement of these criteria. On a percentage-of-completion basis, we have recorded $15.3 million and $31.4 million of these estimated amounts in revenues for the related contracts and equal amounts in costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying balance sheet based on our progress as of February 28, 2009, and August 31, 2008, respectively. If we do not achieve the criteria at the amounts we have estimated, project revenues and profit may be materially reduced. These incentive revenue are being recognized using the percentage-of-completion method of accounting.

Note 16 — Business Segments

     Our reportable segments are Energy and Chemicals (E&C); Fossil & Nuclear; Maintenance; E&I; Pipe Fabrication and Manufacturing (F&M); Corporate and Investment in Westinghouse.

     The E&C segment provides a range of project-related services, including design, engineering, construction, procurement, technology and consulting services, primarily to the oil and gas, refinery, petrochemical and chemical industries.

     The Fossil & Nuclear segment provides a range of project-related services, including design, engineering, construction, procurement, technology and consulting services, primarily to the global fossil and nuclear power generation industries.

     The Maintenance segment performs routine and outage/turnaround maintenance, predictive and preventative maintenance, as well as construction and major modification services, to customers’ facilities in the industrial markets primarily in North America.

     The E&I segment designs and executes remediation solutions including the identification of contaminants in soil, air and water and provides integrated engineering, design and construction, regulatory, scientific and program management services for government and private-sector clients worldwide.

     The F&M segment provides integrated piping systems and services for new construction, site expansion and retrofit projects for energy and chemical plants. We operate several pipe fabrication facilities in the U.S. and abroad. We also operate two manufacturing facilities that provide products for our pipe fabrication services operations, as well as to third parties. In addition, we operate several distribution centers in the U.S., which distribute our products to our customers.

     The Corporate segment includes the corporate management and expenses associated with managing the overall company. These expenses include compensation and benefits of corporate management and staff, legal and professional fees and administrative and general expenses that are not allocated to the business units. Our Corporate assets primarily include cash and cash equivalents held by the corporate entities, property and equipment related to the corporate facility and certain information technology costs.

     The Investment in Westinghouse segment includes our Westinghouse Equity and the Westinghouse Bonds. Westinghouse serves the domestic and international nuclear electric power industry by supplying advanced nuclear plant designs and equipment, fuel and a wide range of other products and services to the owners and operators of nuclear power plants.

     Our segments’ revenues, gross profit and income (loss) before income taxes, minority interest and earnings (losses) from unconsolidated entities for the three and six months ended February 28, 2009 and February 29, 2008 were as follows:

     Our segments’ assets were as follows:

		February 28,				August 31,
(In millions)		2009				2008
Assets
Fossil & Nuclear		$	1,119.8			$	1,019.9
E&I			886.7				784.7
E&C			723.7				714.0
Maintenance			184.0				175.2
F&M			621.7				533.6
Investment in Westinghouse			1,127.8				1,167.9
Corporate			887.2				966.9
Total segment assets			5,550.9				5,362.2
Elimination of investment in consolidated subsidiaries			(412.1	)			(412.1	)
Elimination of intercompany receivables			(298.4	)			(299.1	)
Income taxes not allocated to segments			(63.8	)			(63.7	)
Total consolidated assets		$	4,776.6			$	4,587.3

Major Customers

     Revenues related to U.S. government agencies or entities owned by the U.S. government were $377.8 million and $702.4 million for the three and six months ended February 28, 2009, respectively, representing approximately 23% and 20%, respectively, of our total revenues for each period. For the three and six months ended February 29, 2008, we recorded revenues related to the U.S. government of approximately $259.2 million and $535.6 million, respectively, representing approximately 16% of our total revenues for each period. These revenues were primarily related to work performed in our E&I segment.

Note 17 — Fair Value Measurements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). We adopted SFAS for our fiscal year beginning August 31, 2008. SFAS 157 establishes a three-tier value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. We did not elect the fair value option and continue measuring those assets and liabilities at historical cost.

     At February 28, 2009, our financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

     We value the interest rate swap liability utilizing a discounted cash flow model that takes into consideration forward interest rates observable in the market and the firm’s credit risk. Our counterparty to this instrument is a major U.S. bank. As discussed in Note 7 — Long-Term Debt and Revolving Lines of Credit, we designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate related to our Westinghouse Bonds.

     We manage our currency exposures through the use of foreign currency derivative instruments denominated in our major currencies, which are generally the currencies of the countries for which we do the majority of our international business. We utilize derivative instruments to manage the foreign currency exposures related to specific assets and liabilities that are denominated in foreign currencies and to manage forecasted cash flows denominated in foreign currencies generally related to engineering and construction projects. Our counterparties to these instruments are major U.S. banks. These currency derivative instruments are carried on the consolidated balance sheet at fair value and are based upon market observable forward exchange rates and forward interest rates.

     We value derivative assets by discounting future cash flows based on currency forward rates. The discount rate used for valuing derivative assets incorporates counterparty credit risk, as well as the firm’s cost of capital. Derivative liabilities are valued using a discount rate which incorporates the firm’s credit risk.

Note 18 — New Accounting Pronouncements

     In June 2008, the FASB Staff Position ratified the consensuses of Emerging Issues Task Force (EITF) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (EITF 03-6-1). EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore, need to be included in the earnings allocation in computing earnings per share (EPS). This consensus is effective for our fiscal year beginning September 1, 2009. We are currently evaluating the impact of EITF 03-6-1 on our consolidated financial statements. We do not anticipate that the adoption of this pronouncement will have a material effect on our consolidated financial statements.

     In June 2008, the FASB ratified the consensuses of Emerging Issues Task Force (EITF) Issue No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (EITF 08-3). This consensus is effective for our fiscal year beginning September 1, 2009. We are currently evaluating the impact of EITF 08-3 on our consolidated financial statements. We do not anticipate that the adoption of this pronouncement will have a material effect on our consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the

parent and the interests of the noncontrolling owners. It is effective for our fiscal year beginning September 1, 2009 and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements shall be applied prospectively. We are currently evaluating the impact of adopting SFAS 160 on our consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R). SFAS 141R amends SFAS 141 and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in the acquired business. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It is effective for our fiscal year beginning September 1, 2009 and will be applied prospectively. We do not believe that adopting SFAS 141R will have a material impact on our historical consolidated financial statements but will impact our financial presentation to the extent we complete material acquisitions on or after September 1, 2009.

     In December 2007, the FASB ratified the consensus of Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1 applies to participants in collaborative arrangements that are conducted without the creation of a separate legal entity for the arrangement. EITF 07-1 is effective for our fiscal year beginning September 1, 2009, and the effects of applying the consensus should be reported as a change in accounting principle through retrospective application to all prior periods presented for all arrangements in place at the effective date unless it is impracticable. We do not believe that adopting SFAS 141R will have a material impact on our consolidated financial statements.

Note 20 — Restatement of Prior Fiscal Year Quarterly Consolidated Statements

     As reported in our Current Report on Form 8-K dated October 30, 2008, in connection with the preparation of our 2008 Form 10K, we determined that the net income for the three and six months ended February 29, 2008 should be reduced by $4.9 million, due primarily to an error on a coal power project in our Fossil & Nuclear segment with respect to the estimated cost at completion on a fixed-price contract. The adjustments to the three and six months ended February 29, 2008 include the correction of this error as well as other accumulated errors pursuant to Staff Accounting Bulletin 108 (SAB 108). The adjustments are consistent with those addressed in Note 21 — Quarterly Financial Data (Unaudited) and Current Year Corrections of Errors in Part II, Item 8 of our 2008 Form 10-K.

     The tables below provide the impact of the errors on our previously reported consolidated financial statements (dollars in thousands):