<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration Nos. 333-31609
and 333-35949
2,815,000 SHARES
UNIFAB INTERNATIONAL, INC.
[UNIFAB INTERNATIONAL LOGO] COMMON STOCK
Of the 2,815,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), of UNIFAB International, Inc. (the "Company") offered hereby,
1,100,000 shares are being sold by the Company and 1,715,000 shares are being
sold by McDermott Incorporated ("McDermott" or the "Selling Shareholder"). See
"Principal and Selling Shareholders." Prior to this offering (the "Offering"),
there has been no public market for the Common Stock. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "UFAB."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $18.00 $1.26 $16.74 $16.74
- --------------------------------------------------------------------------------------------------------------
Total(3).................. $50,670,000 $3,546,900 $18,414,000 $28,709,100
==============================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed separately to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company has granted to the several Underwriters an option for 30 days to
purchase up to an additional 422,250 shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if any.
If such option is exercised in full, the Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Shareholder will be
$58,270,500, $4,078,935, $25,482,465 and $28,709,100, respectively. See
"Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about September
24, 1997.
---------------------
MORGAN KEEGAN & COMPANY, INC. STEPHENS INC.
The date of this Prospectus is September 18, 1997.
<PAGE> 2
No. 1: Deck fabricated by the Company pictured after loading onto a barge for
delivery to a platform offshore.
No. 2: Deck with complex piping fabricated by the Company and loaded onto skids
to be moved onto a barge for transportation to a platform offshore.
No. 3: Platform jacket and three decks fabricated by the Company. The decks each
feature complex piping and helipads.
No. 4: Aerial view of the Company's 150 acre yard and surrounding areas located
at the Port of Iberia, Louisiana.
No. 5: Deck fabricated by the Company pictured during transportation by a tug
and delivery barge to a platform offshore.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto included elsewhere in
this Prospectus. UNIFAB International, Inc. (the "Company") was recently formed
to serve, upon completion of the Offering, as the parent corporation of
Universal Fabricators Incorporated ("Universal Fabricators"), 51% of the
outstanding common stock of which is currently owned by Universal Partners, Inc.
("Universal Partners") and 49% of such stock is owned by McDermott Incorporated
("McDermott"). Immediately prior to the completion of the Offering, Universal
Partners will exchange its shares of common stock of Universal Fabricators for
shares of the Company's Common Stock (the "Partners Share Exchange"), which will
be distributed to the shareholders of Universal Partners upon the dissolution of
Universal Partners which is expected to occur promptly after the completion of
the Offering. McDermott will also exchange its shares of common stock of
Universal Fabricators for shares of the Company's Common Stock (the "McDermott
Share Exchange"), all of which will be sold in the Offering. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised and that the Partners Share Exchange
and the McDermott Share Exchange each have been completed. As used herein,
unless the context requires otherwise, references to the "Company" include
Universal Fabricators and its predecessor. Certain technical terms are defined
in the "Glossary of Certain Technical Terms" appearing immediately before the
Index to Financial Statements.
THE COMPANY
GENERAL. UNIFAB International, Inc. is an industry leader in the custom
fabrication of decks and modules of drilling and production equipment weighing
up to 3,500 tons for offshore oil and gas platforms, based on the number of
decks delivered, and has special expertise in the fabrication of decks with
complex piping requirements. Decks and modules fabricated by the Company can be
installed on fixed and floating platforms regardless of water depth. The Company
also fabricates jackets for fixed platforms; pilings and other rolled tubular
steel sections; compressor and generator packages; platform living quarters;
subsea templates; bridges for connecting offshore platforms; wellhead
protectors; and modules for the onshore petrochemical and refining industries.
In addition, the Company refurbishes and retrofits existing jackets and decks
and performs offshore piping hook-up and platform maintenance services.
Structures fabricated by the Company are installed in oil and gas producing
waters around the world, primarily the U.S. Gulf of Mexico (the "Gulf of
Mexico") and offshore West Africa.
The Company, founded in 1980, has been profitable for each of the last five
years largely as a result of management's ability to control costs, provide high
quality, reliable services, and expand successfully into international markets.
The Company's revenue increased 139% from $27.9 million in its fiscal year ended
March 31, 1995 to $66.7 million in the fiscal year ended March 31, 1997. During
the same period, both the Company's workforce and direct labor hours worked
increased by approximately 105%.
Demand for the Company's services is primarily a function of worldwide
offshore oil and gas activity. Over the past four years, improvements in
production techniques and seismic and drilling technology, together with
relatively stable oil and gas prices, have resulted in accelerated drilling
activity in the Gulf of Mexico and continued strong activity levels worldwide.
The number of active offshore drilling rigs worldwide is at its highest point
since 1986. The average number of active offshore rigs in the Gulf of Mexico has
increased from approximately 80 for the year ended December 31, 1992 to more
than 155 for the year ended December 31, 1996.
Due to the time required to drill an exploratory offshore well, formulate a
development plan and design offshore platforms, the fabrication and installation
of such platforms usually lag exploratory drilling by one to three years. As a
result, high levels of drilling activity worldwide, particularly in the Gulf of
Mexico, have only recently impacted the demand for the Company's custom
fabrication services. The Company believes its strong presence in both overseas
markets and the Gulf of Mexico market, coupled with continued strong oil and gas
activity in these markets, has enabled it to selectively obtain high margin
fabrication work and benefit from increased pricing levels.
1
<PAGE> 4
The Company's operations are conducted on approximately 140 acres of land
and 225,000 square feet of covered fabrication area at the Port of Iberia,
approximately 20 miles southeast of Lafayette, Louisiana and 30 miles north of
the Gulf of Mexico. Current access routes to the Gulf of Mexico permit the
transporting of jackets for use in waters up to 300 feet deep and decks and
other structures weighing up to 3,500 tons. A by-pass along one of these
waterways could provide access from the Company's facilities to the Gulf of
Mexico for structures weighing up to 6,000 tons, if it were to be reopened and
dredged to sufficient depth. Local port commissions have proposed the reopening
and dredging of this by-pass with state and local funds. The Company believes
that there is widespread support for this proposal and that the by-pass may be
reopened within the next two years. No assurance can be given as to whether or
when such project will be completed or whether the increased channel depth will
be maintained. If the project is not completed by state or local authorities,
the Company could pay to have this bypass reopened and dredged, which expense
may be economically justifiable in connection with the large revenue amounts
typically derived from fabrication of large structures.
1992 EXPANSION TRANSACTION. The Company's predecessor, Universal Partners,
was organized in 1980 by its founder, Dailey J. Berard. In 1992, in order to
expand its capabilities at the Port of Iberia and meet increasing demand for its
services, Universal Partners entered into an agreement with McDermott, a
subsidiary of McDermott International, Inc. Universal Partners contributed as a
going concern to the then newly-formed Universal Fabricators approximately 50
acres of leased land, its buildings and fabrication equipment, and $2.4 million
in cash. McDermott contributed an inactive fabrication yard directly across a
canal from the land leased by Universal Partners, which included approximately
85 acres of land, 200,000 square feet of covered fabrication space and various
equipment. This transaction (the "Expansion Transaction") substantially enlarged
the Company's yard space and increased covered fabrication area from 25,000
square feet to approximately 225,000 square feet. Both before and after the
Expansion Transaction, the day-to-day operations of the Company have been
conducted by Dailey J. Berard and the other members of the Company's management
team.
In the Expansion Transaction, McDermott received 49% of the outstanding
stock of Universal Fabricators. McDermott will sell all of its shares of Common
Stock as part of the Offering in connection with a previously announced strategy
of returning to core businesses by disposing of certain assets, including
certain financial investments. The Company will use a portion of the proceeds of
the Offering to secure McDermott's release of its rights under certain
agreements entered into in connection with the Expansion Transaction.
GROWTH AND PROFITABILITY STRATEGY
The Company's growth and profitability strategy is to capitalize on the
positive trends and current opportunities in heavy marine fabrication for the
oil and gas industry. Key elements of the Company's strategy are to:
- PURSUE EXPANDING MARKETS. The Company intends to continue to pursue
high-margin fabrication work in both domestic and international offshore
oil and gas producing areas where demand for its services has
substantially increased over the last five years. In fiscal 1997, the
Company derived 36% of its revenue from projects designed for
installation in the Gulf of Mexico and believes that an increasing
portion of its capacity will be used to satisfy demand for such projects.
In addition, a series of large oil and gas projects are being developed
for offshore Nigeria, Mexico, Brazil and Venezuela. The Company believes
that these projects, as well as projects in the Gulf of Mexico, will
provide it with significant opportunities to obtain high-margin
fabrication work in both the current fiscal year and thereafter.
- EXPAND FACILITIES. The Company intends to use a portion of the proceeds
of the Offering to construct a new slip and bulkhead and develop the
adjacent yard space that will enable the Company to construct and load
out projects weighing up to 6,000 tons. In addition, the Company intends
to acquire and install a new four-inch rolling mill which will enable the
Company to satisfy all of its rolled good requirements in-house,
including larger diameter pipe not currently rolled by the Company. The
Company believes that the enhanced capabilities provided by the new
facilities will provide the
2
<PAGE> 5
Company with opportunities to satisfy its customers' increasing needs for
structures usable in deep waters throughout the world.
- MANAGE BACKLOG. The Company has historically attempted to manage its
backlog in order to benefit from pricing trends. In periods of rising
prices, the Company intentionally avoids building high levels of backlog
in order to maximize its ability to pursue higher margin projects. The
Company believes that, as a low-cost fabricator, it is well positioned to
benefit from this strategy.
- IMPROVE WORKFORCE EFFICIENCY. The Company believes that its success has
been founded on its well motivated workforce, efficient management and
low overhead costs. To take advantage of the increased demand for its
services, the Company will continue to emphasize its low cost structure
and will seek to increase the productivity of its workforce by using a
portion of the proceeds of the Offering to purchase additional automated,
labor-saving equipment and to expand and upgrade its existing buildings
and equipment. The Company also intends to expand its investment in
employee education and training in order to upgrade employee skill levels
and productive capacity.
- INCREASE EMPLOYEE POOL. In fiscal 1997, the Company added approximately
86 full-time production employees to its workforce. The Company estimates
that its current facility could accommodate a workforce of more than
double the 408 workers employed by the Company at July 31, 1997. The
Company intends to continue its efforts to increase its skilled workforce
in order to increase the Company's production capacity. To address the
current shortage of skilled workers in south Louisiana, the Company has
been cooperating with local and regional associations and government
authorities to foster the training of skilled workers. The Company
believes that there is a large number of trainable employees residing in
reasonable proximity to its facility. The Company further believes that
companies whose products and services are complementary to those of the
Company are available for acquisition and that its capital structure
after the Offering will enable it to pursue such acquisition
opportunities as a means of expanding its skilled workforce.
The Company is incorporated under the laws of the State of Louisiana, its
principal executive offices are located at 5007 Port Road, New Iberia, Louisiana
70562, its mailing address is P.O. Box 11308, New Iberia, Louisiana 70560 and
its telephone number is (318) 367-8291.
3
<PAGE> 6
THE OFFERING
Common Stock offered:
By the Company........... 1,100,000
By the Selling
Shareholder................ 1,715,000
Total.................... 2,815,000
Common Stock to be
outstanding after the
Offering................. 4,600,000 shares(1)
Use of Proceeds............ To fund (i) approximately $7.0 million of capital
expenditures for certain new equipment, slips,
bulkheads and load out systems and for the upgrade
and purchase of yard space, land, buildings and
equipment and (ii) a $6.3 million payment to
McDermott for the surrender of its rights under the
Shareholders' Agreement and the Put/Call Agreement.
See "The Company" and "Certain Transactions." The
balance of the proceeds will be used to provide
working capital and for general corporate purposes.
See "Use of Proceeds."
The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholder.
Nasdaq National Market
Symbol................... UFAB
- ---------------
(1) Excludes 133,500 shares issuable upon exercise of outstanding options. See
"Management -- Compensation Pursuant to Plans -- Long-Term Incentive Plan."
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In particular, prospective investors should be aware of the effect on the
Company of the risks presented by the factors listed under "Risk Factors."
4
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary historical financial and operating
data as of the dates and for the periods indicated. The historical financial
data for each year in the three-year period ended March 31, 1997, and as of
March 31, 1997, are derived from the audited financial statements of Universal
Fabricators. The summary financial data as of June 30, 1997 and for the three
months ended June 30, 1996 and 1997 are derived from the unaudited financial
statements of Universal Fabricators for such periods. In the opinion of
management, the unaudited financial statements of Universal Fabricators reflect
all adjustments (consisting of only normal recurring adjustments) necessary for
fair presentation of the financial condition and results of operations for these
periods. Results for interim periods are not necessarily indicative of results
for a full year. Immediately prior to completion of the Offering, Universal
Fabricators will become a wholly owned subsidiary of UNIFAB International, Inc.,
which will have no other significant operations or assets. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------------------------------- -------------------
1993(1) 1994 1995 1996 1997 1996 1997
------- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue.................................... $25,369 $29,926 $ 27,883 $ 51,807 $ 66,724 $ 18,419 $ 15,503
Cost of revenue............................ 21,239 27,211 23,174 40,362 58,589 16,295 13,314
------- ------- -------- -------- -------- -------- --------
Gross profit............................... 4,130 2,715 4,709 11,445 8,135 2,124 2,189
General and administrative expense......... 1,207 1,228 1,326 1,419 1,637 342 409
------- ------- -------- -------- -------- -------- --------
Operating income........................... 2,923 1,487 3,383 10,026 6,498 1,782 1,780
Other income (expense), net................ 84 21 38 315 82 26 24
------- ------- -------- -------- -------- -------- --------
Income before income taxes................. 3,007 1,508 3,421 10,341 6,580 1,808 1,804
Income tax expense......................... 1,112 555 1,286 3,888 2,555 709 660
------- ------- -------- -------- -------- -------- --------
Net income................................. $ 1,895 $ 953 $ 2,135 $ 6,453 $ 4,025 $ 1,099 $ 1,144
======= ======= ======== ======== ======== ======== ========
Net income per share (unaudited)(2)........ $ 0.54 $ 0.27 $ 0.61 $ 1.84 $ 1.15 $ 0.31 $ 0.33
======= ======= ======== ======== ======== ======== ========
Pro forma net income per share
(unaudited)(3)........................... $ 0.88 $ 0.25
======== ========
Cash dividends declared per common share
(unaudited)(2)........................... -- -- $ 0.25 $ 0.55 $ 1.66 $ 1.66 $ 1.03
Weighted average common shares
(unaudited)(2)........................... 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Other Financial Data:
Depreciation and amortization.............. $ 100 $ 381 $ 424 $ 390 $ 471 96 124
Capital expenditures....................... $ N/A(4) $ 110 $ 179 $ 402 $ 821 325 50
Net cash provided by (used in) operating
activities............................... N/A(4) (480) 3,392 4,285 2,328 1,570 5,643
Net cash provided by (used in) investing
activities............................... N/A(4) (110) (170) (394) (803) (318) (50)
Net cash provided by (used in) financing
activities............................... N/A(4) 531 (1,389) (1,921) (5,807) (2,962) (3,622)
EBITDA(5).................................. $ 3,023 $ 1,868 $ 3,807 $ 10,416 $ 6,969 1,878 1,904
EBITDA margin(5)........................... 11.9% 6.2% 13.7% 20.1% 10.4% 10.2% 12.3%
Operating Data:
Direct labor hours worked.................. N/A(4) N/A(4) 436,000 656,000 902,000 218,000 260,000
Number of employees (at end of period)..... 212 215 205 319 414 375 383
Backlog (at end of period)................. $ 6,976 $ 8,917 $ 31,994 $ 42,311 $ 30,221 $ 35,426 $ 21,142
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Industry Data:
U.S. Gulf of Mexico:
Rig utilization rates(6)................................ 49.3% 76.5% 76.2% 76.2% 88.0%
Blocks leased(7)........................................ 204 336 560 835 1,508
Drilling rigs under contract(8)......................... 79 116 133 135 158
Offshore platforms installed(9)......................... 53 81 127 89 114
Worldwide:
Rig utilization rates(6)................................ 76.0% 81.9% 81.1% 83.9% 89.5%
Drilling rigs under contract(8)......................... 519 545 536 541 572
Offshore platforms installed(9)......................... 192 219 252 187 230
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $ 5,788 $10,503
Property, plant and equipment, net........................ 5,267 12,267
Total assets.............................................. 22,412 34,127
Debt...................................................... -- --
Shareholders' equity...................................... 9,723 21,438
</TABLE>
- ---------------
(1) The income statement data, other financial data and operating data include
the results of Universal Partners for the period from April 1, 1992 through
November 30, 1992 and Universal Fabricators for the period from December 1,
1992 through March 31, 1993.
(2) The unaudited share and per share data give retroactive effect to the
completion of the Partners Share Exchange and the McDermott Share Exchange.
See "The Company."
(3) Assumes (i) the completion of the Partners Share Exchange and the McDermott
Share Exchange and (ii) the public offering of 1,100,000 shares of Common
Stock by the Company at an initial public offering price of $18.00 per
share resulting in net proceeds of $18.0 million (after deducting the
underwriting discount and estimated expenses of the Offering) and the
application thereof as described herein. See "Use of Proceeds."
(4) Information not available.
(5) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization. EBITDA margin is calculated by dividing EBITDA by
revenue. Neither EBITDA nor EBITDA margin should be considered as an
alternative to net income, or any other measure of operating performance in
accordance with generally accepted accounting principles. EBITDA and EBITDA
margin are widely used by financial analysts as a measure of financial
performance. The Company's measurements of EBITDA and EBITDA margin may not
be comparable to similarly titled measures reported by other companies.
(6) Represents the average utilization rate for drilling rigs located in the
U.S. Gulf of Mexico and worldwide, respectively, during the period
indicated. Data obtained from Offshore Data Services.
(7) Represents the number of 5,000 acre tracts leased by the Minerals
Management Service (United States Department of the Interior) ("MMS") to
oil and gas companies in the U.S. Gulf of Mexico. Data obtained from the
MMS.
(8) Represents the average number of drilling rigs under contract in the U.S.
Gulf of Mexico and throughout the world, respectively, for the period
presented. Data obtained from Offshore Data Services.
(9) Represents the number of decks installed on fixed development drilling and
production platforms installed in the U.S. Gulf of Mexico and worldwide,
respectively, in the period presented. Data obtained from Offshore Data
Services.
6
<PAGE> 9
THE COMPANY
UNIFAB International, Inc., was formed as a Louisiana corporation in July
1997 to serve as the parent corporation for Universal Fabricators, a Delaware
corporation established in 1992. Universal Fabricators' predecessor, Universal
Partners, was organized as a Louisiana corporation in 1980 by its founder,
Dailey J. Berard.
In 1992, in order to expand its capabilities at the Port of Iberia and meet
increasing demand for its services, Universal Partners entered into an agreement
with McDermott, pursuant to which (i) Universal Partners contributed as a going
concern to the then newly-founded Universal Fabricators approximately 50 acres
of leased land, its buildings and fabrication equipment, and $2.4 million cash,
and (ii) McDermott contributed an inactive fabrication yard directly across a
canal from the land leased by Universal Partners, which included approximately
85 acres of land, 200,000 square feet of covered fabrication space and various
equipment. In exchange, Universal Partners received 51% and McDermott received
49% of the common stock of Universal Fabricators. The Expansion Transaction
became effective December 1, 1992 and substantially enlarged the Company's yard
space and increased its covered fabrication space from 25,000 square feet to
225,000 square feet. Both before and after the Expansion Transaction, the
day-to-day operations of the Company have been conducted by Dailey J. Berard and
the other members of the Company's management team. Although McDermott
representatives have occupied two of five seats on Universal Fabricators' board
of directors, McDermott has remained essentially a passive investor.
In connection with the Expansion Transaction, Universal Partners and
McDermott entered into several agreements which set forth their respective
rights and obligations with respect to Universal Fabricators and the shares of
common stock of Universal Fabricators owned by each of them, all of which will
be terminated in connection with the Offering:
Shareholders' Agreement: Pursuant to the shareholders' agreement (the
"Shareholders' Agreement") between Universal Partners and McDermott, each
party has a right of first refusal with respect to sales of common stock of
Universal Fabricators by the other. In addition, no transfer of such common
stock is allowed until December 1999, and public offerings of the common
stock are prohibited, unless the parties agree otherwise. The Shareholders'
Agreement also provides for a five-member board of directors, three of whom
are to be elected by Universal Partners and two by McDermott. Most major
transactions and changes in corporate governance must be approved by either
the unanimous vote of the shareholders or a majority vote of the board of
directors, which majority includes at least one director elected by each
party. The Shareholders' Agreement also provides that, unless determined
otherwise by a majority of directors including at least one director
elected by each party, 90% of Universal Fabricators' net income for each
year, less reserves, must be distributed to shareholders as dividends.
Put/Call Agreement: Pursuant to an agreement entered into between
Universal Partners and McDermott (the "Put/Call Agreement"), Universal
Partners has the right to require McDermott to purchase all of its shares
of common stock in Universal Fabricators at a purchase price equal to 51%
of the product of (i) 4.5 and (ii) Universal Fabricators' average net
income for the two years prior to the exercise of the put option. Universal
Partners may exercise its right at any time from April 1, 1998 to June 30,
1998 and from April 1, 1999 to June 30, 1999. McDermott, on the other hand,
from April 1, 1999 to June 30, 1999, has the right to purchase Universal
Partners' shares of common stock in Universal Fabricators at the same
purchase price.
Other Agreements: McDermott and Universal Fabricators also entered
into a lease covering Universal Fabricators' administrative office and five
acres of surrounding land. McDermott is also the guarantor of Universal
Fabricators' revolving line of credit with a commercial lender (the
"Existing Credit Facility") and has guaranteed certain letters of credit
issued under the Existing Credit Facility and by certain other banks in
connection with certain foreign contracts.
Immediately prior to the completion of the Offering, Universal Partners
will exchange its shares of common stock of Universal Fabricators for 1,785,000
shares of the Company's Common Stock, which will be distributed to the
shareholders of Universal Partners in connection with the dissolution of
Universal Partners,
7
<PAGE> 10
which is expected to occur promptly after the completion of the Offering.
Concurrently, McDermott will exchange all of the shares of Universal Fabricators
common stock owned by it for 1,715,000 shares of Common Stock of the Company.
McDermott has agreed that in the Offering it will sell all of the shares of
Common Stock of the Company it receives pursuant to the McDermott Share
Exchange, and that upon consummation of the Offering, it will (i) sell to the
Company approximately 18 acres of land, including the land and building
currently leased by the Company from McDermott, for $700,000 and (ii) surrender
all of its rights under the Shareholders' Agreement and the Put/Call Agreement
for $6.3 million. See "Certain Transactions" and "Use of Proceeds." In addition,
McDermott will no longer guarantee borrowings under the Existing Credit Facility
or provide credit support for any of the letters of credit issued on behalf of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
8
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
investment considerations set forth below, as well as the other information
contained in this Prospectus.
CYCLICALITY; DEPENDENCE ON ACTIVITY IN THE OIL AND GAS INDUSTRY
The demand for the Company's services has traditionally been cyclical,
depending on the condition of the oil and gas industry and, in particular, the
level of capital expenditures of oil and gas companies that operate in offshore
oil and gas producing areas throughout the world. These capital expenditures
have been influenced by prevailing oil and natural gas prices; exploration and
production companies' expectations about future demand and prices; the cost of
exploring for, producing and delivering oil and gas; the sale and expiration
dates of offshore leases in the United States and overseas; the discovery rate
of new oil and gas reserves in offshore areas; local and international political
and economic conditions; and the ability of oil and gas companies to access or
generate capital sufficient to fund capital expenditures for offshore
exploration, development and production activities. Historically, oil and
natural gas prices and the level of offshore drilling and exploration activity
have fluctuated substantially, resulting in significant fluctuations in demand
for the Company's services. A significant decline in worldwide demand or
prolonged reduction in oil or natural gas prices in the future would likely
depress offshore drilling and development activity. A substantial reduction of
such activity would reduce demand for the Company's services and could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
NEED FOR SKILLED WORKERS
The Company's ability to remain productive and profitable depends
substantially on its ability to retain and attract skilled construction workers,
primarily welders, fitters and equipment operators. The Company's ability to
expand its operations depends primarily on its ability to increase its skilled
workforce. The demand for skilled workers in south Louisiana is high and the
supply of skilled workers is extremely limited, and no assurance can be given
that the Company will succeed in increasing the size of its workforce through
acquisitions, training, new hiring programs or otherwise. Although the Company
believes that there are a large number of trainable workers residing in
reasonable proximity to its facilities, there can be no assurances that the
Company will be successful in recruiting and training such workers due to a
variety of factors, including the current skill levels of such workers, the
potential inability or lack of desire by such workers to either commute to the
Company's facilities or relocate to areas closer to the Company's facilities,
and competition for workers from other industries. While the Company believes
that its wage rates are competitive and that its relationship with its skilled
workforce is good, a significant increase in the wages paid by competing
employers could result in a reduction in the Company's skilled workforce,
increases in the wage rates paid by the Company, or both. If either of these
events occur, in the near term, the profits realized by the Company from work in
progress would be reduced or eliminated and, in the long term, the production
capacity and profitability of the Company could be diminished and the growth
potential of the Company could be impaired. As another part of its strategy to
increase its employee pool, the Company plans to pursue acquisitions of
companies whose services are complementary to those of the Company. There can be
no assurance, however, that the Company will be able to identify and acquire
acceptable acquisition candidates on terms favorable to the Company or that the
Company will be able to integrate such acquisitions successfully. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Employees."
FACILITY LIMITATIONS
The Company owns one two-inch rolling mill, which currently supplies
approximately 80% of the rolled goods necessary to complete the Company's
projects. Although the rolling mill has not caused any substantial downtime for
the Company, it is an older piece of equipment that requires constant
maintenance. If the rolling mill were to become inoperable for a material amount
of time, the Company would be forced to purchase rolled goods from other
suppliers. There can be no assurance as to the Company's ability to purchase
such
9
<PAGE> 12
goods in the quantities desired and there can be no assurance that the prices at
which these products may be purchased would not be materially higher than the
internal costs that the Company would otherwise bear in producing such rolled
goods. The loss of the rolling mill for a significant period would have a
material adverse effect on the Company's results of operations. The Company
obtains the remainder of its rolled goods from various regional suppliers. As
demand for fabricated services increases, the Company's ability to obtain the
rolled steel that it needs at acceptable prices decreases. If the Company were
not able to obtain such products or if prices for such goods became
prohibitively expensive, the Company's profitability and results of operations
could be materially adversely affected. See "Business -- Facilities and
Equipment -- Equipment" and "-- Materials."
Due to the limitations of the various access routes from the Company's
facilities at the Port of Iberia to the Gulf of Mexico, the Company is currently
unable to deliver structures weighing over 3,500 tons. One main route to the
Gulf of Mexico, the Freshwater Bayou Channel, provides 12 feet of water depth to
the Gulf of Mexico, but the dimensions of locks on this channel prevent the
transport of structures more than 80 feet in width. There is a by-pass channel
around these locks that, if usable, would permit continuous passage to the Gulf
of Mexico with at least 12 feet of water depth at all points and without any
material width restrictions. This water depth would generally permit the
transportation of structures weighing up to 6,000 tons, which the Company will
be able to fabricate once the new slip and bulkhead is constructed (to be funded
with a portion of the proceeds of this Offering). Due to the silt that has built
up on both sides of the by-pass, however, the by-pass is currently impassable
without extensive dredging. On the basis of amounts spent in the past by
contractors other than the Company in order to facilitate the transportation of
certain structures, it is estimated that the cost of dredging the silt from the
by-pass and opening the by-pass channel would be approximately $400,000 to
$500,000. Recently, the Abbeville Port Commission has proposed that the State of
Louisiana fund the reopening and dredging of the by-pass, a project that would
open the by-pass for at least one year and possibly longer, depending upon the
extent of future traffic through the by-pass. The Company believes that there is
widespread support for this proposal and that the by-pass may be reopened within
the next two years. There can be no assurance as to whether or when such project
will be completed or whether the increased channel depth will be maintained. If
this project is not completed by the state, the Company would remain unable to
deliver structures weighing over 3,500 tons unless it determined to incur the
additional dredging costs described above.
BACKLOG
The Company's backlog is based on management's estimate of the remaining
labor, material and subcontracting costs to be incurred with respect to those
projects on which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts, letters of intent, or other
forms of authorization. Most projects currently included in the Company's
backlog are subject to change and/or termination at the option of the customer,
either of which could substantially change the amount of backlog currently
reported. In the case of a termination, the customer is generally required to
pay the Company for work performed and materials purchased through the date of
termination, and in some cases, pay the Company termination fees; however, due
to the large dollar amounts of backlog estimated for each of a small number of
projects, amounts included in the Company's backlog could decrease substantially
if one or more of these projects were to be terminated by the Company's
customers. Approximately 57% of the Company's backlog at June 30, 1997 was
attributable to two projects. Termination of one or more of these large projects
could have a material adverse effect on the Company's revenue, net income and
cash flow for fiscal 1998. While the Company has restrained the growth of its
backlog in order to improve the prices it obtains for its services, such a
strategy in times of decreasing demand or increasing lead times for purchases of
materials could accelerate a decline in the Company's profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Backlog."
OPERATING RISKS
The Company's fabrication of large steel structures involves certain
operating hazards that can cause personal injury or loss of life, severe damage
to and destruction of property and equipment and suspension of
10
<PAGE> 13
operations. The failure of such structures during and after installation can
result in similar injuries and damages. The Company also has employees engaged
in offshore operations that are covered by provisions of the Jones Act, the
Death on the High Seas Act and general maritime law, which laws operate to make
the liability limits established by state workers' compensation laws (which
cover the Company's other employees) inapplicable to these employees and,
instead, permit them or their representatives to pursue actions against the
Company for damages for job-related injuries, with generally no limitations on
the Company's potential liability. In addition, due to their proximity to the
Gulf of Mexico, the Company's facilities are subject to the possibility of
physical damage caused by hurricanes or flooding. Although the Company maintains
such insurance protection as it considers economically prudent, there can be no
assurance that its insurance will be sufficient or effective under all
circumstances or against all claims or hazards to which the Company may be
subject, nor does the Company carry insurance for the loss of profits that may
result from such hazards. A successful claim or damage resulting from a hazard
for which the Company is not fully insured could have a material adverse effect
on the Company. Moreover, no assurance can be given that the Company will be
able to maintain adequate insurance in the future at rates that it considers
economically prudent. See "Business -- Insurance."
A majority of the Company's revenue in recent years has resulted from
projects constructed for overseas installation. Although the Company delivers
the structures that it fabricates at its Port of Iberia facility and has
historically received payment only in United States dollars, the Company is
nevertheless subject to delays in collecting receivables from contractors and
oil and gas companies with respect to projects installed overseas. Oil and gas
operations in overseas locations in which the Company's products have been
installed are subject to a number of risks inherent in business operations in
foreign countries, including political, social and economic instability;
nullification, modification or renegotiation of contracts; import-export quotas;
and other forms of public and governmental regulation, all of which are beyond
the control of the Company. Additionally, the ability of the Company to compete
in international markets may be adversely affected by import duties and fees, by
foreign taxes, by foreign governmental regulations that favor or require the
awarding of contracts to local contractors, or by regulations requiring foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction.
CONTRACT BIDDING RISKS
Due to the nature of the marine construction industry, most of the
Company's projects are performed pursuant to fixed-price contracts, although
some projects are performed on a time and materials basis. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General." Under fixed-price contracts, the Company receives the
price fixed in the contract, subject to adjustment only for change orders placed
by the customer. As a result, with respect to fixed-price contracts, the Company
is responsible for all cost overruns. Under time and materials arrangements, the
Company receives a specified hourly rate for direct labor hours (which exceeds
its direct labor costs) and a specified percentage mark-up over its cost for
materials. As a result, with respect to time and materials contracts, the
Company is protected against cost overruns but does not benefit directly from
cost savings. The revenue, costs and gross profit realized on a contract will
often vary from the estimated amounts on which such contracts were originally
based for various reasons, including errors in estimates or bidding, changes in
the availability and cost of labor and material and variations in productivity
from the original estimates. These variations and the risks inherent in the
marine construction industry may result in revenue and gross profits different
from those originally estimated and reduced profitability or losses on projects.
Depending on the size of a project, variations from estimated contract
performance can have a significant impact on the Company's operating results for
any particular fiscal quarter or year.
Most of the Company's fixed price contracts also provide for incentive
payments for early delivery of projects and liquidated damages for late
delivery. If the Company were to miss the delivery date specified by any of its
contracts, whether due to problems with its rolling mill, labor shortages,
adverse weather conditions or other causes, and such delay was not excused under
the terms of such contract or by the customer, the Company could be subject to
liquidated damages which could materially adversely affect the Company's
profitability and results of operations.
11
<PAGE> 14
PERCENTAGE-OF-COMPLETION ACCOUNTING
Most of the Company's revenue and income is recognized on a
percentage-of-completion basis based on the ratio which labor and subcontracting
costs incurred bears to the total estimated labor and subcontracting costs
required for completion. Accordingly, expected labor hours, costs and profits
are reviewed monthly as the work progresses, and adjustments proportionate to
the percentage of completion are reflected in revenue for the period when such
estimates are revised. To the extent that these adjustments result in a
reduction or elimination of previously reported profits, the Company would have
to recognize a charge against current earnings, which may be significant
depending on the size of the project or the adjustment. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
SEASONALITY AND WEATHER RISKS
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Since most of the Company's construction
activities take place outdoors, the average number of direct labor hours worked
per day generally declines by approximately one and one-half hours in the winter
months as compared to the summer months due to an increase in rainy and cold
conditions and a decrease in daylight hours. Operations may also be affected by
the rainy weather, hurricanes and other storms prevalent along the Gulf Coast
throughout the year. As a result, the Company's revenue and gross profit during
the third and fourth quarters of each fiscal year are subject to being
disproportionately low as compared to the first and second quarters, although,
in recent years, that has not been the case. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year to year.
For example, the Company's largest customers (those which individually accounted
for more than 10% of revenue in a given year) collectively accounted for 39.3%
(two customers), 64.4% (two customers) and 60.6% (two customers) of revenue for
fiscal 1995, 1996 and 1997, respectively. At June 30, 1997, 57% of the Company's
backlog was attributable to two projects.
Although the Company's direct customers on many projects are installation
contractors, each project is ultimately fabricated for use by an oil and gas
company. The Company, from time to time, contracts with multiple installation
contractors who may be supplying structures to the same oil and gas company and,
in some instances, contracts directly with the oil and gas companies. Thus,
concentration among the Company's customers may be greater when the customer is
viewed as the oil and gas company rather than the installation contractor. For
example, at June 30, 1997, the Company estimates that approximately 89% of its
backlog was for projects to be built for three oil and gas companies.
Because the level of fabrication that the Company may provide, directly or
indirectly, to any particular oil and gas company depends, among other things,
on the size of that company's capital expenditure budget devoted to platform
construction in a particular year and the Company's ability to meet the
customer's delivery schedule, companies that account for a significant portion
of the Company's revenue in one fiscal year, whether as a direct customer or
through subcontracted projects, may represent an immaterial portion of revenue
in subsequent years. The level of fabrication that the Company may provide as a
subcontractor to an offshore construction company depends, among other things,
on the ability of that company to successfully obtain prime contracts with oil
and gas companies and the ability of the Company to meet the delivery schedule
of the prime contractor. Thus, the prime contractors who account for a
significant portion of revenue in one fiscal year may represent an immaterial
portion of revenue in subsequent years. However, the loss of any significant
customer (whether an oil and gas company with which the Company directly
contracts or a prime contractor for which the Company has provided services on a
subcontract basis) for any reason, including a sustained decline in an oil and
gas company's capital expenditure budget or the prime contractor's inability to
successfully obtain contracts, or other competitive factors, could result in a
substantial loss of revenue and have a material adverse effect on the Company's
operating performance. See "Business -- Customers and Contracting."
12
<PAGE> 15
COMPETITION
Marine construction companies servicing the oil and gas industry compete
intensely for available projects. Contracts for the Company's services are
generally awarded on a competitive bid basis. Price and the contractor's ability
to meet a customer's delivery schedule are the principal factors in determining
which qualified contractor is awarded the job. Customers may also consider,
among other things, the availability and capabilities of equipment, as well as
the reputation, experience and safety record of the contractor. The Company
competes with both large and small companies, and certain of these competitors
have greater financial and other resources than the Company. In addition,
because of subsidies, import duties and fees, taxes imposed on foreign operators
and lower wage rates in foreign countries, along with fluctuations in the value
of the U.S. dollar and other factors, the Company may not be able to remain
competitive with foreign contractors for projects designed for use in
international locations. See "Business -- Competition."
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to and affected by
various types of governmental regulation, including workplace safety regulations
and numerous federal, state and local environmental protection laws and
regulations, compliance with which is becoming increasingly expensive. Such laws
and regulations are complex, stringent and are often changed. Sanctions for
noncompliance may include revocation of or suspension of permits, corrective
action orders, cease and desist orders, administrative or civil penalties and
criminal prosecution. There can be no assurance that the Company is or will be
at all times in full compliance with all applicable laws and regulations.
Failure to comply could have a material adverse effect on the Company.
Certain environmental laws provide for strict, joint and several liability,
without regard to fault or negligence, for remediation of spills and other
releases of hazardous substances. In addition, companies may be subject to
claims alleging personal injury, property damage or natural resource damage as a
result of the handling of hazardous substances. These laws and regulations may
also expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed.
In addition, the Company depends on the demand for its services from the
oil and gas industry and is affected by changing taxes, price controls and other
laws and regulations relating to the oil and gas industry generally. The
adoption of laws and regulations curtailing exploration and development drilling
for oil and gas for economic, environmental and other policy reasons would
adversely affect the Company's operations by limiting demand for its services.
The Company cannot determine to what extent future operations and earnings of
the Company may be affected by new legislation, new regulations or changes in
existing regulations. See "Business -- Government and Environmental Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends on, among other things, the continued active
participation of Dailey J. Berard, President and Chief Executive Officer of the
Company, and certain of the Company's other officers and key operating
personnel. The loss of the services of any one of these persons could have a
material adverse effect on the Company. See "Management."
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of the Offering, the Company will have outstanding
4,600,000 shares of Common Stock (excluding 133,500 shares issuable upon the
exercise of outstanding options). All of the 2,815,000 shares of Common Stock
offered hereby will be eligible for sale in the public market without
restriction upon completion of the Offering. All of the remaining 1,785,000
shares of Common Stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
The Company, each of the Company's directors and executive officers and certain
shareholders have agreed not to offer, sell or otherwise dispose of any shares
of Common Stock in the public market for 180 days from the date of this
Prospectus without the prior consent of the Underwriters. See "Underwriting."
Subject to this
13
<PAGE> 16
agreement, after the completion of the Offering, the Company's existing
shareholders may sell shares of Common Stock pursuant to Rule 144 under the
Securities Act or otherwise. In addition upon completion of the Offering, the
Company will enter into an employment agreement with Dailey J. Berard (a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part), which grants Mr. Berard the right to demand
registration of all of the shares of Common Stock owned by him (subject to a
minimum of 100,000 shares) if Mr. Berard's employment as President and Chief
Executive Officer of the Company is terminated for any reason except death,
disability or Cause (as defined therein). Although the Company cannot predict
the timing or amount of future sales of Common Stock or the effect that the
availability of such shares for sale will have on the market price prevailing
from time to time, sales of substantial amounts of Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. See "Principal and Selling Shareholders" and "Shares Eligible for
Future Resale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF MARKET PRICE; DILUTION
Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made to list the Common Stock offered
hereby on the Nasdaq National Market, there can be no assurance that a market
for the Common Stock will develop or, if developed, will be sustained. The
initial public offering price of the Common Stock will be determined by
negotiations between the Company, the Selling Shareholder and the Underwriters.
For the factors considered in such negotiations, see "Underwriting." There can
be no assurance that future market prices at which the Common Stock will sell in
the public market after the Offering will not be lower than the initial public
offering price. Following the Offering, the market price of the Common Stock may
fluctuate depending on various factors, including the general economy, stock
market conditions, general trends in the marine construction business,
fluctuations in oil and gas prices, announcements by the Company or its
competitors and variations in the Company's quarterly and annual operating
results. In addition, purchasers of the Common Stock offered hereby will incur
immediate dilution of $32.9 million ($11.70 per share) in the pro forma net
tangible book value of their investment. See "Dilution."
DIVIDENDS
The Company currently intends to retain earnings, if any, to meet its
working capital requirements and to finance the future operation and growth of
the Company's business and, therefore, does not plan to pay cash dividends to
holders of its Common Stock in the foreseeable future. See "Dividend Policy."
14
<PAGE> 17
USE OF PROCEEDS
The estimated net proceeds to the Company from the sale of the shares of
Common Stock offered hereby, after deducting the underwriting discount and
offering expenses, will be approximately $18.0 million. The Company intends to
use approximately $7.0 million of its net proceeds to fund capital expenditures
anticipated to be made within 12 months of the completion of the Offering to
improve the Company's facilities and the productivity of its workforce,
including approximately $4.0 million to acquire and install a four-inch rolling
mill, approximately $1.7 million to construct a new slip and bulkhead and to
build a new load out system for use with the new slip, approximately $500,000 to
expand and improve the Company's pipe shop, $700,000 to purchase approximately
18 acres of land from McDermott, including the land currently leased from
McDermott, where the Company's 12,000 square foot main office building is
located, and $100,500 for an additional 10 acres from Universal Partners. The
Company will use $6.3 million of the net proceeds to secure the release by
McDermott of its rights under the Shareholders' Agreement and the Put/Call
Agreement. See "The Company" and "Certain Transactions." Any remaining proceeds
will be used for working capital and general corporate purposes. Until used, the
Company intends to invest the net proceeds in money market funds, certificates
of deposit or short-term, interest bearing securities.
Construction of the new slip will involve dredging to create a new slip at
the Company's facilities, building out a steel bulkhead around the new slip and
filling in the work area surrounding the new slip with limestone. The Company
will also install a new load-out system, consisting of rails and skidways, that
will be able to support structures weighing up to 6,000 tons. The pipe shop
improvements will involve the upgrade and automation of much of the pipe shop's
equipment, which management believes will increase its productivity and
capacity. Management believes that the new slip and surrounding work areas will
increase the Company's capacity for smaller structures. These improvements will
also enable the Company to bid on projects in excess of 3,500 tons that may be
priced at levels that warrant the expense of dredging the Freshwater Bayou
Channel privately, if not reopened with local or state funds. See "Risk
Factors -- Facility Limitations."
The purchase price for the land to be acquired from Universal Partners is
based upon an independent appraisal of the land, and the purchase price for the
land to be acquired from McDermott was determined through negotiations between
McDermott and the Company, who was represented by Mr. Berard, its President and
Chief Executive Officer. The Company's management believes that these prices
reflect the fair market value of such properties, if sold in arms' length
transactions.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholder.
DIVIDEND POLICY
After the Offering, the Company intends to retain earnings, if any, to meet
its working capital requirements and to finance the future operation and growth
of its business and, therefore, does not plan to pay cash dividends to holders
of its Common Stock in the foreseeable future. Upon completion of the Offering,
the Company expects to enter into a credit facility containing financial
covenants that may restrict the Company's ability to pay dividends. The
Shareholders' Agreement, which will be terminated in connection with the
Offering, requires that, unless determined otherwise by a majority of directors
of Universal Fabricators, including at least one director elected by each of
McDermott and Universal Partners, 90% of Universal Fabricators' net income for
the previous fiscal year, less reserves, for each fiscal year be distributed to
McDermott and Universal Partners as dividends. For the fiscal years ending March
31, 1995, 1996 and 1997, Universal Fabricators paid dividends of approximately
90% of its net income, totaling $1.9 million, $5.8 million and $3.6 million,
respectively. See "Risk Factors -- Dividends."
15
<PAGE> 18
DILUTION
After giving effect to the formation and capitalization of UNIFAB
International, Inc., the Partners Share Exchange and the McDermott Share
Exchange, the pro forma net tangible book value of the Company at June 30, 1997
would have been $9.7 million, or $2.78 per share of Common Stock. On a pro forma
basis, net tangible book value per share of Common Stock represents the amount
of the Company's tangible net worth (total tangible assets less total
liabilities) divided by the total number of shares of Common Stock outstanding.
After giving effect to the Offering (at an initial public offering price of
$18.00 per share and deducting the underwriting discount and offering expenses
estimated at $1.8 million), the pro forma net tangible book value of the Company
at June 30, 1997 would have been approximately $21.4 million or $4.66 per share
of Common Stock. This represents an immediate increase in net tangible book
value of $1.88 per share of Common Stock to current holders of Common Stock and
an immediate dilution of approximately $11.70 per share to the new investors
purchasing shares in the Offering.
The following table illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Initial net public offering price per share................. $16.36
Pro forma net tangible book value per share at June 30,
1997 (without taking into account the Offering)(1)..... $2.78
Increase in pro forma net tangible book value per share
attributable to the sale of Common Stock in the
Offering............................................... $1.88
-----
Adjusted pro forma net tangible book value per share after
giving effect to the Offering(1).......................... $ 4.66
------
Dilution in pro forma net tangible book value per share to
the purchasers of Common Stock offered hereby(1).......... $11.70
======
</TABLE>
The following table summarizes, on a pro forma basis, at June 30, 1997, the
number of shares of Common Stock to be issued by the Company in connection with
the Partners Share Exchange, the McDermott Share Exchange and the Offering, the
total consideration received by the Company and the average price per share of
Common Stock paid by existing shareholders and by investors in the Offering
before deducting the estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).............. 3,500,000 76% $ 6,519,664 25% $ 1.86
New investors......................... 1,100,000 24% 19,800,000 75% $18.00
--------- ---- ----------- ---- ------
Total....................... 4,600,000 100% 26,319,664 100%
========= ==== =========== ====
</TABLE>
- ---------------
(1) Excludes 133,500 shares issuable upon the exercise of outstanding options.
See "Management -- Compensation Pursuant to Plans -- Long-Term Incentive
Plan."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997; on a pro forma basis, as of June 30, 1997, giving effect to the
formation and capitalization of UNIFAB International, Inc., the Partners Share
Exchange and the McDermott Share Exchange; and on a pro forma basis as adjusted
to reflect the sale by the Company of 1,100,000 of the shares of Common Stock
offered hereby at an initial public offering price of $18.00 per share and the
application of the estimated net proceeds thereof as described in "Use of
Proceeds." The Company was formed on July 17, 1997 with an initial
capitalization of $1,000. The table set forth below should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities..................... $ -- $ --
-------- --------
Shareholders' equity:
Preferred Stock, no par value per share, 5,000,000 shares
authorized; none issued or outstanding................. -- --
Common Stock, $0.01 par value per share, 20,000,000 shares
authorized; 3,500,000 shares issued and outstanding;
4,600,000 shares issued and outstanding as
adjusted(1)............................................ 35 46
Additional paid-in capital................................ 6,485 18,188
Retained earnings......................................... 3,204 3,204
-------- --------
Total shareholders' equity........................ 9,724 21,438
-------- --------
Total capitalization........................................ $ 9,724 $ 21,438
======== ========
</TABLE>
- ---------------
(1) Excludes 133,500 shares issuable upon exercise of outstanding options. See
"Management -- Compensation Pursuant to Plans -- Long-Term Incentive Plan."
17
<PAGE> 20
SELECTED FINANCIAL AND OPERATING DATA
The income statement data for each of the years in the three years ended
March 31, 1997 and the balance sheet data as of March 31, 1995, 1996 and 1997
are derived from the financial statements of Universal Fabricators which have
been audited by Ernst & Young LLP. The selected financial data as of June 30,
1997 and for the three month periods then ended are derived from the unaudited
consolidated statements of Universal Fabricators for such periods. In the
opinion of management, the unaudited financial statements of Universal
Fabricators reflect all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of the financial condition and
results of operations for these periods. Results for interim periods are not
necessarily indicative of results for a full year. Immediately prior to
completion of the Offering, Universal Fabricators will become a wholly owned
subsidiary of UNIFAB International, Inc., which will have no other significant
operations or assets. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------------------- -----------------
1993(1) 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue....................................... $25,369 $29,926 $27,883 $51,807 $66,724 $18,419 $15,503
Cost of revenue............................... 21,239 27,211 23,174 40,362 58,589 16,295 13,314
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 4,130 2,715 4,709 11,445 8,135 2,124 2,189
General and administrative expense............ 1,207 1,228 1,326 1,419 1,637 342 409
------- ------- ------- ------- ------- ------- -------
Operating income.............................. 2,923 1,487 3,383 10,026 6,498 1,782 1,780
Other income (expense), net................... 84 21 38 315 82 26 24
------- ------- ------- ------- ------- ------- -------
Income before income taxes.................... 3,007 1,508 3,421 10,341 6,580 1,808 1,804
Income tax expense............................ 1,112 555 1,286 3,888 2,555 709 660
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 1,895 $ 953 $ 2,135 $ 6,453 $ 4,025 $ 1,099 $ 1,144
======= ======= ======= ======= ======= ======= =======
Net income per share (unaudited)(2)........... $ 0.54 $ 0.27 $ 0.61 $ 1.84 $ 1.15 $ 0.31 $ 0.33
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share(3)............. $ 0.88 $ 0.25
======= =======
Cash dividends declared per common share
(unaudited)(2).............................. -- -- $ 0.25 $ 0.55 $ 1.66 $ 1.66 $ 1.03
Weighted average common shares
(unaudited)(2).............................. 3,500 3,500 3,500 3,500 3,500 3,500 3,500
Other Financial Data:
Depreciation and amortization................. $ 100 $ 381 $ 424 $ 390 $ 471 $ 96 $ 124
Capital expenditures.......................... $ N/A(4) $ 110 $ 179 $ 402 $ 821 $ 325 $ 50
Net cash provided by (used in) operating
activities.................................. N/A(4) (480) 3,392 4,285 2,328 1,570 5,643
Net cash provided by (used in) investing
activities.................................. N/A(4) (110) (170) (394) (803) (318) (50)
Net cash provided by (used in) financing
activities.................................. N/A(4) 531 (1,389) (1,921) (5,807) (2,962) (3,622)
EBITDA(5)..................................... $ 3,023 $ 1,868 $ 3,807 $10,416 $ 6,969 $ 1,878 $ 1,904
EBITDA margin(5).............................. 11.9% 6.2% 13.7% 20.1% 10.4% 10.2% 12.3%
Operating Data:
Direct labor hours worked..................... N/A(4) N/A(4) 436,000 656,000 902,000 218,000 260,000
Number of employees (at end of period)........ 212 215 205 319 414 375 383
Backlog (at end of period).................... $ 6,976 $ 8,917 $31,994 $42,311 $30,221 $35,426 $21,142
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......................................... $ 3,181 $ 4,187 $ 5,877 $10,333 $ 8,192 5,788
Property, plant and equipment, net...................... 5,514 5,243 4,986 4,999 5,341 5,267
Total assets............................................ 13,043 14,318 16,173 23,714 26,154 22,412
Debt.................................................... -- 531 -- -- -- --
Shareholders' equity.................................... 7,222 8,175 9,452 13,984 12,201 9,723
</TABLE>
- ---------------
(1) The income statement data, other financial data and operating data include
the results of Universal Partners for the period from April 1, 1992 through
November 30, 1992 and Universal Fabricators for the period from December 1,
1992 through March 31, 1993.
(2) The unaudited share and per share data give retroactive effect to the
completion of the Partners Share Exchange and the McDermott Share Exchange.
See "The Company."
18
<PAGE> 21
(3) Assumes (i)the completion of the Partners Share Exchange and the McDermott
Share Exchange and (ii) the public offering of 1,100,000 shares of Common
Stock by the Company.
(4) Information not available.
(5) The Company calculates EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) as operating income plus depreciation
and amortization. EBITDA margin is calculated by dividing EBITDA by revenue.
Neither EBITDA nor EBITDA margin should be considered as an alternative to
net income or any other measure of operating performance in accordance with
general accounting principles. EBITDA and EBITDA margin are widely used by
financial analysts as a measure of financial performance. The Company's
measurement of EBITDA and EBITDA margin may not be comparable to similarly
titled measures reported by other companies.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on (i) the level of
oil and gas exploration and development activity of oil and gas companies in the
Gulf of Mexico and offshore West Africa; (ii) the Company's ability to win
contracts through competitive bidding; and (iii) the Company's ability to manage
those contracts to successful completion. The level of exploration and
development activity is related to several factors, including trends of oil and
gas prices, exploration and production companies' expectations of future oil and
gas prices and changes in technology which reduce costs and improve expected
returns on investment. Over the past four years, favorable trends in these
factors have led to increased offshore exploration and development activity.
In addition to higher oil and gas prices, improvements in three-dimensional
seismic, directional drilling, production techniques and other advances in
technology have increased drilling success rates and reduced costs. The number
of active offshore drilling rigs worldwide is at its highest point since 1986.
The average number of active offshore rigs in the Gulf of Mexico has increased
from approximately 80 for the year ended December 31, 1992 to more than 155 for
the year ended December 31, 1996. In addition, the number of leases of
exploratory tracts in the Gulf of Mexico sold to oil and gas companies by the
MMS also has been at record levels.
Lease sales and awards of offshore concessions generally serve as
precursors to drilling and exploration activity and, in turn, increased levels
of offshore drilling and exploration activity generally serve as precursors to
increased demand for platform construction. Due to the time required to drill an
exploratory offshore well, formulate a comprehensive development plan and design
offshore platforms, the fabrication and installation of such platforms usually
lag exploratory drilling by one to three years. As a result, the high levels of
drilling activity worldwide, particularly in the Gulf of Mexico, have only
recently impacted the demand for the Company's custom fabrication services, with
revenue increasing 85.8% to $51.8 million in fiscal 1996 and 28.8% to $66.7
million in fiscal 1997, in each case as compared to the prior fiscal year. There
can be no assurance, however, that drilling activity will continue at such
levels or that oil and gas companies will actively explore and develop the
fields recently leased. Whether these trends continue and the resulting increase
in demand for the Company's services actually occurs is dependent in large part
on the factors listed above.
During the fiscal years ended March 31, 1995, 1996 and 1997, 47%, 58% and
64%, respectively, of the Company's revenue was derived from structures
fabricated for installation in international areas, with the remainder designed
for installation in the Gulf of Mexico. The Company believes that its strong
presence in both overseas markets and the Gulf of Mexico market, coupled with
continued strong oil and gas activity in these markets, has enabled it to
selectively obtain high-margin fabrication work and to benefit from increased
pricing levels. The Company further believes that the increased activity level
in the Gulf of Mexico will lead to an increasing percentage of the Company's
revenue coming from projects intended for installation in the Gulf of Mexico.
The Company has historically attempted to manage its backlog in order to benefit
from pricing trends. In periods of rising prices, the Company intentionally
avoids building high levels of backlog in order to maximize its ability to
pursue higher margin projects. The Company believes that, as a low-cost
fabricator, it is well positioned to benefit from this strategy.
Barges loaded with completed structures weighing up to 3,500 tons can
travel through any of several currently available water routes from the
Company's facilities at the Port of Iberia to the Gulf of Mexico. Special
efforts, including dredging, would be needed to permit barges carrying
structures from 3,500 to 6,000 tons to travel from the Port of Iberia facility
to the Gulf of Mexico, which would add costs to the project that the customer
may not be willing to bear. In addition, the Company needs to construct the new
slip and bulkhead which it intends to fund through a portion of the proceeds of
the Offering to accommodate structures of this size. See "Risk
Factors -- Facility Limitations." Although the Company is not able to produce
jackets designed for water depths over 300 feet as they are too heavy or too
wide to be transported from the Company's facilities, the increased activity in
the deepwater areas of the Gulf of Mexico has benefitted the
20
<PAGE> 23
Company's pricing levels as the Company is able to fabricate decks and modules
weighing up to 3,500 tons for installation on platforms regardless of water
depth.
Most of the Company's fabrication work is performed pursuant to fixed-price
contracts, although some projects are performed on a time and materials basis.
Under fixed-price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders placed by the customer.
As a result, with respect to fixed-price contracts, the Company retains all cost
savings but is also responsible for all cost overruns. Under time and materials
arrangements, the Company receives a specified hourly rate for direct labor
hours worked (which exceeds its direct labor costs) and a specified percentage
mark-up over its cost for materials. As a result, under time and materials
contracts, the Company is protected against cost overruns but does not benefit
directly from cost savings. As the Company is typically able to obtain prices
for materials in excess of its costs, the cost and productivity of the Company's
labor force are the key factors affecting the Company's operating profits.
Consequently, it is essential that the Company control its labor costs and the
productivity of its workforce. See "Business -- Customers and Contracting."
The following table sets forth for the periods presented the percentage of
the Company's revenue derived from each type of contract used by the Company:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
--------------------------- ----------------
TYPE OF CONTRACT(1) 1995 1996 1997 1996 1997
------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Fixed-Price...................... 80.0% 76.2% 81.0% 86.9% 73.1%
Time and Materials............... 19.6% 23.7% 18.9% 13.0% 26.6%
</TABLE>
- ---------------
(1) Remaining revenues were derived from storage fees.
The ability of the Company to operate profitably and to expand its
operations depends substantially on its ability to attract skilled production
workers, primarily welders, fitters and equipment operators. The Company was
able to add 86 full-time production employees to its workforce in fiscal 1997.
While the supply of production workers is limited, the demand for their services
has increased as oil and gas development and production activity has increased.
As a result, during 1997 the Company increased the average hourly wages of its
employees, instituted a 401(k) Plan and improved several other benefit packages
available to its employees. The Company has also been very active in the
movement to create a more business-oriented educational system in Louisiana,
which lead to the passage of a recent bill that aims to give industry more input
in the teaching at vocational-technical schools. Although there can be no
assurance that such initiatives will be carried out to successful completion,
management believes that, in the long-term, initiatives like these are the best
methods for increasing the pool of well-trained workers in Louisiana. See
"Business -- Employees."
After the Offering, the Company expects to incur additional ongoing general
and administrative costs as a result of (i) the increased costs of being a
public company, including the hiring of additional personnel such as a Chief
Financial Officer, and (ii) an increase in compensation to several employees to
offset the loss of dividend income these employees historically received from
Universal Partners. It is estimated that the increase will be approximately
$650,000 in the first year after the Offering.
The Company's operations are subject to seasonal variations in weather
conditions and daylight hours. Because most of the Company's construction
activities take place outdoors, the number of direct labor hours worked
generally declines in winter months due to an increase in rainy and cold
conditions and a decrease in daylight hours. Operations may also be affected by
the rainy weather, hurricanes and other storms prevalent along the U.S. Gulf
Coast throughout the year. As a result, the Company's revenue, gross profit and
net income during the fourth quarter of each fiscal year are subject to being
disproportionately low as compared to the first and second quarters, and full
year results may not in all cases be a direct multiple of any particular quarter
or combination of quarters. The Company's results for the last three years do
not dramatically reflect this effect due to (i) the large amount of revenue and
income recognized in the third and fourth quarters of 1996 on one particular
project and (ii) the substantial increase in production volume that began in the
third quarter of 1996. The table below indicates for each quarter of the
Company's last three fiscal years the
21
<PAGE> 24
percentage of annual revenue and net income earned and the number of direct
labor hours worked in each quarter.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ------------------------- -------------------------
1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH 1ST. 2ND 3RD 4TH
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................... 27% 29% 22% 22% 17% 26% 27% 30% 28% 27% 22% 23%
Net income................ 31% 31% 25% 13% 6% 15% 32% 47% 27% 28% 21% 24%
Direct labor hours worked
(in thousands).......... 127 136 92 81 126 143 194 193 218 242 206 236
</TABLE>
Most of the Company's revenue and expenses are recognized on a
percentage-of-completion basis determined by the ratio that labor and
subcontracting costs incurred bear to the total estimated labor and
subcontracting costs required for completion. Accordingly, expected labor and
subcontracting costs are reviewed monthly as the work progresses, and
adjustments proportionate to the percentage of completion are reflected in
revenue for the period when such estimates are revised. To the extent that these
adjustments result in a reduction of previously reported profits, the Company
would have to recognize a charge against current earnings, which may be
significant depending on the size of the project or the adjustment. Revenue from
time and materials contracts is recognized on the basis of direct labor hours
worked at fixed hourly rates and the cost of materials or sub-contract costs
incurred plus mark-up.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 1997 and 1996
Revenue for the three months ended June 30, 1997 decreased 15.8% to $15.5
million from the $18.4 million generated in the three months ended June 30,
1996. This decrease was primarily due to the large amount of contract materials
purchased in the 1996 period as compared to the 1997 period. Although the
Company's direct labor hours worked during the 1997 period increased 19.5% from
the number worked in the 1996 period and prices realized under fixed-price
contracts were slightly higher in the 1997 period, the decreases in the amount
of contract materials purchased offset these increases.
Cost of revenue was $13.3 million in the three months ended June 30, 1997
compared to $16.3 million in the three months ended June 30, 1996. Cost of
revenue consists of costs associated with the fabrication process, including
direct costs (such as direct labor costs and raw materials) and indirect costs
(such as supervisory labor, utilities, welding supplies and equipment costs)
that can be specifically allocated to projects. These costs decreased as a
percentage of revenues to 85.8% in 1997 from 88.6% in 1996.
Gross profit for the three months ended June 30, 1997 increased to $2.2
million from $2.1 million in the 1996 period as improved margins on fixed price
contracts and a favorable mix of services and materials on the Company's time
and materials contracts offset the decrease in revenue.
General and administrative expense was $0.4 million in the three months
ended June 30, 1997 compared to $0.3 million in the three months ended June 30,
1996. This increase is due to increases in employee costs, primarily salaries
and benefits.
Interest income decreased to $27,000 in the three months ended June 30,
1997 from $48,000 in the three months ended June 30, 1996, as the weighted
average of invested funds was lower in 1997 as compared to 1996, due to larger
than average delays in collecting some international receivables in the quarter.
A large portion of these receivables were collected near the end of the quarter
and resulted in a decrease in receivables at June 30, 1997 compared to March 31,
1997 despite additional billings during the period. The collection period of
international receivables is generally longer than that for receivables from
projects installed in the U.S. Gulf of Mexico.
Comparison of the Years Ended March 31, 1997 and 1996
During the year ended March 31, 1997, the Company's revenue was $66.7
million, a 28.8% increase from the $51.8 million generated in the year ended
March 31, 1996. This increase was primarily caused by an
22
<PAGE> 25
increase in direct labor hours worked and, to a lesser extent, prices realized
under fixed-price contracts. Although direct labor hours worked increased 37.5%
in fiscal 1997 over fiscal 1996, this increase did not result in a proportionate
increase in revenue due to the lower productivity of employees newly hired in
fiscal 1997 compared to the productivity of the Company's longer term employees.
Cost of revenue was $58.6 million in fiscal 1997 compared to $40.4 million
in fiscal 1996. These costs increased as a percentage of revenues to 87.8% in
1997 from 77.9% in fiscal 1996. In fiscal 1996, a major contract obtained on a
fixed-price basis was completed at a materials cost substantially lower than
that estimated in connection with the bid, which the Company had prepared on the
basis of the customer's designs. Had the contract been completed at the
materials cost originally estimated, cost of revenue during fiscal 1996 would
have been increased by approximately $5.5 million.
General and administrative expense was $1.6 million in fiscal 1997 compared
to $1.4 million in fiscal 1996. The Company's general and administrative expense
as a percentage of revenue decreased to 2.5% in 1997 as compared to 2.7% in
fiscal 1996 as the increase in the Company's revenue did not require a
proportionate increase in such expenses.
Interest income decreased to $145,000 in fiscal 1997 from $318,000 in
fiscal 1996, as the weighted average of invested funds was lower in fiscal 1997
as compared to fiscal 1996, due to longer than average delays in collecting some
international receivables in 1997.
Receivables increased in fiscal 1997 primarily because of delays in
collection of receivables from contractors on projects installed in overseas
locations.
Comparison of the Years Ended March 31, 1996 and 1995
During the year ended March 31, 1996, the Company had revenue of $51.8
million as compared to $27.9 million in fiscal 1995, an 85.8% increase. This
increase was primarily due to a 50.5% increase in direct labor hours worked over
1995, and the fact that in connection with a single fixed-price contract
performed in fiscal 1995, the customer, rather than the Company, supplied the
materials.
Cost of revenue was $40.4 million in fiscal 1996 compared to $23.2 million
in 1995. This cost decreased as a percentage of revenue to 77.9% in fiscal 1996
from 83.1% in 1995. This decrease was primarily the result of the Company's
performance during fiscal 1996 on the major contract described above.
General and administrative expense remained relatively constant at $1.4
million in 1996 compared to $1.3 million in fiscal 1995.
Interest income was $318,000 in fiscal 1996 compared to $45,000 in fiscal
1995, as the weighted average of invested funds was higher in fiscal 1996
compared to fiscal 1995, due primarily to higher profits in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its business activities through funds
generated from its operations. Net cash provided by operations was $3.4 million,
$4.3 million and $2.3 million for the years ended March 31, 1995, 1996 and 1997,
respectively, and $5.6 million for the three months ended June 30, 1997. The
Company's capital requirements historically have been for improvements to its
facilities and equipment to increase the productivity of its labor force. During
fiscal 1996 and fiscal 1997, the Company had capital expenditures of $402,000
and $821,000, respectively. The Company spent $50,000 on capital expenditures in
the first quarter of fiscal 1998.
The Shareholders' Agreement requires that, unless determined otherwise by a
majority of directors of Universal Fabricators, including at least one director
elected by each of McDermott and Universal Partners, 90% of Universal
Fabricators' net income for the previous fiscal year, less reserves, for each
fiscal year be distributed to McDermott and Universal Partners as dividends. For
fiscal 1995, 1996 and 1997, Universal Fabricators paid dividends of
approximately 90% of its net income, totaling $1.9 million, $5.8 million and
$3.6 million, respectively. As a result of this practice, the Company has
limited capital expenditures and
23
<PAGE> 26
restrained potential growth. In connection with the Offering, the Shareholders'
Agreement will be terminated. After the Offering, the Company intends to retain
its earnings, if any, for use as working capital and to fund capital
expenditures. The Company's past capital expenditures are not indicative of its
intended capital expenditures after the Offering.
The Company has a $10.0 million revolving line of credit with a commercial
lender. The Existing Credit Facility bears interest at a floating rate 50 basis
points above the prime commercial lending rate as quoted from time to time by
The Chase Manhattan National Bank and is secured by the Company's accounts
receivable. At June 30, 1997, the interest rate on the Existing Credit Facility
was approximately 9.0%. The Existing Credit Facility also provides for the
issuance of letters of credit on behalf of the Company (the "Bank Letters of
Credit"). The amount of outstanding Bank Letters of Credit reduces the Company's
borrowing limit on a dollar-for-dollar basis. As of March 31, 1996 and 1997,
there were $2.5 million and $2.0 million, respectively, in Bank Letters of
Credit outstanding and no other borrowings under the Existing Credit Facility.
As of June 30, 1997, there were $2.0 million in outstanding Bank Letters of
Credit and no other borrowings under the Bank Credit Facility. Outstanding
amounts under the Existing Credit Facility, including Bank Letters of Credit,
are currently guaranteed by McDermott. As of March 31 and June 30, 1997, the
Company also had outstanding letters of credit of approximately $7.0 million
that were obtained on behalf of the Company by McDermott (the "McDermott Letters
of Credit"). Immediately prior to the Offering, the Company expects that
approximately $7.0 million of McDermott Letters of Credit will be outstanding.
Upon completion of the Offering, the Company expects to enter into a new
$20.0 million revolving credit facility with a commercial lender, which will
provide for up to $10.0 million in borrowings for general corporate purposes and
for letters of credit up to $10.0 million (the "New Credit Facility"). The New
Credit Facility is expected to contain financial covenants that will, among
other things, require the Company to maintain certain minimum levels of
shareholders' equity. McDermott will not guarantee any amounts outstanding under
the New Credit Facility, and McDermott will be released from its obligations
under the Existing Credit Facility, all Bank Letters of Credit and McDermott
Letters of Credit. The McDermott Letters of Credit will be replaced by letters
of credit issued as part of an additional $6.3 million available to the Company
for letters of credit under the New Credit Facility. This additional $6.3
million is available to the Company solely to replace the McDermott Letters of
Credit and will be reduced upon the respective expiration dates of the letters
of credit issued to replace the McDermott Letters of Credit, the last of which
is scheduled to expire in January of 2000.
Capital expenditures for the 12 months following the Offering are estimated
to be approximately $7.0 million, which primarily include the purchase and
installation of a four-inch rolling mill, the dredging and construction of a new
slip and loadout facilities for the slip, the purchase of the Company's
administrative office and surrounding land from McDermott, the expansion of the
Company's pipe shop and the purchase of 10 acres of land across the road from
the Company's facility from Universal Partners. See "Use of Proceeds" and
"Certain Transactions." Management believes that the net proceeds of the
Offering, its available funds, cash generated by operating activities and funds
available under the New Credit Facility will be sufficient to fund these capital
expenditures and its working capital needs; however, any expansion of the
Company's operations through future acquisitions may require additional equity
or debt financing.
24
<PAGE> 27
BUSINESS
GENERAL
The Company is an industry leader in the custom fabrication of decks and
modules of drilling and production equipment weighing up to 3,500 tons for
offshore oil and gas platforms, based on the number of decks delivered, and has
special expertise in the fabrication of decks with complex piping requirements.
Decks and modules fabricated by the Company can be installed on fixed and
floating platforms regardless of water depth. The Company also fabricates
jackets for fixed platforms; pilings and other rolled tubular steel sections;
compressor and generator packages; platform living quarters; subsea templates;
bridges for connecting offshore platforms; wellhead protectors; and modules for
the onshore petrochemical and refining industries. In addition, the Company
refurbishes and retrofits existing jackets and decks and performs offshore
piping hook-up and platform maintenance services. Structures fabricated by the
Company are installed in oil and gas producing waters around the world,
primarily the Gulf of Mexico and offshore West Africa.
The Company, founded in 1980, has been profitable for each of the last five
years largely as a result of management's ability to control costs, provide high
quality, reliable services and expand successfully into international markets.
The Company's revenue increased 139% from $27.9 million in its fiscal year ended
March 31, 1995 to $66.7 million in the fiscal year ended March 31, 1997. During
the same period, the Company's workforce and direct labor hours worked increased
by approximately 105%.
Demand for the Company's services is primarily a function of worldwide
offshore oil and gas activity. Over the past four years, improvements in
production techniques and seismic and drilling technology, together with
relatively stable oil and gas prices, have resulted in accelerated drilling
activity in the Gulf of Mexico and continued strong activity levels worldwide.
The number of active offshore drilling rigs worldwide is at its highest point
since 1986. The average number of active offshore rigs in the Gulf of Mexico has
increased from approximately 80 for the year ended December 31, 1992 to more
than 155 for the year ended December 31, 1996.
Due to the time required to drill an exploratory offshore well, formulate a
development plan and design offshore platforms, the fabrication and installation
of such platforms usually lag exploratory drilling by one to three years. As a
result, high levels of drilling activity worldwide, particularly in the Gulf of
Mexico, have only recently impacted the demand for the Company's custom
fabrication services. The Company believes its strong presence in both overseas
markets and the Gulf of Mexico market, coupled with continued strong oil and gas
activity in these markets, has enabled it to selectively obtain high margin
fabrication work and benefit from increased pricing levels.
The Company's operations are conducted on approximately 140 acres of land
and 225,000 square feet of covered fabrication area at the Port of Iberia,
approximately 20 miles southeast of Lafayette, Louisiana and 30 miles north of
the Gulf of Mexico. Current access routes to the Gulf of Mexico permit the
transporting of jackets for use in waters up to 300 feet deep and decks and
other structures weighing up to 3,500 tons. A by-pass along one of these
waterways could provide access from the Company's facilities to the Gulf of
Mexico for structures weighing up to 6,000 tons, if it were to be reopened and
dredged to sufficient depth. Local port commissions have proposed the reopening
and dredging of this by-pass with state and local funds. The Company believes
that there is widespread support for this proposal and that the by-pass may be
reopened within the next two years. No assurance can be given as to whether or
when such project will be completed or whether the increased channel depth will
be maintained. If the project is not completed by state or local authorities,
the Company could pay to have this bypass reopened and dredged, which expense
may be economically justifiable in connection with the large revenue amounts
typically derived from fabrication of large structures.
1992 EXPANSION TRANSACTION. The Company's predecessor, Universal Partners,
was organized in 1980 by its founder, Dailey J. Berard. In 1992, in order to
expand its capabilities at the Port of Iberia and meet increasing demand for its
services, Universal Partners entered into an agreement with McDermott, a
subsidiary of McDermott International, Inc. Universal Partners contributed as a
going concern to the then newly-formed Universal Fabricators approximately 50
acres of leased land, its buildings, fabrication equip-
25
<PAGE> 28
ment, and $2.4 million in cash. McDermott contributed an inactive fabrication
yard directly across a canal from the land leased by Universal Partners, which
included approximately 85 acres of land, 200,000 square feet of covered
fabrication space and various equipment. The Expansion Transaction substantially
enlarged the Company's yard space and increased covered fabrication area from
25,000 square feet to approximately 225,000 square feet. Both before and after
the Expansion Transaction, the day-to-day operations of the Company have been
conducted by Dailey J. Berard and the other members of the Company's management
team.
In the Expansion Transaction, McDermott received 49% of the outstanding
stock of Universal Fabricators. McDermott will sell all of its shares of Common
Stock as part of the Offering in connection with a previously announced strategy
of returning to core businesses by disposing of certain assets, including
certain financial investments. The Company will use a portion of the proceeds of
the Offering to secure McDermott's release of its rights under certain
agreements entered into in connection with the Expansion Transaction.
GROWTH AND PROFITABILITY STRATEGY
The Company's growth and profitability strategy is to capitalize on the
positive trends and current opportunities in heavy marine fabrication for the
oil and gas industry. Key elements of the Company's strategy are to:
- PURSUE EXPANDING MARKETS. The Company intends to continue to pursue
high-margin fabrication work in both domestic and international offshore
oil and gas producing areas where demand for its services has
substantially increased over the last five years. In fiscal 1997, the
Company derived 36% of its revenue from projects designed for
installation in the Gulf of Mexico and believes that an increasing
portion of its capacity will be used to satisfy demand for such projects.
In addition, a series of large oil and gas projects are being developed
for offshore Nigeria, Mexico, Brazil and Venezuela. The Company believes
that these projects as well as projects in the Gulf of Mexico will
provide it with significant opportunities to obtain high-margin
fabrication work in both the current fiscal year and thereafter.
- EXPAND FACILITIES. The Company intends to use a portion of the proceeds
of the Offering to construct a new slip and bulkhead and develop the
adjacent yard space that will enable the Company to construct and load
out projects weighing up to 6,000 tons. In addition, the Company intends
to acquire and install a four-inch rolling mill which will enable the
Company to satisfy all of its rolled good requirements in-house,
including larger diameter pipe not currently rolled by the Company. The
Company believes that the enhanced capabilities provided by the new
facilities will provide the Company with opportunities to satisfy its
customers' increasing needs for structures usable in deep waters
throughout the world.
- MANAGE BACKLOG. The Company has historically attempted to manage its
backlog in order to benefit from pricing trends. In periods of rising
prices, the Company intentionally avoids building high levels of backlog
in order to maximize its ability to pursue higher margin projects. The
Company believes that, as a low-cost fabricator, it is well positioned to
benefit from this strategy.
- IMPROVE WORKFORCE EFFICIENCY. The Company believes that its success has
been founded on its well motivated workforce, efficient management and
low overhead costs. To take advantage of the increased demand for its
services, the Company will continue to emphasize its low cost structure
and will seek to increase the productivity of its workforce by using a
portion of the proceeds of the Offering to purchase additional automated,
labor-saving equipment and to expand and upgrade its existing buildings
and equipment. The Company also intends to expand its investment in
employee education and training in order to upgrade employee skill levels
and productive capacity.
- INCREASE EMPLOYEE POOL. In fiscal 1997, the Company added approximately
86 full-time production employees to its workforce. The Company estimates
that its current facility could accommodate a workforce of more than
double the 408 workers employed by the Company at July 31, 1997. The
Company intends to continue its efforts to increase its skilled workforce
in order to increase the
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<PAGE> 29
Company's production capacity. To address the current shortage of skilled
workers in south Louisiana, the Company has been cooperating with local
and regional associations and government authorities to foster the
training of skilled workers. The Company believes that there is a large
number of trainable employees residing in reasonable proximity to its
facility. The Company further believes that companies whose products and
services are complementary to those of the Company are available for
acquisition and that its capital structure after the Offering will enable
it to pursue such acquisition opportunities as a means of expanding its
skilled workforce.
DESCRIPTION OF OPERATIONS
The Company's primary activity is the fabrication of decks and modules for
offshore oil and gas drilling and production platforms. The Company has
extensive experience in the fabrication of decks and modules with complex piping
requirements and believes that its reputation for efficient, timely and high
quality production of these structures gives it a competitive advantage in
obtaining projects of this type. The decks and modules built by the Company may
weigh up to 3,500 tons and can be installed on platforms regardless of water
depth. The Company also fabricates jackets for fixed production platforms for
use in up to 300 feet of water. Other structures fabricated by the Company
include pilings and other rolled tubular steel sections; modules of drilling and
production equipment; compressor and generator packages; platform living
quarters; subsea templates; bridges for connecting offshore platforms; wellhead
protectors; other structures used in production and development activities; and
modules for the onshore petrochemical and refining industries. The Company can
construct and has in the past constructed platform drilling rigs, posted
drilling rigs and barges.
FABRICATION OF DECKS AND OTHER OFFSHORE PLATFORM COMPONENTS. The Company
fabricates decks and modules for fixed and floating offshore platforms as well
as jackets for fixed offshore platforms. A fixed platform is the traditional
type of platform used for the offshore drilling and production of oil and gas.
Most fixed platforms currently in use are of the traditional jacket-type design.
Recently there has been an increase in the use of floating platforms as a result
of increased drilling and production activities in deeper waters. Floating
platforms are of three basic types: tension-leg platforms, spar platforms and
floating production facilities. See "Glossary of Certain Technical Terms." Fixed
platforms are generally better suited for shallower water depths, whereas
floating platforms, although they can be used in any water depth, are primarily
used in water depths greater than 1,000 feet. Because they are mobile (and can
therefore be reused), floating platforms are sometimes used in water depths that
could accommodate fixed platforms, particularly where the petroleum reservoir
has a relatively short production life.
The Company also fabricates subsea templates which often form a part of a
subsea production system. Subsea production systems, which are systems that
contain primary well control equipment and rest directly on the ocean floor, are
becoming more prevalent in very deep water, in areas subject to severe weather
conditions and in smaller fields with relatively short production lives that are
located near existing infrastructures. These systems are generally connected to
existing surface facilities, which augment subsea hydrocarbon processing and
transportation operations.
The most common type of fixed platform consists of a deck structure located
above the level of the storm waves and supported by a jacket. A jacket is a
tubular steel, braced structure extending from the mudline on the seabed to a
point above the water surface which is in turn supported on tubular steel
pilings driven deep into the seabed. The deck structure is designed to
accommodate multiple functions, including drilling, production, separating,
gathering, piping, compression, well support and crew quartering. Most fixed
platforms built today can accommodate both drilling and production operations.
These combination platforms are generally larger and more costly than
single-purpose structures. However, because directional drilling techniques
permit a number of wells to be drilled from a single platform and because
drilling and production can take place simultaneously, combination platforms are
often more cost effective.
Decks are built as either a single structure or in modular units. The
composition and quantity of petroleum in the well stream generally determine the
design of the production deck on a processing platform. Typical deck production
equipment includes crude oil pumps, gas and oil separators, gas compressors and
electricity generators. Much of this equipment involves the use of complex
piping and electrical components.
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<PAGE> 30
The equipment, piping and controls associated with major process subsystems are
often joined together in modules which can then be installed on the deck as a
unit either on land or offshore. Platforms can be joined by bridges to form
complexes of platforms to service very large projects and to improve safety by
dividing functions among specialized platforms. Floating platforms, like fixed
platforms, support decks or modules with equipment to perform oil and gas
processing and may support drilling operations as well.
Most of the structural steel used in the Company's operations arrives at
the Company's fabrication yards as standard steel shapes and steel plate. The
standard shapes and plate are cut to appropriate sizes or shapes and, in some
cases, rolled into tubular sections by the Company's rolling mill. These
sections are welded together into structures that become part of decks, modules,
jackets and other platform structures.
While the structural portion of a deck or module is being assembled,
process piping is fabricated in the Company's pipe shop. Piping is made into
spools by fitting and welding together pipe and pipe fittings. To the extent
possible, pipe supports and pipe spools are installed onto the various
structural subassemblies of a deck or module before final assembly. The
completed structural subassemblies are then lifted, positioned and welded
together. Finally, the oil and gas process equipment along with the remaining
pipe supports and pipe spools, valves and electrical and instrumentation
components are installed and connected. The Company has installed both carbon
and alloy steel piping in accordance with accepted industry codes and has also
installed process piping for sour gas service, which requires adherence to more
stringent industry code requirements.
The Company typically performs a wide range of testing and commissioning
activities. Virtually every contract requires as a minimum non-destructive
testing of structural and piping welds, piping hydrostatic pressure testing, and
loop testing of instrumentation and electrical systems. Commissioning of certain
process subsystems is also commonly performed by the Company. A series of
protective coatings is applied to the critical areas of the deck or module to
resist the extremely corrosive conditions in an offshore environment. The
Company generally subcontracts certain parts of the work to qualified
subcontractors, particularly electrical, instrumentation and painting.
The Company generally purchases equipment and pressure vessels to customer
specifications from qualified vendors. However, some or all of the equipment and
pressure vessels may be supplied by the customer. The Company typically procures
most of the piping, pipe fittings, valves, instrumentation and electrical
materials in accordance with the customer's specifications as part of its
contract.
Jackets are generally built in sections so that, to the extent possible,
much of their fabrication is done on the ground. As each section of legs and
bracing is completed it is lifted by a crawler crane and then joined to another
up righted section. When a deck, module or jacket is complete and ready for load
out, it is moved along a skidway and loaded onto a cargo barge. Using
ocean-going tugs, the barge and its cargo are transported to the offshore site
for installation by a marine construction contractor.
REFURBISHMENT. The Company is also active in the market for the
refurbishment of existing jackets and decks. Platform operators occasionally
remove platforms previously installed in the Gulf of Mexico and return the
platforms to a fabricator for refurbishment, which usually consists of general
repairs and maintenance work and, in some cases, modification. Approximately
18.7% of the Company's backlog at June 30, 1997, consisted of refurbishment
work. In addition to structures included in backlog, there are a substantial
number of structures stored by customers on Company premises, pending
instructions from the customer to commence refurbishment. Because refurbishment
is generally not time-critical, the Company is able to use this work as a means
of keeping employees productively occupied between other more time-critical
projects. Refurbishment work is most often conducted on a time and materials
basis.
OFFSHORE SERVICES. The Company also has a number of employees (ranging from
approximately 25 to 50) whom it contracts to send offshore in crews to perform
piping interconnect and general maintenance and repair services on offshore
platforms. Oil and gas companies, which have traditionally performed this type
of work using their own employees, have recently been outsourcing this work and
the Company believes that this trend is likely to continue.
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FACILITIES AND EQUIPMENT
FACILITIES. The Company's corporate headquarters and main fabrication yard
are located on the Port of Iberia in New Iberia, Louisiana, approximately 20
miles southeast of Lafayette, Louisiana and 30 miles north of the Gulf of
Mexico. This facility includes approximately 105 acres developed for
fabrication, one 12,000 square-foot office building that houses administrative
staff, approximately 225,000 square feet of covered fabrication area, and
approximately 25,000 square feet of warehouse storage area. The yard also has
approximately 8,000 linear feet of water frontage, of which 1,200 feet is steel
bulkhead which permits outloading of heavy structures. The Company currently
leases approximately 55 acres of the Port of Iberia facility, including the
Company's office building and five surrounding acres which are currently leased
from McDermott and will be purchased with proceeds of the Offering. With a
portion of the proceeds of the Offering, the Company also intends to purchase
approximately 13 additional acres from McDermott and 10 acres from Universal
Partners.
The structures that the Company fabricates are transported from the
Company's facilities by barge to the Gulf of Mexico by offshore construction
companies. Due to the water depths of these waterways (9 to 11 feet), these
barges are currently unable to transport structures weighing over 3,500 tons.
One main route to the Gulf of Mexico, the Freshwater Bayou Channel, provides 12
feet of water depth to the Gulf of Mexico, but the dimensions of locks on this
channel prevent the transport of structures more than 80 feet in width. There is
a by-pass channel around these locks that, if usable, would permit continuous
passage to the Gulf of Mexico with at least 12 feet of water depth at all points
and without any material width restrictions. This water depth would generally
permit the transportation of structures weighing up to 6,000 tons, which the
Company will be able to fabricate once the new slip and bulkhead is constructed
(to be funded with a portion of the proceeds of this Offering). Due to the silt
that has built up on both sides of the by-pass, the by-pass is currently
impassable without extensive dredging. On the basis of amounts spent in the past
by contractors other than the Company in order to facilitate the transportation
of certain structures, it is estimated that the cost of dredging the silt from
the by-pass and opening the by-pass channel would be $400,000 to $500,000.
Recently, the Abbeville Port Commission has proposed that the State of Louisiana
fund the reopening and dredging of the by-pass, a project that would open the
by-pass for at least one year and possibly longer, depending upon the extent of
future traffic through the by-pass. The Company believes that there is
widespread support for this proposal and that the by-pass may be reopened within
the next two years. There can be no assurance however as to whether or when such
project will be completed or whether the increased channel depth will be
maintained. If this project is not completed by the state, the Company would
remain unable to deliver structures weighing over 3,500 tons unless it
determined to incur the additional costs described above.
EQUIPMENT. The Company's main yard houses its two-inch plate roll, a
Wheelabrator grit blast system, a hydraulic press brake, and various other
equipment needed to build offshore structures and fabricate steel components.
The Company also has an automatic plate cutting machine used for cutting steel
in complex geometric sections and various other equipment used in the Company's
fabrication business. The Company also currently uses nine crawler cranes, which
range in tonnage capacity from 50 to 230 tons. Of these cranes, five are owned
by the Company and four are leased. The Company performs routine maintenance on
all of its equipment.
The Company's plate rolling mill allows it to roll approximately 6,000 tons
of pipe per year. The Company's current rolling mill satisfies approximately 80%
of the Company's current needs, with the Company using outside suppliers or
other fabricators for the rest of its rolled goods. The Company intends to use a
portion of the proceeds of the Offering to purchase a four-inch rolling mill
which would enable the Company to do all of its plate rolling at its fabrication
facility. This should enable the Company to coordinate all aspects of platform
construction, which can reduce the risk of cost overruns, delays in project
completion and labor costs. In addition, the four-inch rolling mill may also be
used to roll steel for other fabricators on a subcontracting basis. The
Company's grit blast system can blast steel at a rate approximately ten times
faster than conventional sandblasting. This greatly reduces labor costs and also
decreases the Company's use of conventional sandblasting, which is considered to
be a more hazardous and slower method of preparing steel for painting.
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MATERIALS
The principal materials used by the Company in its fabrication
business -- standard steel shapes, steel plate, piping, pipe fittings, valves,
welding gases, fuel oil, gasoline and paint -- are currently available in
adequate supply from many sources. The Company does not depend upon any single
supplier or source.
Although the Company's rolling mill has not caused any substantial downtime
for the Company, it is an older piece of equipment that requires constant
maintenance. If the rolling mill were to become inoperable for a material amount
of time, the Company would be forced to purchase rolled goods from other
suppliers. There can be no assurance as to the Company's ability to purchase
such goods in the quantities desired and there can be no assurance that prices
at which these products may be purchased would not be materially higher than the
internal costs that the Company would otherwise bear in producing such rolled
goods. Loss of the rolling mill for a significant period of time would have a
material adverse effect on the Company's results of operations. The Company
obtains the remainder of its rolled goods from various regional suppliers. As
demand for fabricated structures increases, the Company's ability to obtain the
rolled steel that it needs at acceptable prices decreases. If the Company were
not able to obtain such products or if prices for such goods became
prohibitively expensive, the Company's profitability and results of operations
could be materially adversely affected. See "Risk Factors -- Facility
Limitations."
SAFETY AND QUALITY ASSURANCE
Management is concerned with the safety and health of the Company's
employees and maintains a safety assurance program to reduce the possibility of
costly accidents. The Company's safety department establishes guidelines for
compliance with all applicable state and federal safety regulations. Such laws
and regulations are complex, stringent and are often changed. Sanctions for
noncompliance may include revocation of or suspension of permits, corrective
action orders, cease and desist orders, administrative or civil penalties and
criminal prosecution. There can be no assurance that the Company is or will be
at all times in full compliance with all applicable laws and regulations.
Failure to comply could have a material adverse effect on the Company.
The Company provides training and safety education through orientations for
new employees and subcontractors, daily crew safety meetings and first aid and
CPR training. The Company also employs several safety engineers. The Company has
a comprehensive drug testing program and conducts periodic employee health
screenings. A safety committee, whose members consist of management
representatives and peer elected field representatives, meets monthly to discuss
safety concerns and suggestions that could prevent future accidents. The Company
has at times contracted with a third-party safety consultant to provide training
and suggestions and a licensed emergency medical technician in its ongoing
commitment to a safe and healthy work environment. The Company believes that its
safety program and commitment to quality are vital to attracting and retaining
customers and employees.
The Company fabricates to the standards of the American Petroleum
Institute, the American Welding Society, the American Society of Mechanical
Engineers and specific customer specifications. The Company uses welding and
fabrication procedures in accordance with the latest technology and industry
requirements. Training programs are conducted to upgrade skilled personnel and
maintain high quality standards. In addition, the Company maintains on-site
facilities for the x-ray of all pipe welds, which process is performed by an
independent contractor. Management believes that these programs generally
enhance the quality of its products and reduce their repair rate.
CUSTOMERS AND CONTRACTING
The Company's customers are primarily major and independent oil and gas
companies and offshore marine construction contractors. The Company's structures
are used primarily offshore West Africa and in the Gulf of Mexico. The Company
does not anticipate that the sale of McDermott's interest in the Company as part
of the Offering will have a significant effect on the demand for its services or
its ability to obtain fabrication work.
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A large portion of the Company's revenue has historically been generated by
a few customers, although not necessarily the same customers from year-to-year.
At June 30, 1997, 57% of the Company's backlog was attributable to two projects.
The following table provides information with respect to customers who accounted
for more than 10% of the Company's revenue for each of the four fiscal years
ending March 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, CUSTOMER % OF REVENUE
- -------------------- -------- ------------
<C> <C> <C>
1997 Bouygues Offshore 35
McDermott-ETPM West, Inc.* 26
1996 Mobil Producing Nigeria Unlimited 53
Shell Offshore Inc. 11
1995 Overseas Bechtel Inc. 29
Shell Offshore Inc. 10
1994 British Gas Tunisia, Ltd. 16
ABB Lummus Crest, Inc. 14
Pennzoil Exploration & Production Co., Inc. 12
</TABLE>
- ---------------
* McDermott-ETPM West, Inc. is a joint venture between an affiliate of McDermott
and a third party. Neither McDermott nor its affiliate exercises day-to-day
control over the joint venture.
Although the Company's direct customers on many projects are installation
contractors, each project is ultimately fabricated for use by an oil and gas
company. The Company, from time to time, contracts with multiple installation
contractors who may be supplying structures to the same oil and gas company and,
in some instances, contracts directly with the oil and gas companies. Thus,
concentration among the Company's customers may be greater when the customer is
viewed as the oil and gas company rather than the installation contractor. For
example, at June 30, 1997, the Company estimates that approximately 89% of its
backlog was for projects to be built for three oil and gas companies.
Because the level of fabrication that the Company may provide, directly or
indirectly, to any particular oil and gas company depends, among other things,
on the size of that company's capital expenditure budget devoted to platform
construction in a particular year and the Company's ability to meet the
customer's delivery schedule, companies that account for a significant portion
of the Company's revenue in one fiscal year may represent an immaterial portion
of revenue in subsequent years. The level of fabrication that the Company may
provide as a subcontractor to an offshore construction company depends, among
other things, on the ability of that company to successfully obtain prime
contracts with oil and gas companies and the ability of the Company to meet the
delivery schedule of the prime contractor. Thus, the prime contractors who
account for a significant portion of revenue in one fiscal year may represent an
immaterial portion of revenue in subsequent years. However, the loss of any
significant customer (whether an oil and gas company with which the Company
directly contracts or a prime contractor for which the Company has provided
services on a subcontract basis) for any reason, including a sustained decline
in an oil and gas company's capital expenditure budget or the prime contractor's
inability to successfully obtain contracts, or other competitive factors, could
result in a substantial loss of revenue and have a material adverse effect on
the Company's operating performance. See "Risk Factors -- Dependence on
Significant Customers."
Most of the Company's projects are awarded on a fixed-price basis, and
while customers may consider other factors, including the availability,
capability, reputation and safety record of a contractor, price and the ability
to meet a customer's delivery schedule are the principal factors on which the
Company is awarded contracts. The Company's contracts generally vary in length
from one month to eighteen months depending on the size and complexity of the
project.
Under fixed-price contracts, the Company receives the price fixed in the
contract, subject to adjustment only for change orders placed by the customer.
As a result, with respect to fixed-price contracts, the Company retains all cost
savings but is also responsible for all cost overruns. Under time and materials
arrangements, the Company receives a specified hourly rate for direct labor
hours worked (which exceeds its direct labor costs) and a specified percentage
mark-up over its cost for materials. As a result, under time and materials
contracts,
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the Company is protected against cost overruns but does not benefit directly
from cost savings. As the Company is typically able to obtain prices for
materials in excess of its costs, the cost and productivity of the Company's
labor force are the key factors affecting the Company's operating profits.
Consequently, it is essential that the Company control its labor costs and the
productivity of its workforce. Each project is reviewed on at least a weekly
basis by the Company's top management to insure that difficulties and cost
overruns can be identified early in the project and corrected. Although no
assurance can be given that the Company will realize profits on its current or
future contracts, the Company believes that the active involvement of its top
management reduces the likelihood of significant cost overruns. See "Risk
Factors -- Contract Bidding Risks."
COMPETITION
The offshore platform fabrication industry is highly competitive and
influenced by events largely outside of the control of offshore platform
fabrication companies. Since 1992, there has been a consolidation in the
industry as several marine construction companies have combined with other
companies or ceased operations altogether. As a result of this consolidation,
there are approximately eight remaining domestic competitors for custom
fabrication projects, several of which are substantially larger and have greater
resources and capabilities than the Company. These companies compete intensely
for available projects, which are generally awarded on a competitive bid basis
with customers usually requesting bids on projects one to three months prior to
commencement. For international projects, the Company competes with many of the
same domestic fabricators, as well as with several foreign fabricators, some of
which are substantially larger and have greater financial resources and
capabilities than the Company.
The Company's marketing staff contacts offshore construction contractors
and oil and gas companies to obtain information as to upcoming projects so that
the Company will be well positioned to bid for the projects. Although price and
the contractor's ability to meet a customer's delivery schedule are the
principal factors in determining which qualified fabricator is awarded a
contract for a project, customers also consider, among other things, the
availability of technically capable personnel and facility space, a fabricator's
efficiency, condition of equipment, reputation, safety record and customer
relations. The Company believes that the limited availability of experienced
supervisory and management personnel, as well as skilled laborers, presents the
greatest barrier to entry to new companies trying to enter the fabrication
industry.
The Company believes that its competitive pricing, expertise in fabricating
offshore marine structures and its long-term relationships with international
customers will enable it to continue to compete effectively for projects
destined for international waters. The Company recognizes, however, that foreign
governments often use subsidies and incentives to create jobs where oil and gas
production is being developed. The additional transportation costs that will be
incurred when exporting structures from the U.S. to foreign locations may hinder
the Company's ability to successfully bid for projects against foreign
competitors. Because of subsidies, import duties and fees, taxes on foreign
operators and lower wage rates in foreign countries along with fluctuations in
the value of the U.S. dollar and other factors, the Company may find it
increasingly difficult to remain competitive with foreign contractors for
projects designed for use in international waters.
BACKLOG
As of June 30, 1997, the Company's backlog was approximately $21.1 million,
all of which management expects to be performed by June 30, 1998. Of the
Company's backlog at June 30, 1997, 57% was attributable to two projects.
The Company's backlog is based on management's estimate of the remaining
labor, material and subcontracting costs to be incurred with respect to those
projects as to which a customer has authorized the Company to begin work or
purchase materials pursuant to written contracts, letters of intent or other
forms of authorization. Often, however, original contract prices are based on
incomplete engineering and design specifications. As engineering and design
plans are finalized or changes to existing plans are made, the total contract
price to complete such projects is likely to change. In addition, most projects
currently included in the Company's backlog are subject to termination at the
option of the customer, although the customer in that
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<PAGE> 35
case is generally required to pay the Company for work performed and materials
purchased through the date of termination and, in some instances, pay the
Company termination fees. See "Risk Factors -- Backlog."
GOVERNMENT AND ENVIRONMENTAL REGULATION
Many aspects of the Company's operations and properties are materially
affected by federal, state and local regulation, as well as certain
international conventions and private industry organizations. The exploration
and development of oil and gas properties located on the outer continental shelf
of the United States is regulated primarily by the MMS. The MMS has promulgated
federal regulations under the Outer Continental Shelf Lands Act requiring the
construction of offshore structures located on the outer continental shelf to
meet stringent engineering and construction specifications. The Company is not
directly affected by regulations applicable to offshore construction operations
as are its customers which install and operate the structures fabricated by the
Company, but the Company is required to construct these structures in accordance
with customer design which must comply with applicable regulations; to the
extent such regulations detrimentally affect customer activities, the operations
of the Company may be adversely affected. Violations of the laws and related
regulations directly affecting the Company's operations can result in
substantial civil and criminal penalties as well as injunctions curtailing
operations. The Company believes that its operations are in compliance with
these and all other laws and related regulations affecting the fabrication of
structures for delivery to the outer continental shelf of the United States and
the laws and related regulations governing other areas of the world. In
addition, the Company depends on the demand for its services from the oil and
gas industry and, therefore, is affected by changing taxes, price controls and
other laws and regulations relating to the oil and gas industry. In addition,
offshore construction and drilling in certain areas have been opposed by
environmental groups and, in certain areas, has been restricted or prohibited.
To the extent laws or regulations are enacted or other governmental actions are
taken that prohibit or restrict offshore construction and drilling or impose
environmental protection requirements that result in increased costs to the oil
and gas industry in general and the offshore construction industry in
particular, the business and prospects of the Company could be adversely
affected, although such restrictions in the areas where the Company's products
are used have not been substantial. The Company cannot determine to what extent
future operations and earnings of the Company may be affected by new
legislation, new regulations or changes in existing laws or regulations.
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent federal, state and local environmental laws
and regulations, including those governing discharges into the air and water,
the handling and disposal of solid and hazardous wastes, the remediation of soil
and groundwater contaminated by hazardous substances and the health and safety
of employees. These laws may provide for "strict liability" for damages to
natural resources and threats to public health and safety, rendering a party
liable for environmental damage without regard to negligence or fault on the
part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, cease and desist orders, administrative or
civil penalties and criminal prosecution. Certain environmental laws provide for
strict, joint and several liability, without regard to fault or negligence, for
remediation of spills and other releases of hazardous substances. In addition,
the Company may be subject to claims alleging personal injury, property damage
or natural resource damage as a result of the handling of hazardous substances.
Such laws and regulations may also expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, and similar laws provide for responses to and liability for
releases of hazardous substances into the environment. Additionally, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Safe Drinking Water Act, the Emergency Planning and Community Right to Know Act,
each as amended, and similar state or local counterparts to these federal laws,
regulate air emissions, water discharges, hazardous substances and wastes, and
require public disclosure related to the use of various hazardous substances.
Compliance with such environmental laws and regulations requires the acquisition
of permits and other authorizations for certain activities and compliance with
various standards and procedural requirements.
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<PAGE> 36
The Company is currently in the process of applying for certain permits
from the Louisiana Department of Environmental Quality for its facilities and
upgrading its general environmental compliance. These permits are necessary for
the operation of certain facilities in accordance with environmental
requirements. While there can be no assurance that the permits will be issued,
management believes that the Company will be able to obtain the required permits
and bring its facilities into substantial compliance with current regulatory
standards without material effect to its operations. The Company has budgeted
$150,000 for the costs of completing the necessary environmental permitting and
compliance matters.
In addition to the Company's operations, in the past other industrial
operations have been conducted by other entities on the properties now utilized
by the Company. Although the Company does not believe that there are any
material remediation requirements on its properties, it is possible that these
past operations may have caused unknown environmental conditions to exist that
might in the future require remediation.
The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, primarily the Occupational Safety and
Health Act and regulations promulgated thereunder. In addition, various other
governmental and quasi-governmental agencies require the Company to obtain
certain miscellaneous permits, licenses and certificates with respect to its
operations. The kind of permits, licenses and certificates required in the
Company's operations depend upon a number of factors. The Company believes that
it has all such miscellaneous permits, licenses and certificates that are
material to the conduct of its existing business.
The Company's efforts to comply with the laws and regulations discussed in
this section have entailed certain additional expenses and changes in operating
procedures. These expenses have not been substantial over the past ten years,
and the Company believes that, except for the amount budgeted for permitting
matters as discussed above, compliance with these laws and regulations will not
have a material adverse effect on the Company's business or financial condition
for the foreseeable future. However, future events, such as changes in existing
laws and regulations or their interpretation, more vigorous enforcement policies
of regulatory agencies, stricter or different interpretations of existing laws
and regulations or adoption of new laws and regulations, may require additional
expenditures by the Company, which expenditures may be material. See "Risk
Factors -- Regulatory and Environmental Matters."
The Company also has employees engaged in offshore operations which are
covered by provisions of the Jones Act, the Death on the High Seas Act and
general maritime law, which laws operate to make the liability limits
established under state workers' compensation laws (which are applicable to the
Company's other employees) inapplicable to these employees and, instead, permit
them or their representatives to pursue actions against the Company for damages
or job related injuries, with generally no limitations on the Company's
potential liability.
In addition to government regulation, various private industry
organizations, such as the American Petroleum Institute, the American Society of
Mechanical Engineers and the American Welding Society, promulgate technical
standards that must be adhered to in the fabrication process.
INSURANCE
The Company maintains insurance against property damage caused by fire,
flood, explosion and similar catastrophic events that may result in physical
damage or destruction to the Company's facilities. The Company also maintains
general liability insurance, workers' compensation liability and maritime
employer's liability insurance. All policies are subject to deductibles and
other coverage limitations. Although management believes that the Company's
insurance is adequate, there can be no assurance that the Company will be able
to maintain adequate insurance at rates which management considers commercially
reasonable, nor can there be any assurance such coverage will be adequate to
cover all claims that may arise.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings primarily
involving commercial claims, workers' compensation claims, and claims for
personal injury under the General Maritime Laws of the United
34
<PAGE> 37
States and the Jones Act. While the outcome of these lawsuits, legal proceedings
and claims cannot be predicted with certainty, management believes that the
outcome of all such proceedings, even if determined adversely, would not have a
material adverse effect on the Company's business or financial condition.
EMPLOYEES
During the fiscal year ended March 31, 1997, the number of Company
employees increased by 86 full-time production employees to 414 at year-end. As
of July 31, 1997, the Company had approximately 408 employees. The Company also
engages the services of subcontractors. Management estimates that these
subcontractors provide from time to time approximately 50 to 125 workers to
perform certain tasks in connection with the Company's projects. None of the
Company's employees is employed pursuant to a collective bargaining agreement,
and the Company believes that its relationship with its employees is good.
The Company's ability to remain productive and profitable depends
substantially on its ability to attract and retain skilled construction workers,
primarily welders, fitters and equipment operators. In addition, the Company's
ability to expand its operations depends primarily on its ability to increase
its workforce. The demand for such workers is high, and the supply is extremely
limited. While the Company believes its relationship with its skilled labor
force is good, a significant increase in the wages paid by competing employers
could result in a reduction in the Company's skilled labor force, increases in
the wage rates paid by the Company, or both. If either of these occurs, in the
near-term, the profits expected by the Company from work in progress could be
reduced or eliminated and, in the long-term, to the extent such wage increases
could not be passed on to the Company's customers, the production capacity of
the Company could be diminished and the growth potential of the Company could be
impaired. See "Risk Factors -- Need for Skilled Workers."
The Company has taken an active role in the movement to create a more
business-oriented educational system in Louisiana. For example, Dailey J.
Berard, the Company's President, Chief Executive Officer and Chairman of the
Board, has recently been appointed by Louisiana Governor Mike Foster to the
Louisiana Workforce Commission, a group consisting of 25 members, 11 of whom are
representatives of business and industry. This Commission, which was established
by recent Louisiana legislation, will oversee the spending of $400 million in
job training funds appropriated by the legislature. The Commission will
coordinate federal worker training programs, exercise authority over policy and
funding decisions for worker training programs, oversee an occupational
information system and create regional employer-oriented workforce boards.
Although there can be no assurance that such initiatives will enable the Company
to meet its hiring needs, management believes that, in the long-term,
initiatives like these are the best methods for increasing the pool of skilled
workers from which it can draw employees.
35
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of the date of this Prospectus, certain
information with respect to the Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dailey J. Berard.......................... 68 President, Chief Executive Officer and
Chairman of the Board
Larry L. Clement.......................... 53 Vice President -- Operations
Dennis W. LaFleur......................... 51 Vice President -- International Sales
David J. Berard........................... 51 Vice President -- Domestic Sales
Louis C. Peltier.......................... 67 Vice President -- Power and Equipment
Peter J. Roman............................ 46 Vice President and Chief Financial Officer
Charles E. Broussard...................... 72 Director
Perry Segura.............................. 67 Director
Richard E. Roberson, Jr................... 60 Director
George C. Yax............................. 56 Director
</TABLE>
Dailey J. Berard has served as President, Chief Executive Officer and
Chairman of the Board of the Company since its founding in 1980. He was trained
as a civil engineer and has over 45 years of experience in the oil service
industry, working with several different companies, including Houston-New
Orleans, Inc., Houston Systems Manufacturing Company and Norman Offshore
Pipelines, Inc. Mr. Berard and David J. Berard are brothers.
Larry L. Clement has been employed by the Company since 1980, and has
served as the Company's Vice President -- Operations since 1992. From 1976 to
1980, Mr. Clement served as Yard Superintendent for Houston Systems
Manufacturing Company and has over 25 years of experience in the fabrication
industry.
Dennis W. LaFleur has been employed by the Company since 1981, and has
served as the Company's Vice President -- International Sales since 1995 and as
Vice President - Sales since 1992. From 1977 to 1981, he served as Chief
Engineer for Houston Systems Manufacturing Company, and from 1974 to 1977 served
as a project engineer for Houston Construction Company.
David J. Berard has been employed by the Company since 1981, and has served
as the Company's Vice President -- Domestic Sales since 1995. Mr. Berard held
various positions with the Company since he joined the Company in 1981,
including Corporate Secretary from 1992 to 1995. From 1978 to 1981, he served as
the district manager for the fabrication yard of Waukesha Pearce Industries, and
from 1973 to 1978 served as the General Superintendent of Fabrication for
Houston Systems Manufacturing Company. Mr. Berard and Dailey J. Berard are
brothers.
Louis C. Peltier has been employed by the Company since 1981, and has
served as the Company's Vice President-Power and Equipment since 1992. Prior to
joining the Company, from 1947 to 1981, Mr. Peltier was employed by Waukesha
Pearce Industries in various positions, including District Manager.
Peter J. Roman was appointed Vice President and Chief Financial Officer on
June 30, 1997. Since June 1984, Mr. Roman has been a certified public accountant
with the international accounting firm of Ernst & Young LLP, most recently as a
senior manager. Mr. Roman graduated from Louisiana State University in 1984 with
a B.S. in Accounting and is a member of the Louisiana State Society of Certified
Public Accountants and the American Institute of Certified Public Accountants.
36
<PAGE> 39
Charles E. Broussard has been a director of the Company and its
predecessors since 1980. Mr. Broussard is currently the owner of Flying J.
Ranch, Inc., a cattle and rice farm in southern Louisiana. Mr. Broussard has
over 40 years of experience in the real estate and import/export businesses.
Perry Segura has been a director of the Company and its predecessors since
1980. Mr. Segura is an architect in New Iberia, Louisiana and is also active in
real estate development in south Louisiana. Mr. Segura was Vice Chairman of the
Board of Supervisors of Louisiana State University for the 1996-97 year and is
Chairman for the current year. Mr. Segura graduated from Louisiana State
University with a B.S. in Architectural Engineering in 1954.
Richard E. Roberson, Jr. joined the Company's Board of Directors in July
1997. He served as Vice President, Chief Financial Officer, Treasurer and a
director of Global Industries, Ltd. from December 1992 to May 1996, when he
retired. From March 1986 until September 1991, Mr. Roberson served as Vice
President -- Finance for Ocean Drilling & Exploration Company. Mr. Roberson has
over 30 years of experience in the oil and gas and oil service industry,
including over 20 years as an accounting and financial officer.
George C. Yax joined the Company's Board of Directors in July 1997. He is a
co-founder of American Oilfield Divers, Inc. ("AOD"), a publicly traded provider
of subsea products and services to the oil and gas industry, and has served as a
Chairman of the Board of AOD since its inception in 1981. Mr. Yax served as
President and Chief Executive Officer of AOD from its inception until December
1996. Mr. Yax has over 28 years of experience in the subsea services industry.
Mr. Yax is a director of the National Oceans Industries Association and has also
served in various officer capacities for the Association of Diving Contractors.
Mr. Yax holds a BBA degree and an MBA degree from Sam Houston University.
The Company's Articles of Incorporation ("Articles") and By-laws provides
for the Board of Directors to be divided into three classes of directors with
each class to be as nearly equal in number of directors as possible, with
directors serving staggered three-year terms. The terms of the Class I
directors, Messrs. Segura and Roberson, will expire in 1998. The terms of the
Class II directors, Messrs. Broussard and Yax, will expire in 1999, and the term
of the Class III director, Mr. Berard, will expire in 2000. Each director serves
until the end of his term or until his successor is elected and qualified. See
"Description of Capital Stock -- Certain Charter and By-law Provisions."
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid an annual
director's fee of $12,000 plus $1,000 for each board or committee meeting
attended. All directors are reimbursed for reasonable out-of-pocket expenses
incurred in attending board and committee meetings. Each director who is not an
employee of the Company, upon consummation of the Offering, will also receive
options to purchase 2,500 shares of Common Stock with an exercise price equal to
the Price to Public set forth on the cover page of this Prospectus and an annual
grant of options to purchase no more than 2,500 shares of Common Stock (with the
exact number to be set annually by the Compensation Committee) at an exercise
price equal to the market price of the Common Stock on the date of the annual
meeting of shareholders. These options will be immediately exercisable.
COMMITTEES
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the Company's annual audit
and meets with the Company's independent public accountants to review the
Company's internal controls and financial management practices. The current
members of the Audit Committee are Messrs. Roberson and Segura.
The Compensation Committee recommends to the Board of Directors
compensation for the Company's key employees, administers the Company's stock
incentive plan and performs such other functions as may be prescribed by the
Board of Directors. The current members of the Compensation Committee are
Messrs. Broussard and Yax.
37
<PAGE> 40
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to its Chief Executive
Officer for the year ended March 31, 1997. No other employee of the Company
earned more than $100,000 in fiscal year 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
Dailey J. Berard, President and Chief Executive
Officer....................................... 1997 $125,449 $50,015 $10,622
</TABLE>
- ---------------
(1) Includes amounts credited to Mr. Berard's account under the Company's 401(k)
Plan, interest earned by Mr. Berard on deferred compensation amounts and the
cost of Mr. Berard's membership in the Lafayette Petroleum Club which the
Company pays. The Company accrues interest on compensation deferred by Mr.
Berard at the prime rate as quoted by the Chase Manhattan Bank from time to
time. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July 1997, the Company did not have a compensation committee. Mr.
Dailey J. Berard participated in deliberations of the Company's Board of
Directors concerning executive officer compensation.
In connection with the Expansion Transaction, the Company and Mr. Dailey J.
Berard entered into an employment agreement that was negotiated between Mr.
Berard and McDermott. Pursuant to this agreement, Mr. Berard agreed to serve as
President and Chief Executive Officer of the Company so long as he remained a
shareholder of Universal Partners. Mr. Berard receives an annual salary set by
the Board of Directors and a cash bonus, the amount of which is dependent on the
Company's return on capital. This agreement will be terminated upon completion
of the Offering.
Upon completion of the Offering, the Company and Mr. Berard will enter into
a five-year employment and non-competition agreement (the "New Employment
Agreement"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The terms of the New Employment
Agreement are the result of negotiations between Mr. Berard and the Company's
Board of Directors.
Pursuant to the New Employment Agreement, Mr. Berard will receive a yearly
salary of $180,000 and will receive, as a bonus, up to 100% of his annual salary
depending on the Company's net income return on capital. If, during the term of
the New Employment Agreement, Mr. Berard's status as an employee is terminated
for any reason other than death, disability or Cause (as defined therein) or Mr.
Berard terminates his employment for Good Reason (as defined therein), Mr.
Berard will be entitled (i) to receive compensation earned through the date of
his termination, compensation previously deferred by Mr. Berard and any accrued
vacation pay (in each case to the extent not previously paid), (ii) to receive
in a lump sum amounts due for the remainder of the employment term and (iii) to
demand that the Company register any shares of Common Stock held by him for sale
under the Securities Act (subject to a minimum of 100,000 shares) and pay all
expenses related thereto except underwriting fees, discounts and commissions,
legal fees of counsel for Mr. Berard and broker-dealer charges. See "Certain
Transactions" and "Shares Eligible for Future Resale." If, during the term of
the New Employment Agreement and following a change-in-control of the Company,
Mr. Berard's status as an employee is terminated for any reason other than
death, disability or Cause or Mr. Berard terminates his employment for Good
Reason, he will receive the amount described in clause (i) above plus the
greater of (x) the amount described in clause (ii) above and (y) two times his
annual salary. In addition, upon a change-in-control, all options granted to Mr.
Berard under the Company's long-term incentive plan will vest and become
exercisable. See "-- Compensation Pursuant to Plans -- Long-Term Incentive
Plan." These provisions could have a negative influence on any attempt to
acquire control of the Company, which could deprive shareholders of the
opportunity to sell their Common Stock at a premium in the market, and could
serve to entrench management.
38
<PAGE> 41
COMPENSATION PURSUANT TO PLANS
Long-Term Incentive Plan. In July 1997, the Company adopted and its
shareholder approved the Long-Term Incentive Plan (the "1997 Plan") to provide
long-term incentives to its key employees, including officers and directors who
are employees of the Company (the "Eligible Employees"). There are currently
approximately 30 Eligible Employees. Under the 1997 Plan, which is administered
by the Compensation Committee of the Board of Directors, the Company may grant
incentive stock options, non-qualified stock options, restricted stock, other
stock-based awards or any combination thereof (the "Incentives") to Eligible
Employees. The Compensation Committee will determine who will receive Incentives
and will establish the exercise price of any stock options granted under the
Incentive Plan, provided that the exercise price may not be less than the fair
market value of the Common Stock on the date of grant. The option exercise price
may be paid in cash, in Common Stock held for at least six months (unless
otherwise determined by the Compensation Committee), or through a
broker-assisted exercise arrangement approved by the Compensation Committee.
A total of 460,000 shares of Common Stock are available for issuance under
the 1997 Plan. Incentives with respect to no more than 200,000 shares of Common
Stock may be granted to any single Eligible Employee in one calendar year.
Proportionate adjustments will be made to the number of shares subject to the
1997 Plan, including the shares subject to outstanding Incentives, in the event
of any recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock. In the event of such adjustments, the purchase
price of any outstanding option will be adjusted as and to the extent
appropriate, in the reasonable discretion of the Compensation Committee, to
provide participants with the same relative rights before and after such
adjustment.
Pursuant to the 1997 Plan, each director who is not an employee of the
Company will receive options to purchase 2,500 shares upon consummation of the
Offering at the Price to Public set forth on the cover page of this Prospectus.
In addition, at each annual meeting of the Company's shareholders, each director
who is not an employee of the Company and continues to serve as a director will
receive options to purchase no more than 2,500 shares of Common Stock (with the
exact number to be set annually by the Compensation Committee) at an exercise
price equal to the market price of the Common Stock on the date of the annual
meeting of shareholders. These options will be immediately exercisable and will
expire ten years following the date of grant. There are currently four
non-employee directors.
All outstanding Incentives will automatically become exercisable and fully
vested and all performance criteria will be deemed to be waived by the Company
upon (i) approval by the shareholders of the Company of a reorganization, merger
or consolidation of the Company or sale of all or substantially all of the
assets of the Company, unless (x) all or substantially all of the individuals
and entities who were the beneficial owners of the Company's outstanding Common
Stock and voting securities entitled to vote generally in the election of
directors immediately prior to such transaction have direct or indirect
beneficial ownership, respectively, of more than 50% of the then outstanding
shares of common stock, and more than 50% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the resulting entity; (y) except to the extent that such ownership
existed prior to the transaction, no person (excluding any corporation resulting
from the transaction or any employee benefit plan or related trust of the
Company or the resulting corporation) beneficially owns, directly or indirectly,
30% or more of the then outstanding shares of common stock of the resulting
corporation or 30% or more of the combined voting power of the then outstanding
voting securities of the resulting entity; or (z) a majority of the board of
directors of the resulting entity were members of the Company's board of
directors at the time of the execution of the initial agreement or of the action
of the Board providing for the transaction; (ii) approval by the shareholders of
the Company of a complete liquidation or dissolution of the Company; (iii) a
person or group of persons becoming the beneficial owner of more than 30% of the
Company's voting stock (subject to certain exceptions); or (iv) the replacement
of a majority of the Board in a contested election (a "Significant
Transaction"). The Compensation Committee also has the authority to take several
actions regarding outstanding Incentives upon the occurrence of a Significant
Transaction, including requiring that outstanding options remain exercisable
only for a limited time, providing for mandatory conversion of outstanding
options in exchange for either a cash payment or Common Stock, making equitable
adjustments to Incentives or providing that outstanding options will become
options relating to securities to which a participant would have
39
<PAGE> 42
been entitled in connection with the Significant Transaction if the options had
been exercised. These provisions could have a negative influence on any attempt
to acquire control of the Company, which could deprive shareholders of the
opportunity to sell their Common Stock at a premium in the market, and could
serve to entrench management.
The Board may amend the 1997 Plan without shareholder approval, unless
shareholder approval is deemed necessary or advisable in order to comply with
tax or regulatory requirements.
As of the date of this Prospectus, options to purchase 133,500 shares of
Common Stock have been granted under the 1997 Plan to directors and key
employees of the Company, including options to purchase 65,000, 8,000, 8,000,
8,000, 4,000 and 4,000 shares to Messrs. Dailey J. Berard, Clement, LaFleur,
David J. Berard, Peltier and Roman, respectively. Executive officers as a group
were granted options to purchase 97,000 shares, other employees as a group were
granted options to purchase 26,500 shares and non-employee directors as a group
will be granted options to purchase 10,000 shares upon consummation of the
Offering. All of the options granted as of the date of this Prospectus under the
1997 Plan have a ten-year term and an exercise price equal to the initial public
offering price. These grants will be effective only upon consummation of the
Offering. One-third of these options granted to the Company's employees will
become exercisable upon completion of the Offering, with the remainder becoming
exercisable in equal installments on the first and second anniversaries of the
completion of the Offering.
The optionee will not realize any income for federal income tax purposes,
nor will the Company realize any deduction, upon the grant of a non-qualified
stock option. Upon exercise, the optionee will realize ordinary income measured
by the difference between the aggregate fair market value of the shares of
Common Stock on the exercise date and the aggregate exercise price, and the
Company will be entitled to a deduction in the same amount.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
As permitted by Louisiana Law, the Company's Articles contain certain
provisions eliminating the personal liability of the directors and officers to
the Company and its shareholders for monetary damages for breaches of their
fiduciary duties as directors or officers, except for (i) a breach of a
director's or officer's duty of loyalty to the Company or to its shareholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) dividends or stock repurchases or
redemptions that are illegal under Louisiana law and (iv) any transaction from
which he or she receives an improper personal benefit. In addition, the Articles
provide that if Louisiana law is amended to authorize the further elimination or
limitation of the liability of a director, then the liability of the directors
shall be eliminated or limited to the fullest extent permitted by Louisiana law,
as amended. These provisions pertain only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers, and limit
liability only for breaches of fiduciary duties under Louisiana corporate law
and not for violations of other laws such as the federal securities laws.
As a result of the inclusion of such provisions, shareholders may be unable
to recover monetary damages against directors or officers for actions taken by
them that constitute negligence or gross negligence or that are in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. If equitable remedies are
found not to be available to shareholders in any particular case, shareholders
may not have any effective remedy against the challenged conduct. These
provisions may have the effect of reducing the likelihood of derivative
litigation against directors or officers that might have benefitted the Company.
The Company believes that such provisions are necessary to attract and
retain qualified individuals to serve as directors and officers. In addition,
such provisions will allow directors and officers to perform their duties in
good faith without undue concern about personal liability if a court finds their
conduct to have been negligent or grossly negligent. On the other hand, the
potential remedies available to a Company shareholder will be limited, and it is
possible, although unlikely, that directors and officers protected by these
provisions may not demonstrate the same level of diligence or care that they
would otherwise demonstrate.
40
<PAGE> 43
The Company's Bylaws require the Company to indemnify its directors and
officers against certain expenses and costs, judgments, settlements and fines
incurred in the defense of any claim, including any claim brought by or in the
right of the Company, to which they were made parties by reason of being or
having been directors and officers, subject to certain conditions and
limitations.
In addition, each of the Company's directors and executive officers has
entered into an indemnity agreement with the Company, pursuant to which the
Company has agreed under certain circumstances to purchase and maintain
directors' and officers' liability insurance. The agreements also provide that
the Company will indemnify the directors and executive officers against any
costs and expenses, judgments, settlements and fines incurred in connection with
any claim involving a director or executive officer by reason of his position as
a director or executive officer that are in excess of the coverage provided by
such insurance; provided that the director or executive officer meets certain
standards of conduct. A form of indemnity agreement containing such standards of
conduct is included as an exhibit to the Registration Statement of which this
Prospectus forms a part. Under the indemnity agreements, the Company is not
required to purchase and maintain directors' and officers' liability insurance
if it is not reasonably available or, in the reasonable judgment of the Board of
Directors, there is insufficient benefit to the Company from the insurance.
41
<PAGE> 44
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding beneficial ownership of the Common Stock (assuming the
Partners Share Exchange (and dissolution of Universal Partners) and the
McDermott Share Exchange had occurred on such date) by (i) the Selling
Shareholder, (ii) each shareholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (iii) each director of
the Company, (iv) each of the Company's executive officers, and (v) all of the
Company's directors and executive officers as a group. Unless otherwise
indicated, the Company believes that the shareholders listed below have sole
investment and voting power with respect to their shares based on information
furnished to the Company by such shareholders.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
COMMON STOCK
-------------------
NUMBER OF SHARES SHARES TO BE SOLD BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED IN THE OFFERING OFFERING OFFERING
------------------------ ------------------ ----------------- -------- --------
<S> <C> <C> <C> <C>
McDermott Incorporated(1)................... 1,715,000 1,715,000 49.0% --
Dailey J. Berard(1)......................... 436,312(2) -- 11.8% 9.4%
Charles E. Broussard(3)..................... 408,934(2) -- 11.6% 8.8%
Perry Segura(4)............................. 437,672(2) -- 12.4% 9.5%
Larry L. Clement............................ 43,721(2) -- 1.2% *
Dennis LaFleur.............................. 43,721(2) -- 1.2% *
David J. Berard............................. 43,721(2) -- 1.2% *
Louis C. Peltier............................ 42,387(2) -- 1.2% *
Peter J. Roman.............................. 1,333(2) -- * *
Richard E. Roberson, Jr..................... 2,500(2) -- * *
George C. Yax............................... 2,500(2) -- * *
All directors and executive officers as a
group (10 persons)........................ 1,462,801(5) -- 40.6% 31.5%
</TABLE>
- ---------------
* Less than one percent.
(1) The address of McDermott Incorporated is 1450 Poydras Street, New Orleans,
Louisiana 70112. The address of Mr. Dailey J. Berard is c/o Universal
Fabricators Incorporated, 5007 Port Road, New Iberia, Louisiana 70562.
(2) Includes the following number of shares issuable upon the exercise of
options held by each of the following that will become exercisable upon
completion of the Offering: Mr. Dailey Berard, 21,667; Mr. Broussard, 2,500;
Mr. Segura, 2,500; Mr. Clement, 2,667; Mr. LaFleur, 2,667; Mr. David Berard,
2,667; Mr. Peltier, 1,333; Mr. Roman, 1,333; Mr. Roberson, 2,500 and Mr.
Yax, 2,500.
(3) Includes 151,900 shares owned by a company controlled by Mr. Broussard. His
address is 23604 S. Louisiana Highway 82, Kaplan, Louisiana 70548.
(4) Includes 373,591 shares owned by a company controlled by Mr. Segura. His
address is P.O. Box 13410, New Iberia, Louisiana 70562.
(5) Includes 42,334 shares issuable upon exercise of options held by the
Company's directors and executive officers that will become exercisable upon
completion of the Offering.
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<PAGE> 45
CERTAIN TRANSACTIONS
Since December 1992, the Company has leased its main administrative offices
and five acres of surrounding land from McDermott for a nominal fee. Upon
completion of the Offering, the Company will purchase the building and the land,
together with approximately 13 additional acres, from McDermott for $700,000,
which management believes is the fair market value of the land and building, if
sold in an arms' length transaction. The purchase price for this land was
determined by negotiations between McDermott and the Company, who was
represented by Mr. Berard, its President and Chief Executive Officer. In
addition, the Company will pay $6.3 million to McDermott for the release of its
rights under the Shareholders' Agreement and the Put/Call Agreement. See
"Formation of the Company" and "Use of Proceeds."
The Company has agreed to purchase 10 acres of land adjacent to its
facilities from Universal Partners upon completion of the Offering for $100,500.
The proceeds of this sale (or interests therein through a liquidating trust)
will be distributed to the shareholders of Universal Partners in connection with
the dissolution of Universal Partners, which is expected to occur promptly after
completion of the Offering. Shareholders of Universal Partners who are also
directors and officers of the Company will receive, in the aggregate,
approximately $80,000 (or trust interests therein) pursuant to this
distribution. Based upon an independent appraisal, the Company believes the
purchase price for the land represents its fair market value, if sold in an
arms' length transaction. See "The Company" and "Use of Proceeds."
The Company has from time to time provided fabrication services as a
subcontractor to McDermott-ETPM West, Inc., which is an offshore construction
company and an affiliate of McDermott. The Company provides fabrication services
to this joint venture on the same basis as it does for other offshore
construction companies and believes that it obtained the contracts for these
services because of the quality of its bids and not because of its relationship
with McDermott. In fiscal 1997, the Company generated approximately $17.4
million in revenue from such projects. As of July 31, 1997, the Company had an
account receivable from McDermott-ETPM West, Inc. in the amount of $1.1 million,
which the Company expects to collect in full. The Company continues to bid as a
subcontractor for fabrication projects from McDermott-ETPM West, Inc., and
expects that its bids will continue to be considered on the same basis after the
Offering. In addition, the Company has from time to time purchased rolled goods
from J. Ray McDermott, Inc., also an affiliate of McDermott, and in fiscal 1997,
the cost of such purchases was approximately $330,000. The Company believes that
all of these transactions were performed on an arm's length basis at prices that
are typical for similar transactions between unrelated parties. The Company does
not anticipate that the sale of McDermott's interest in the Company as part of
the Offering will have any significant adverse effect on the Company.
Pursuant to the New Employment Agreement, the Company has granted Mr.
Dailey Berard the right to demand registration for sale under the Securities Act
of any shares of Common Stock that he owns (subject to a minimum of 100,000
shares), if, during the term of the New Employment Agreement, he is removed as
the Company's President and Chief Executive Officer for any reason other than
death, disability or Cause (as defined therein) or he terminates his employment
with the Company for Good Reason (as defined therein). The Company has agreed to
pay all the expenses of such registration, other than underwriting fees,
discounts and commissions, legal fees of counsel for Mr. Berard and
broker-dealer charges. See "Risk Factors -- Sales Eligible for Future Resale"
and "Management -- Compensation Committee Interlocks and Insider Participation."
In 1997, Universal Fabricators distributed $370,000 to Universal Partners
to reimburse Universal Partners for the costs of settling an uninsured worker's
compensation claim which arose prior to the Expansion Transaction. Certain
officers and directors of the Company collectively own approximately 80% of the
stock of Universal Partners.
Mr. Dailey J. Berard has deferred the receipt of all bonus payments due him
since the Expansion Transaction. The Company accrues interest on such sums at
the prime rate as quoted by the Chase Manhattan Bank from time to time and, as
of March 31, 1997, the Company owed Mr. Berard approximately $133,000.
43
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value per share, and 5,000,000 shares of preferred
stock, no par value per share, issuable in series (the "Preferred Stock"). Upon
completion of the Partners Share Exchange and the McDermott Share Exchange
immediately prior to the consummation of the Offering, the Company will have
3,500,000 shares of Common Stock outstanding, which will be held of record by
approximately 33 persons, and no shares of Preferred Stock will be outstanding.
Prior to the Offering, there has been no public market for the Common Stock.
Although application has been made to have the Common Stock listed on the Nasdaq
National Market, there can be no assurance that a market for the Common Stock
will develop or, if developed, will be sustained. See "Risk Factors -- No Prior
Market; Possible Volatility of Market Price; Dilution." The following summary
description of the capital stock of the Company is qualified in its entirety by
reference to the Company's Certificate and By-laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of shareholders;
shareholders may not cumulate votes for the election of directors. Subject to
any preferences accorded to the holders of the Preferred Stock, if and when
issued by the Board of Directors, holders of Common Stock are entitled to
dividends at such times and in such amounts as the Board of Directors may
determine. The Company currently does not intend to pay dividends for the
foreseeable future. Upon the dissolution, liquidation or winding up of the
Company, after payment of debts, expenses and the liquidation preference plus
any accrued dividends on any outstanding shares of Preferred Stock, the holders
of Common Stock will be entitled to receive all remaining assets of the Company
ratably in proportion to the number of shares held by them. Holders of Common
Stock have no preemptive, subscription or conversion rights and are not subject
to further calls or assessments, or rights of redemption by the Company. The
outstanding shares of Common Stock are, and the shares of Common Stock being
sold in the Offering will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority, without approval of the
shareholders, to issue shares of Preferred Stock in one or more series and to
fix the number of shares and rights, preferences and limitations of each series.
Among the specific matters with respect to the Preferred Stock that may be
determined by the Board of Directors are the dividend rights, the redemption
price, if any, the terms of a sinking fund, if any, the amount payable in the
event of any voluntary liquidation, dissolution or winding up of the affairs of
the Company, conversion rights, if any, and voting powers, if any.
One of the effects of the existence of authorized but unissued Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to make
more difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, and thereby to
protect the continuity of the Company's management. If, in the exercise of its
fiduciary obligations, the Board of Directors were to determine that a takeover
proposal was not in the Company's best interest, such shares could be issued by
the Board of Directors without shareholder approval in one or more transactions
that might prevent or make more difficult or costly the completion of the
takeover transaction by diluting the voting or other rights of the proposed
acquiror or insurgent shareholder group, by creating a substantial voting block
in institutional or other hands that might undertake to support the position of
the incumbent Board of Directors, by effecting an acquisition that might
complicate or preclude the takeover, or otherwise. In this regard, the Company's
Articles grant the Board of Directors broad power to establish the rights and
preferences of the authorized and unissued Preferred Stock, one or more series
of which could be issued that would entitle holders (i) to vote separately as a
class on any proposed merger or consolidation, (ii) to cast a proportionately
larger vote together with the Common Stock on any such transaction or for all
purposes, (iii) to elect directors having terms of office or voting rights
greater than those of other directors, (iv) to convert Preferred Stock into a
greater number of shares of Common Stock or other securities, (v) to demand
redemption at a specified
44
<PAGE> 47
price under prescribed circumstances related to a change of control or (vi) to
exercise other rights designated to impede a takeover. The issuance of shares of
Preferred Stock pursuant to the Board of Directors' authority described above
may adversely effect the rights of holders of the Common Stock.
In addition, certain other charter provisions that are described below may
have the effect of, either alone or in combination with each other or with the
existence of authorized but unissued capital stock, of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Classified Board of Directors. The Articles and By-laws divide the members
of the Board of Directors who are elected by the holders of the Common Stock
into three classes serving three-year staggered terms.
Advance Notice of Intention to Nominate a Director. The Articles and
By-laws permit a shareholder to nominate a person for election as a director
only if written notice of such shareholder's intent to make a nomination has
been given to the Secretary of the Company not less than 45 days or more than 90
days prior to an annual meeting, unless less than 55 days notice is given of the
meeting, in which case notice by the shareholder must be received on the 10th
day after notice of the meeting was given. This provision also requires that the
shareholder's notice set forth, among other things, a description of all
arrangements or understandings between the nominee and the shareholder pursuant
to which the nomination is to be made or the nominee is to be elected and such
other information regarding the nominee as would be required to be included in a
proxy statement filed pursuant to the proxy rules promulgated under the
Securities Exchange Act of 1934, as amended, had the nominee been nominated by
the Board of Directors of the Company. Any nomination that fails to comply with
these requirements may be disqualified.
Shareholders' Right to Call Special Meeting. The Articles and By-laws
provide that a special shareholders' meeting may be requested by a shareholder
or group of shareholders holding in the aggregate 50% or more of the Company's
total voting power.
Removal of Directors; Filling Vacancies on Board of Directors. The Articles
and By-laws provide that any director elected by holders of the Common Stock may
be removed at any time by a two-thirds vote of the entire Board of Directors,
unless there is a person who is the beneficial owner of more than 50% of the
outstanding shares of Common Stock, in which case the removal may only be for
cause. In addition, any director or the entire Board may be removed at any time
for cause by a vote of the holders of not less than two-thirds of the total
voting power held by all holders of voting stock present or represented at a
special stockholders' meeting called for that purpose. "Cause" is defined for
these purposes as conviction of a felony involving moral turpitude or
adjudication of gross negligence or misconduct in the performance of duties in a
matter of substantial importance to the Company. The Articles and By-laws also
provide that any vacancies on the Board of Directors (including any resulting
from an increase in the authorized number of directors) may be filled only by
the affirmative vote of two-thirds of the remaining directors or by the
shareholders, who have the right to fill the vacancy at any special meeting
called for that purpose prior to such action by the Board.
Adoption and Amendment of By-laws. The Articles provide that By-laws may be
(i) adopted only by a two-thirds vote of the entire Board of Directors and (ii)
amended or repealed by either a two-thirds vote of the entire Board of Directors
or the holders of 80% of the total voting power present or represented at any
shareholders' meeting. Any provisions amended or repealed by the shareholders
may be re-amended or re-adopted by the Board of Directors.
Consideration of Tender Offers and Other Extraordinary Transactions. Under
Louisiana law, the Board of Directors, when considering a tender offer, exchange
offer, merger or consolidation, may consider, among other factors, the social
and economic effects of the proposal on the Company, its subsidiaries and their
respective employees, customers, creditors and communities.
Amendment of Certain Provisions of the Articles; Other Corporate
Action. The Company's Articles require, unless the action has been approved by
two-thirds vote of the entire Board of Directors, the affirmative vote of not
less than 80% of the total voting power of the Company to amend, alter or repeal
the provisions of the Articles relating to (i) the classification, filling of
vacancies and removal of the Board of Directors,
45
<PAGE> 48
(ii) amendments to the By-laws, (iii) the Company's election not to be governed
by certain Louisiana laws relating to business combinations, (iv) limitation of
liability and indemnification of directors and officers, (v) amendments to the
Articles and (vi) the calling of meetings of shareholders. An amendment to the
Articles not affecting any of such provisions may be approved by vote of a
majority of the voting power present or represented at a meeting of
shareholders. The Articles also require the vote of 80% of the total voting
power to approve an amendment or a repeal of any provisions of the Articles in a
way that would reduce the limitation of liability or indemnification of any
person or power of the Board of Directors with respect thereto provided for in
the Articles. Unless approved by a vote of at least two-thirds of the Board of
Directors, a merger, consolidation, sale of all or substantially all of the
assets or a voluntarily dissolution of the Company may be authorized only by the
affirmative vote of the holders of 80% of the total voting power. If approved by
two-thirds of the entire Board of Directors, any such action may be authorized
by vote of a majority of the voting power present or represented at a meeting of
shareholders.
The provisions of the Company's Articles and By-laws summarized in the
preceding paragraphs may have antitakeover effects and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
such stockholder's best interest, including those attempts that might result in
the payment of a premium over the market price for the shares of Common Stock
held by such shareholder.
Louisiana Control Share Acquisition Statute. The Louisiana Control Share
Acquisition Statute provides that any shares acquired by a person or group (an
"Acquiror") in an acquisition that causes such person or group to have the power
to direct the exercise of voting power in the election of directors in excess of
20%, 33 1/3% or 50% thresholds shall have only such voting power as shall be
accorded by the holders of all shares other than "interested shares," as defined
below, at a meeting called for the purpose of considering the voting power to be
accorded to such shares. "Interested shares" include all shares as to which the
Acquiror, any officer of a company and any director of a company who is also an
employee of a company may exercise or direct the exercise of voting power. If a
meeting of shareholders is held to consider the voting rights to be accorded to
any Acquiror and the shareholders do not vote to accord voting rights to such
shares, a company may have the right to redeem the shares held by the Acquiror
for their fair value. The statute permits the articles of incorporation or
by-laws of a company to exclude from the statute's application acquisitions
occurring after the adoption of the exclusion. The Company's By-laws do contain
such an exclusion; however, the Company's Board of Directors or shareholders, by
amendment to this provision of the By-laws could reverse this election.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
46
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Selling Shareholder, the Company and the Underwriters named below (the
"Underwriting Agreement"), the Company and the Selling Shareholder have agreed
to sell to each of such Underwriters named below, and each of such Underwriters,
for whom Morgan Keegan & Company, Inc. and Stephens Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Shareholder, the respective number of shares of
Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF
UNDERWRITER COMMON STOCK
----------- ----------------
<S> <C>
Morgan Keegan & Company, Inc. .............................. 857,500
Stephens Inc. .............................................. 857,500
George K. Baum & Company.................................... 55,000
J.C. Bradford & Co. ........................................ 55,000
Brean Murray & Co., Inc. ................................... 55,000
Crowell, Weedon & Co. ...................................... 55,000
Dominick & Dominick, Incorporated........................... 55,000
Equitable Securities Corporation............................ 55,000
Hanifen, Imhoff Inc. ....................................... 55,000
J.J.B. Hilliard, W.L. Lyons, Inc. .......................... 55,000
Interstate/Johnson Lane Corporation......................... 55,000
Jefferies & Company......................................... 55,000
Johnson Rice & Company L.L.C. .............................. 55,000
McDonald & Company Securities, Inc. ........................ 55,000
Petrie Parkman & Co. ....................................... 55,000
Principal Financial Securities, Inc. ....................... 55,000
Rauscher Pierce Refsnes, Inc. .............................. 55,000
Raymond James & Associates, Inc. ........................... 55,000
Sanders Morris Mundy Inc. .................................. 55,000
Southcoast Capital Corp. ................................... 55,000
Tucker Anthony Incorporated................................. 55,000
Wheat, First Securities, Inc. .............................. 55,000
---------
Total............................................. 2,815,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company has been advised by the Underwriters that they propose
initially to offer the shares of Common Stock in part directly to the public at
the public offering price set forth on the cover page of this Prospectus, and in
part to certain securities dealers at such price less a concession of $.75 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $.10 per share to certain brokers and dealers. After the shares
of Common Stock are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the
47
<PAGE> 50
Representatives may reduce that short position by purchasing Common Stock in the
open market. The Representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described below.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Selling Shareholder nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Shareholder nor any of the
Underwriters makes any representation that the Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 422,250
additional shares of Common Stock solely to cover overallotments, if any. If the
Underwriters exercise their overallotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them, as shown in the table above, bears to the 2,815,000
shares of Common Stock offered hereby.
The Company, all of the Company's directors and executive officers and
certain shareholders, who beneficially own an aggregate of 1,585,963 shares of
Common Stock, have agreed, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
the Prospectus, not to offer, sell, contract to sell or otherwise dispose of any
securities of the Company (other than, with respect to the Company, pursuant to
employee stock option plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus or in connection with acquisitions of businesses or assets by the
Company) which are substantially similar to the shares of the Common Stock or
which are convertible or exchangeable into securities which are substantially
similar to the shares of the Common Stock without the prior consent of the
Representatives.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was negotiated
between the Company, the Selling Shareholder and the Representatives. Among the
factors considered in determining the initial public offering price of the
Common Stock were prevailing market and economic conditions, revenues and
earnings of the Company, the state of the Company's business operations, an
assessment of the Company's management and consideration of the above factors in
relation to market valuation of companies in related businesses and other
factors deemed relevant. There can be no assurance, however, that the prices at
which the Common Stock will sell in the public market after the Offering will
not be lower than the initial public offering price.
The Company and the Selling Shareholder have agreed separately to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act.
Pursuant to an agreement between Stephens Inc., one of the Underwriters,
and First Commerce Corporation, Stephens Inc. has agreed to pay to First
National Bank of Lafayette, an affiliate of First Commerce Corporation, a
finder's fee in connection with the Offering in an amount anticipated not to
exceed $85,000.
48
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of the Offering, the Company will have 4,600,000 shares of
Common Stock outstanding. The 2,815,000 shares of Common Stock sold in the
Offering (plus any additional shares sold upon the Underwriters' exercise of
their over-allotment option) will be freely transferable without restriction
under the Securities Act by persons who are not deemed to be affiliates of the
Company or acting as underwriters, as those terms are defined in the Securities
Act. The remaining 1,785,000 shares of Common Stock held by existing
shareholders were acquired in transactions not requiring registration under the
Securities Act and will be "restricted stock" within the meaning of Rule 144.
Consequently, such shares may not be resold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, such as Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, if at least one year has
elapsed since shares of Common Stock that constitute restricted stock were last
acquired from the Company or an affiliate of the Company, the holder is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of one percent of the total shares of Common Stock then outstanding
or the average weekly trading volume of the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission. Sales under Rule 144
are subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If at least two
years have elapsed since the shares were last acquired from the Company or an
affiliate, a person who has not been an affiliate of the Company at any time
during the three months preceding the sale is entitled to sell such shares under
Rule 144(k) without regard to volume limitations, manner of sale provisions,
notice requirements or the availability of current public information concerning
the Company. All of the 1,785,000 shares of restricted stock within the meaning
of Rule 144 held by existing shareholders of the Company will be eligible for
sale following the Offering in reliance on Rule 144, subject to volume
limitations with respect to an aggregate of 1,543,629 shares of Common Stock
held by affiliates and subject to the contractual "lock-up" restrictions
described below.
Pursuant to the New Employment Agreement, the Company has granted Mr.
Dailey J. Berard the right to demand registration of the shares the Common Stock
held by him upon the occurrence of certain events. The exercise of such
registration rights is subject to the contractual "lock-up" restrictions
described below. See "Management -- Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions."
The Company and each of its directors and its executive officers have
agreed that they will not, with certain limited exceptions, issue, offer for
sale, sell, transfer, grant options to purchase or otherwise dispose of any
shares of Common Stock (other than stock issued or options granted pursuant to
the Company's stock incentive plans) without the prior written consent of the
Representatives for a period of 180 days from the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after the Offering. Any future sale of
substantial amounts of Common Stock in the open market may adversely affect the
market price of the Common Stock offered hereby.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby is being passed
upon for the Company by Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana. Certain legal matters in connection with the
shares of Common Stock offered hereby are being passed upon for the Underwriters
by Andrews & Kurth L.L.P., Houston, Texas.
49
<PAGE> 52
EXPERTS
The financial statements of Universal Fabricators Incorporated as of March
31, 1996 and 1997, and for each of the three years in the period ended March 31,
1997, and the balance sheet of UNIFAB International, Inc. as of July 17, 1997
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock being offered pursuant to this Prospectus. This Prospectus does not
contain all information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained herein concerning the provisions of any
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed or incorporated by reference as an exhibit to
the Registration Statement. The Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission (http://www.sec.gov). The Company intends to furnish its
shareholders with annual reports containing audited financial statements
certified by independent public accountants.
50
<PAGE> 53
GLOSSARY OF CERTAIN TECHNICAL TERMS
<TABLE>
<S> <C>
COMMISSIONING: Functional testing of equipment and systems without the
introduction of hydrocarbons.
DECK: The component of a platform on which development drilling,
production, separating, gathering, piping, compression, well
support, crew quartering and other functions related to
offshore oil and gas development are conducted.
DIRECT LABOR HOURS: Direct labor hours are hours worked by employees directly
involved in the production of the Company's products. These
hours do not include contractor labor hours and support
personnel hours such as maintenance, warehousing and
drafting.
FIXED PLATFORM: A platform consisting of a rigid jacket which rests on
tubular steel pilings driven into the seabed and which
supports a deck structure above the water surface.
FLOATING PRODUCTION FACILITY: Floating structure (e.g., ship or semi-submersible vessel)
upon which drilling and production equipment is mounted.
GRIT BLAST SYSTEM: System of preparing steel for coating by using steel grit
rather than sand as a blasting medium.
JACKET: A component of a fixed platform consisting of a tubular
steel, braced structure extending from the mudline of the
seabed to a point above the water surface. The jacket is
supported on tubular steel pilings driven into the seabed.
MODULES: Packaged equipment usually consisting of major production,
utility or compression equipment with associated piping and
control system.
OFFSHORE: In unprotected waters outside coastlines.
PILES: Rigid tubular pipes that are driven into the seabed to
support platforms.
PLATFORM: A structure from which offshore oil and gas drilling and
production are conducted.
PLATFORM DRILLING RIG: A drilling rig designed to be mounted atop a fixed platform.
POSTED DRILLING RIG: A drilling rig mounted on steel columns fixed to a barge
that is sunk upon reaching a desired drilling location.
SOUR GAS: Natural gas that contains sulphur compounds in excess of a
specified amount.
SPAR PLATFORM: Vertically floating, large-diameter cylindrical platform
supporting a relatively conventional offshore drilling and
production deck and positioned on site with lateral mooring
systems connected to piling or anchors.
SUBSEA TEMPLATES: Tubular frames which are placed on the seabed and anchored
with piles. Usually a series of oil and gas wells are
drilled through these underwater structures.
TENSION-LEG PLATFORM (TLP): A platform consisting of a deck situated atop four or more
separate column-shaped semi-submersible hulls, which are
positioned on-site by vertical tendons (pipes) that run from
the columns to the sea floor.
</TABLE>
51
<PAGE> 54
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNIFAB INTERNATIONAL, INC.
Report of Independent Auditors.............................. F-2
Balance Sheet -- July 17, 1997.............................. F-3
Notes to Balance Sheet...................................... F-4
UNIVERSAL FABRICATORS INCORPORATED
Report of Independent Auditors.............................. F-5
Balance Sheets -- March 31, 1996 and 1997 and June 30, 1997
(Unaudited)............................................... F-6
Statements of Income -- Years Ended March 31, 1995, 1996 and
1997 and Three Months Ended June 30, 1996 (Unaudited) and
1997 (Unaudited).......................................... F-7
Statements of Shareholders' Equity -- Years Ended March 31,
1995, 1996 and 1997 and Three Months Ended June 30, 1996
(Unaudited) and 1997 (Unaudited).......................... F-8
Statements of Cash Flows -- Years Ended March 31, 1995, 1996
and 1997 and Three Months Ended June 30, 1996 (Unaudited)
and 1997 (Unaudited)...................................... F-9
Notes to Financial Statements............................... F-10
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF UNIFAB
INTERNATIONAL, INC.
Pro Forma Balance Sheet (Unaudited) -- June 30, 1997........ F-16
Pro Forma Statement of Income (Unaudited) -- Year Ended
March 31, 1997 and the three months ended June 30, 1997... F-17
Notes to Pro Forma Financial Statements (Unaudited)......... F-19
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
UNIFAB International, Inc.
We have audited the accompanying balance sheet of UNIFAB International,
Inc. as of July 17, 1997. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of UNIFAB International, Inc. at July
17, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
July 17, 1997, except for Notes 2 and 3,
as to which the date is August 28, 1997
F-2
<PAGE> 56
UNIFAB INTERNATIONAL, INC.
BALANCE SHEET
JULY 17, 1997
ASSETS
<TABLE>
<S> <C>
Cash........................................................ $1,000
======
SHAREHOLDER'S EQUITY
Preferred stock -- authorized 5,000,000 shares; no shares
outstanding; no par value................................. $ --
Common stock -- authorized 20,000,000 shares; 1,000 shares
outstanding; $.01 par value............................... 10
Additional paid-in capital.................................. 990
------
Total shareholder's equity........................ $1,000
======
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
UNIFAB INTERNATIONAL, INC.
NOTES TO BALANCE SHEET
JULY 17, 1997
1. DESCRIPTION OF BUSINESS
UNIFAB International, Inc. (the Company) was formed on July 16, 1997 to
serve as the parent corporation of Universal Fabricators Incorporated (Universal
Fabricators), 51% of the outstanding common stock of which is currently owned by
Universal Partners, Inc. (Universal Partners) and 49% of such stock is owned by
McDermott Incorporated (McDermott).
Other than the initial capitalization of the Company with $1,000 on July
16, 1997, the Company had no operations or transactions as of July 17, 1997.
2. INITIAL PUBLIC OFFERING AND RELATED MATTERS
On August 26, 1997, the board of directors and shareholders of the Company
authorized agreements whereby immediately prior to the completion of an initial
public offering of 3,237,250 shares (422,250 of which represents Underwriters'
overallotment) of the Company's $.01 par value common stock, Universal Partners
will exchange the shares of Universal Fabricators common stock owned by it for
1,785,000 shares of common stock of the Company. Concurrently, McDermott will
exchange the shares of Universal Fabricators' common stock owned by it for
1,715,000 shares of common stock in the Company.
On August 28, 1997, an agreement was entered into, subject to completion of
the Offering of the Company's common stock, which would: (1) terminate and
release Universal Partners and McDermott from the other's obligations under the
Shareholders' Agreement, including the requirement (in the absence of consent by
directors appointed by both Universal Partners and McDermott) to distribute 90%
of the net income for the prior fiscal year to shareholders, and (2) terminate
the Put/Call Agreement, including the cancellation of an option held by
McDermott which allowed it to acquire the other 51% of Universal Fabricators'
common stock. To terminate this option and to secure McDermott's release of its
rights under these agreements, the Company agreed to pay $6,300,000 to McDermott
upon completion of the Offering.
3. STOCK OPTION PLAN
In August, 1997, the board of directors adopted and its shareholders
approved a stock option plan to provide long-term incentives to its key
employees, including officers and directors who are employees of the Company.
Under the terms of this plan, the Company may grant incentive stock options,
nonqualified stock options, restricted stock and stock awards. The number of
shares granted under this plan is limited to an aggregated amount of 460,000
shares. No more than 200,000 shares of stock may be granted through the plan to
a single participant in a calendar year. The options will have an exercise price
of not less than the fair market value of the stock on the date of grant.
Subject to the completion of the Offering, the Company has granted options to
purchase 133,500 shares to directors and key employees of the Company at the
initial public offering price per share. Such options have a ten year term and
one-third are exercisable at the grant date (which will be the date of the
Offering for the options already granted), one-third on the first anniversary
thereof and the remaining one-third on the second anniversary.
F-4
<PAGE> 58
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Universal Fabricators Incorporated
We have audited the accompanying balance sheets of Universal Fabricators
Incorporated as of March 31, 1996 and 1997 and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal Fabricators
Incorporated at March 31, 1996 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
April 17, 1997, except for Note 6, as to which
the date is June 19, 1997 and Note 7,
as to which the date is August 28, 1997
F-5
<PAGE> 59
UNIVERSAL FABRICATORS INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
------------------------- JUNE 30,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 4,942,775 $ 659,626 $ 2,630,154
Accounts receivable................................... 9,969,508 19,368,473 13,898,217
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. 3,356,396 239,097 105,745
Prepaid expenses...................................... 263,678 444,045 404,613
Other assets.......................................... 182,481 102,062 105,428
----------- ----------- -----------
Total current assets.......................... 18,714,838 20,813,303 17,144,157
Property, plant and equipment, net...................... 4,998,858 5,341,122 5,267,408
----------- ----------- -----------
Total assets.................................. $23,713,696 $26,154,425 $22,411,565
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft........................................ $ 715,576 $ 763,010 1,204,559
Accounts payable...................................... 2,729,321 6,210,166 4,743,198
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. 3,373,695 4,317,837 3,602,749
Accrued liabilities................................... 804,671 813,762 872,768
Income tax payable.................................... 758,786 516,462 933,244
----------- ----------- -----------
Total current liabilities..................... 8,382,049 12,621,237 11,356,518
Deferred income taxes................................... 1,347,863 1,332,168 1,332,168
Shareholders' equity:
Common stock, $1 par value:
Class A, 510 shares authorized and issued.......... 510 510 510
Class B, 490 shares authorized and issued.......... 490 490 490
Additional paid-in capital............................ 6,517,664 6,517,664 6,517,664
Retained earnings..................................... 7,465,120 5,682,356 3,204,215
----------- ----------- -----------
Total shareholders' equity.................... 13,983,784 12,201,020 9,722,879
----------- ----------- -----------
Total liabilities and shareholders' equity.... $23,713,696 $26,154,425 $22,411,565
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 THREE MONTHS ENDED JUNE 30
--------------------------------------- ---------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue......................... $27,882,808 $51,807,144 $66,724,504 $18,419,238 $15,503,153
Cost of revenue................. 23,174,004 40,361,724 58,589,197 16,295,480 13,313,942
----------- ----------- ----------- ----------- -----------
Gross profit.................... 4,708,804 11,445,420 8,135,307 2,123,758 2,189,211
General and administrative
expense....................... 1,325,689 1,419,668 1,637,563 342,136 408,902
----------- ----------- ----------- ----------- -----------
Income from operations.......... 3,383,115 10,025,752 6,497,744 1,781,622 1,780,309
Other income (expense):
Interest expense.............. (6,935) (3,092) (63,304) (21,696) (3,359)
Interest income............... 45,059 318,185 145,155 47,598 27,016
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 3,421,239 10,340,845 6,579,595 1,807,524 1,803,966
Income tax provision............ 1,286,386 3,888,158 2,554,941 708,908 659,918
----------- ----------- ----------- ----------- -----------
Net income...................... $ 2,134,853 $ 6,452,687 $ 4,024,654 $ 1,098,616 $ 1,144,048
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE> 61
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1994.................... 1,000 $1,000 $6,517,664 $ 1,656,770 $ 8,175,434
Dividends paid............................ -- -- -- (857,822) (857,822)
Net income................................ -- -- -- 2,134,853 2,134,853
----- ------ ---------- ----------- -----------
Balance at March 31, 1995................... 1,000 1,000 6,517,664 2,933,801 9,452,465
Dividends paid............................ -- -- -- (1,921,368) (1,921,368)
Net income................................ -- -- -- 6,452,687 6,452,687
----- ------ ---------- ----------- -----------
Balance at March 31, 1996................... 1,000 1,000 6,517,664 7,465,120 13,983,784
Dividends paid............................ -- -- -- (5,807,418) (5,807,418)
Net income................................ -- -- -- 4,024,654 4,024,654
----- ------ ---------- ----------- -----------
Balance at March 31, 1997................... 1,000 1,000 6,517,664 5,682,356 12,201,020
----- ------ ---------- ----------- -----------
Dividends paid (unaudited)................ -- -- -- (3,622,189) (3,622,189)
Net income (unaudited).................... -- -- -- 1,144,048 1,144,048
----- ------ ---------- ----------- -----------
Balance at June 30, 1997 (unaudited)........ 1,000 $1,000 $6,517,664 $ 3,204,215 $ 9,722,879
===== ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 62
UNIVERSAL FABRICATORS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 THREE MONTHS ENDED JUNE 30
------------------------------------ --------------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $2,134,853 $6,452,687 $4,024,654 $ 1,098,616 $ 1,144,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 423,949 389,711 471,305 95,832 123,638
(Gain) loss from sale of equipment........ 3,028 (8,000) (10,125) (7,375) 282
Deferred income taxes..................... 4,620 (72,919) (20,208) 742 (3,364)
Changes in operating assets and
liabilities:
Accounts receivable..................... 209,626 (2,871,872) (9,398,965) (10,975,253) 5,470,256
Net costs and estimated earnings in
excess of billings and billings in
excess of costs and estimated
earnings on uncompleted contracts.... 1,566,493 (2,530,466) 4,061,441 4,215,181 (581,736)
Prepaid expenses and other assets....... (544,191) 658,534 (95,435) (553,397) 39,430
Bank overdraft.......................... -- 715,576 47,434 131,512 441,549
Accounts payable and accrued
liabilities.......................... (406,788) 792,983 3,489,936 6,855,421 (1,407,962)
Income taxes payable.................... -- 758,786 (242,324) 708,908 416,782
---------- ---------- ---------- ------------ -----------
Net cash provided by operating activities..... 3,391,590 4,285,020 2,327,713 1,570,187 5,642,923
Cash flows from investing activities:
Proceeds from sale of equipment............. 9,500 8,000 17,175 7,375 --
Purchases of equipment...................... (179,351) (402,405) (820,619) (325,152) (50,206)
---------- ---------- ---------- ------------ -----------
Net cash used in investing activities....... (169,851) (394,405) (803,444) (317,777) (50,206)
Cash flows from financing activities:
Dividends paid.............................. (857,822) (1,921,368) (5,807,418) (2,961,783) (3,622,189)
Net change in short-term borrowings......... (531,141) -- -- -- --
---------- ---------- ---------- ------------ -----------
Net cash used in financing activities....... (1,388,963) (1,921,368) (5,807,418) (2,961,783) (3,622,189)
---------- ---------- ---------- ------------ -----------
Net change in cash and cash equivalents..... 1,832,776 1,969,247 (4,283,149) (1,709,373) 1,970,528
Cash and cash equivalents at beginning of
period.................................... 1,140,752 2,973,528 4,942,775 4,942,775 659,626
---------- ---------- ---------- ------------ -----------
Cash and cash equivalents at end of
period.................................... $2,973,528 $4,942,775 $ 659,626 $ 3,233,402 $ 2,630,154
========== ========== ========== ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Income taxes................................ $1,370,700 $3,173,014 $2,817,473 -- $ 243,136
========== ========== ========== ============ ===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 63
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending March
31, 1998.
DESCRIPTION OF BUSINESS
Universal Fabricators Incorporated (the Company) fabricates and assembles
jackets, decks, topside facilities, quarters buildings, drilling rigs and
equipment for installation and use offshore in the production, processing and
storage of oil and gas. The Company's main fabrication yard is located in the
Port of Iberia in New Iberia, Louisiana. The Company's customers are principally
in the oil and gas industry. Receivables are generally not collateralized.
Credit losses have been insignificant.
The operating cycle of the Company's contracts is typically less than one
year, although some large contracts may exceed one year's duration. Assets and
liabilities have been classified as current and noncurrent under the operating
cycle concept, whereby all contract-related items are regarded as current
regardless of whether cash will be received within a 12-month period. At March
31, 1997, it was anticipated that substantially all contracts in progress, and
receivables associated therewith, would be completed and collected within a
12-month period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE AND COST RECOGNITION
Revenue from fixed-price contracts is recognized on the
percentage-of-completion method, measured by the ratio which labor and
subcontract costs incurred to date bear to total estimated labor and subcontract
costs. In the case of long-term contracts extending over one or more fiscal
years, revisions of the cost and profit estimated during the course of the work
are reflected in the accounting period in which the facts which require revision
become known. At the time a loss on a contract becomes known, the entire amount
of the ultimate loss is accrued. Variations from estimated contract performance
could result in a material adjustment to operating results for any fiscal year.
Revenue from time and materials contracts is recognized on the basis of direct
labor hours worked at fixed hourly rates and the cost of materials or
subcontract costs incurred plus mark-up.
Contract costs include direct labor, material, subcontract costs and
allocated indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
principally by the straight-line and declining-balance methods over the
estimated lives of the assets, which range from 19 to 31 years for building and
bulkhead and 3 to 12 years for yard and other equipment.
F-10
<PAGE> 64
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
reported in the balance sheets for cash and cash equivalents approximate their
fair value.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments at March 31,
1997, including cash and cash equivalents and accounts receivable, closely
approximates fair value.
DESCRIPTION OF CAPITAL STOCK
The Company has two classes of common stock, Class A and Class B, and no
class of preferred stock outstanding. The Class A common stock, all of which is
owned by Universal Partners, Inc. and the Class B common stock, all of which is
owned by McDermott Incorporated, are identical in all respects, except that the
holder of the Class A common stock has the right to elect three-fifths of the
Company's Board of Directors and the holder of the Class B common stock has the
right to elect two-fifths of the Company's Board of Directors. In addition, any
shares of common stock issued by the Company must be issued on a 51%/49% basis
between Class A shares and Class B shares, respectively, and the holder of each
class of stock has preemptive rights with respect to any shares of common stock
of its class to be issued.
RECLASSIFICATIONS
Certain amounts previously reported have been reclassified to conform with
the presentation at March 31, 1997.
2. CONTRACTS IN PROGRESS
Information pertaining to contracts in progress at March 31 follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts........... $ 22,376,762 $ 37,077,023
Estimated earnings................................ 8,171,189 4,488,532
------------ ------------
30,547,951 41,565,555
Less billings to date............................. (30,565,250) (45,644,295)
------------ ------------
$ (17,299) $ (4,078,740)
============ ============
Included in the accompanying balance sheets under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... $ 3,356,396 $ 239,097
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (3,373,695) (4,317,837)
------------ ------------
$ (17,299) $ (4,078,740)
============ ============
</TABLE>
Accounts receivable includes retainages and unbilled receivables,
respectively, of $46,686 and $395,541 at March 31, 1996 and $10,035 and $478,452
at March 31, 1997.
F-11
<PAGE> 65
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land.................................................. $ 756,000 $ 756,000
Building and bulkhead, including leasehold
improvements........................................ 3,528,627 3,780,243
Yard equipment........................................ 2,839,118 3,319,830
Other equipment....................................... 448,166 505,545
---------- ----------
7,571,911 8,361,618
Less accumulated depreciation......................... 2,573,053 3,020,496
---------- ----------
$4,998,858 $5,341,122
========== ==========
</TABLE>
The Company leases land upon which a portion of its facilities are located
under noncancelable operating leases. The leases expire in fiscal year 2004 and
have two ten-year renewal options. Future minimum payments under the leases are
as follows:
<TABLE>
<S> <C>
1998............................................. $ 174,759
1999............................................. 174,759
2000............................................. 174,759
2001............................................. 174,759
2002............................................. 153,089
2003 and after................................... 194,355
----------
$1,046,480
==========
</TABLE>
Rent expense during the years ended March 31, 1995, 1996 and 1997 was
$948,988, $920,619 and $1,455,679, respectively, which includes rent on
cancelable equipment leases.
4. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
as of March 31 were as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities -- excess of financial
statement basis over income tax basis of property,
plant and equipment............................... $1,347,863 $1,332,168
Deferred tax assets -- primarily excess of income
tax basis over financial statement basis of
contracts......................................... 28,949 33,462
---------- ----------
Net deferred tax liabilities........................ $1,318,914 $1,298,706
========== ==========
</TABLE>
The income tax provision is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current................................ $1,281,766 $3,961,077 $2,575,149
Deferred............................... 4,620 (72,919) (20,208)
---------- ---------- ----------
$1,286,386 $3,888,158 $2,554,941
========== ========== ==========
</TABLE>
F-12
<PAGE> 66
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax computed at the federal statutory rates to
income tax expense is:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Tax at federal statutory rates........... $1,163,221 $3,519,296 $2,237,062
Other, primarily state income taxes...... 123,165 368,862 317,879
---------- ---------- ----------
$1,286,386 $3,888,158 $2,554,941
========== ========== ==========
</TABLE>
5. CREDIT ARRANGEMENT
At March 31, 1997, the Company had available a $10,000,000 short-term bank
line of credit which expires in September 1997. The Company was contingently
liable under standby letters of credit totaling $9,065,837 at March 31, 1997
related to retainage and performance guarantees on projects.
6. DIVIDENDS
Under the provisions of a shareholders' agreement, unless otherwise
approved by the board of directors, the Company shall distribute to the
shareholders 90% of its net income for the prior fiscal year. The annual
dividend for each fiscal year shall be paid within the first four months
following the end of each fiscal year. The dividend for the fiscal year ended
March 31, 1997 of $3,622,189 was declared and paid on June 19, 1997.
7. INITIAL PUBLIC OFFERING AND RELATED MATTERS
On June 19, 1997, the Company's board of directors approved the filing of a
Form S-1 Registration Statement with the Securities and Exchange Commission
covering the proposed sale of common stock to the public.
UNIFAB International, Inc. (International) was formed on July 16, 1997 to
serve as the parent corporation of the Company, 51% of the outstanding common
stock of which is currently owned by Universal Partners, Inc. (Universal
Partners) and 49% of such stock is owned by McDermott Incorporated (McDermott).
Immediately prior to the completion of an initial public offering of 3,237,250
shares (422,250 of which represents Underwriters' overallotment) of
International's $.01 par value common stock (the Offering), it is expected that
Universal Partners and McDermott will exchange their respective shares of common
stock of the Company for shares of International's common stock (the Share
Exchange). The shareholders of Universal Partners will receive 1,785,000 shares
of common stock of International and McDermott will receive 1,715,000 shares of
common stock of International in the Share Exchange.
On August 28, 1997, an agreement was entered into, subject to completion of
the Offering of International's common stock, which would: (1) terminate and
release Universal Partners and McDermott from the other's obligations under the
Shareholders' Agreement, including the requirement (in the absence of consent by
directors appointed by both Universal Partners and McDermott) to distribute 90%
of the net income for the prior fiscal year to shareholders, and (2) terminate
the Put/Call Agreement, including the cancellation of an option held by
McDermott which allowed it to acquire the other 51% of the Company's stock. To
terminate this option and to secure McDermott's release of its rights under
these agreements, the Company agreed to pay $6,300,000 to McDermott upon
completion of the Offering.
8. RELATED PARTY TRANSACTIONS
The Company purchased construction materials and subcontract fabrication
work from a shareholder in the amount of $257,165, $38,338 and $329,409 in
fiscal years 1995, 1996 and 1997, respectively, and performed subcontract work
for the shareholder or companies affiliated with the shareholder in the amount
of $144,813, $563,499 and $17,397,179 in fiscal years 1995, 1996 and 1997,
respectively. Included in accounts receivable is $2,028,845 and $2,104,653 from
the shareholder or companies affiliated with the shareholder at
F-13
<PAGE> 67
UNIVERSAL FABRICATORS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1996 and 1997, respectively. In addition, the Company rents an office
building from the shareholder for $100 per year.
Included in cost of revenue in fiscal year 1997 is a $370,000 reimbursement
to a shareholder for the costs of settling an uninsured workers' compensation
claim related to the operating activities of the Company's predecessor.
The deferred bonus arrangement with Mr. Berard allows for deferral of
compensation with deferred amounts payable in cash upon demand, retirement or
termination and amounts deferred are included in general and administrative
expense in the amount of $31,065, $50,015 and $50,015 for fiscal years 1995,
1996 and 1997, respectively. Included in interest expense for fiscal years 1995,
1996 and 1997, is $0, $2,582 and $6,757, respectively, associated with this
deferred bonus arrangement.
9. EMPLOYEE BENEFIT PLAN
Effective April 1, 1996, the Company began sponsoring an employees'
incentive savings plan which allows participants to make contributions by salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. Under this
plan, employees with one year of service with the Company are eligible to
contribute up to 25% of their compensation into the plan, subject to a specified
maximum.
The Company contributes an amount equal to 50% of employee contributions up
to 3% of their base compensation. Matching contributions made by the Company
were approximately $136,000 in fiscal year 1997.
10. MAJOR CUSTOMERS
The Company is not dependent on any one customer, and the contract revenue
earned from each customer varies from year to year based on the contracts
awarded. Contract revenue earned comprising 10% or more of the Company's total
contract revenue earned are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Customer A........................... $8,190,972 $ -- $ --
Customer B........................... -- 27,417,331 --
Customer C........................... 2,772,657 5,936,911 --
Customer D........................... -- -- 23,066,101
Customer E........................... -- -- 17,402,106
</TABLE>
11. CONTINGENCIES
The Company is party to legal proceedings arising in the normal course of
business. It is the opinion of management that the outcome of these matters will
not have a material adverse effect on the Company's financial position or
results of operations.
F-14
<PAGE> 68
UNIFAB INTERNATIONAL, INC.
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The accompanying pro forma balance sheet as of June 30, 1997 and the
related pro forma statements of income for the year ended March 31, 1997 and for
the three months ended June 30, 1997 give effect to the proposed exchange of
shares of Universal Fabricators Incorporated (Universal Fabricators) owned by
McDermott Incorporated (McDermott) and Universal Partners, Inc. (Universal
Partners) for shares of UNIFAB International, Inc. (the Company), which will
result in Universal Fabricators being a 100%-owned subsidiary of the Company.
The pro forma financial statements are based on the historical financial
statements of the Company and Universal Fabricators, giving effect to the
assumptions and adjustments in the accompanying note to the pro forma financial
statements. The pro forma financial statements do not give effect to the
Offering.
The pro forma financial statements have been prepared by the Company's
management and include such adjustments to reflect the pro forma financial
statements as if the events described above had occurred as of June 30, 1997 for
the pro forma balance sheet and as of April 1, 1996 for the pro forma statements
of income. The pro forma financial statements may not be indicative of the
results that would have occurred if the events described above had taken place
on the dates indicated or which may be obtained in the future. The pro forma
financial statements should be read in conjunction with the historical financial
statements and notes thereto included elsewhere in this Prospectus.
F-15
<PAGE> 69
UNIFAB INTERNATIONAL, INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $1,000 $ 2,630,154 $ -- $ 2,631,154
Accounts receivable..................... -- 13,898,217 -- 13,898,217
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ -- 105,745 -- 105,745
Prepaid expenses........................ -- 404,613 -- 404,613
Other assets............................ -- 105,428 -- 105,428
------ ----------- ----------- -----------
Total current assets............ 1,000 17,144,157 -- 17,145,158
Property, plant and equipment, net........ -- 5,267,408 -- 5,267,408
------ ----------- ----------- -----------
Total assets.................... $1,000 $22,411,565 $ -- $22,412,565
====== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft.......................... $ -- $ 1,204,559 $ -- $ 1,204,559
Accounts payable........................ -- 4,743,198 -- 4,743,198
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ -- 3,602,749 -- 3,602,749
Accrued liabilities..................... -- 872,768 -- 872,768
Income tax payable...................... -- 933,244 -- 933,244
------ ----------- ----------- -----------
Total current liabilities....... -- 11,356,518 -- 11,356,518
Deferred income taxes..................... -- 1,332,168 -- 1,332,168
Shareholders' equity:
Common stock............................ 10 1,000 33,990(1) 35,000
Additional paid-in capital.............. 990 6,517,664 (33,990)(1) 6,484,664
Retained earnings....................... -- 3,204,215 -- 3,204,215
------ ----------- ----------- -----------
Total shareholders' equity...... 1,000 9,722,879 -- 9,723,879
------ ----------- ----------- -----------
Total liabilities and
shareholders' equity.......... $1,000 $22,411,565 $ -- $22,412,565
====== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-16
<PAGE> 70
UNIFAB INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................... $ -- $66,724,504 $ -- $66,724,504
Cost of revenue....................... -- 58,589,197 -- 58,589,197
----------- ----------- ----------- -----------
Gross profit.......................... -- 8,135,307 -- 8,135,307
General and administrative expense.... -- 1,637,563 -- 1,637,563
----------- ----------- ----------- -----------
Income from operations................ -- 6,497,744 -- 6,497,744
Other income (expense):
Interest expense.................... -- (63,304) -- (63,304)
Interest income..................... -- 145,155 -- 145,155
----------- ----------- ----------- -----------
Income before income taxes............ -- 6,579,595 -- 6,579,595
Income tax provision.................. -- 2,554,941 -- 2,554,941
----------- ----------- ----------- -----------
Net income............................ $ -- $ 4,024,654 $ -- $ 4,024,654
=========== =========== =========== ===========
Earnings per share of common stock.... $ 1.15(2)
===========
Average common stock outstanding...... 3,500,000
===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-17
<PAGE> 71
UNIFAB INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
UNIFAB UNIVERSAL
INTERNATIONAL, FABRICATORS
INC. INCORPORATED ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue............................... $ -- $15,503,153 $ -- $15,503,153
Cost of revenue....................... -- 13,313,942 -- 13,313,942
----------- ----------- ----------- -----------
Gross profit.......................... -- 2,189,211 -- 2,189,211
General and administrative expense.... -- 408,902 -- 408,902
----------- ----------- ----------- -----------
Income from operations................ -- 1,780,309 -- 1,780,309
Other income (expense):
Interest expense.................... -- (3,359) -- (3,359)
Interest income..................... -- 27,016 -- 27,016
----------- ----------- ----------- -----------
Income before income taxes............ -- 1,803,966 -- 1,803,966
Income tax provision.................. -- 659,918 -- 659,918
----------- ----------- ----------- -----------
Net income............................ $ -- $ 1,144,048 $ -- $ 1,144,048
=========== =========== =========== ===========
Earnings per share of common stock.... $ .33(2)
===========
Average common stock outstanding...... 3,500,000
===========
</TABLE>
See accompanying notes to pro forma financial statements (unaudited).
F-18
<PAGE> 72
UNIFAB INTERNATIONAL, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma financial statements present the pro forma
financial position of the Company as of June 30, 1997 and the results of its
operations for the year ended March 31, 1997 and for the three months ended June
30, 1997. The Company was incorporated on July 16, 1997 and had no operations
prior to that date. The financial position of the Company presented as of June
30, 1997 represents its initial capitalization.
The pro forma financial statements also include the historical financial
position and results of operations of Universal Fabricators.
The adjustments reflected in the pro forma financial statements are as
follows:
(1) Immediately prior to the completion of the Offering, Universal
Partners will exchange the shares of Universal Fabrications common stock
owned by it for 1,785,000 shares of common stock of the Company.
Concurrently, McDermott will exchange the shares of Universal Fabricators
common stock owned by it for 1,715,000 shares of common stock in the
Company. The common stock account is adjusted to reflect the resulting
3,500,000 shares of $0.01 par value common stock which will be outstanding
after these share exchanges. These share exchanges will be accounted for
similar to a pooling of interests with the transferred assets and
liabilities accounted for at existing carrying amounts.
(2) Pro forma net income per share is calculated by dividing the pro
forma net income for the period by the average common stock outstanding
which reflects the exchange described in Note (1) above.
F-19
<PAGE> 73
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
The Company............................ 7
Risk Factors........................... 9
Use of Proceeds........................ 15
Dividend Policy........................ 15
Dilution............................... 16
Capitalization......................... 17
Selected Financial and Operating
Data................................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 25
Management............................. 36
Principal and Selling Shareholders..... 42
Certain Transactions................... 43
Description of Capital Stock........... 44
Underwriting........................... 47
Shares Eligible for Future Resale...... 49
Legal Matters.......................... 49
Experts................................ 50
Other Information...................... 50
Glossary of Certain Technical Terms.... 51
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL OCTOBER 13, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,815,000 SHARES
[UNIFAB INTERNATIONAL LOGO]
UNIFAB INTERNATIONAL, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MORGAN KEEGAN & COMPANY, INC.
STEPHENS INC.
SEPTEMBER 18, 1997
======================================================
