<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1996
REGISTRATION NO. 333-14711
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
LOUISIANA 72-1106167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11100 MEAD ROAD, SECOND FLOOR J. M. BERNHARD, JR.
BATON ROUGE, LOUISIANA 70816 THE SHAW GROUP INC.
(504) 296-1140 11100 MEAD ROAD, SECOND FLOOR
(Address, including zip code, and telephone BATON ROUGE, LOUISIANA 70816
number, including area code, of registrant's (504) 296-1140
principal executive offices) (Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies to:
ROBERT F. GRAY, JR. DEREK R. MCCLAIN
FULBRIGHT & JAWORSKI L.L.P. VINSON & ELKINS L.L.P.
1301 MCKINNEY, SUITE 5100 2001 ROSS AVENUE, SUITE 3700
HOUSTON, TEXAS 77010-3095 DALLAS, TEXAS 75201-2916
(713) 651-5151 (214) 220-7700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"),
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 1996
PROSPECTUS
[LOGO] 2,494,118 SHARES
THE SHAW GROUP INC.
COMMON STOCK
------------------
Of the 2,494,118 shares of common stock (the "Common Stock") of The Shaw
Group Inc. (the "Company" or "Shaw") offered hereby (the "Offering"), 2,000,000
are being sold by the Company and 494,118 are being sold by certain shareholders
of the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders". The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Shareholders.
On November 14, 1996, the last reported sale price of the Common Stock as
reported on the New York Stock Exchange (the "NYSE") was $25.375 per share. The
Company delisted the Common Stock from the Nasdaq National Market on October 17,
1996, and the Common Stock commenced trading on the NYSE under the symbol "SGR"
on October 18, 1996. See "Price Range of Common Stock and Dividend Policy".
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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>
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- --------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting".
(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 374,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting". If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
HOAK BREEDLOVE WESNESKI & CO.
, 1996
<PAGE> 3
[PHOTOGRAPHS OF COMPANY'S FABRICATION FACILITIES AND BENDING EQUIPMENT]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York,
New York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy and information statements and other information concerning the
Company can also be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits thereto.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1995;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1996;
(e) The Company's Current Report on Form 8-K dated January 30, 1996, as
amended by Amendment No. 1 on Form 8-K/A-1 filed on March 29, 1996;
(f) The Company's Current Report on Form 8-K dated April 17, 1996, as
amended by Amendment No. 1 on Form 8-K/A-1 filed on June 19, 1996;
(g) The Company's Proxy Statement dated December 29, 1995 in connection
with the Company's Annual Meeting of Shareholders held on February 2,
1996; and
(h) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (including any amendments
or reports filed for the purpose of updating such description).
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Common Stock pursuant hereto
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of the filing of such documents. Any statement
contained in this Prospectus or in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
herein, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to the
Company's executive offices at 11100 Mead Road, Second Floor, Baton Rouge,
Louisiana 70816, Attention: Secretary (telephone number: (504) 296-1140).
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements appearing elsewhere in this Prospectus. Unless otherwise noted
herein, (i) the information contained in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised, and (ii) all
references in this Prospectus to "Shaw" or the "Company" include Shaw's
subsidiaries, unless the context otherwise requires. See "Risk Factors" for a
discussion of certain factors that should be considered in connection with an
investment in the Common Stock offered hereby. References in this Prospectus to
a specific fiscal year of the Company refer to the 12 months ending August 31 of
the designated year.
THE COMPANY
Shaw is a leading supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for the
electric power, refining and chemical industries. Shaw is committed to being the
"total piping resource" for its customers by offering comprehensive design and
engineering services, piping system fabrication, manufacturing and sale of
specialty pipe fittings and design and fabrication of pipe support systems.
The Company was founded in 1987 by current management and subsequently
purchased the assets of Benjamin F. Shaw Company, a century-old pipe fabricator.
The Company has increased its revenues from $29.3 million in fiscal 1988 to
$222.0 million in fiscal 1996, both increasing its domestic market share and
developing its international business. Through internal expansion and a series
of strategic acquisitions, the Company has increased its fabrication capacity,
increased its bending capabilities and broadened its piping system products and
services. These actions have provided the Company with the ability to achieve
substantial economies of scale in purchasing, manufacturing and transporting
fabricated products and the ability to provide customers with complete piping
systems.
The Company believes it has earned a reputation as an efficient, low-cost
supplier of complex piping systems as a result of several competitive
advantages. Specifically, the Company coordinates and integrates project
engineering and fabrication processes in order to maximize overall efficiency in
time, cost and performance. In addition, the Company's significant investment in
state-of-the-art induction bending equipment provides it with time, labor and
raw material savings as compared to traditional fabrication methods. Shaw also
manufactures specialty pipe fittings, pipe hangers and other pipe products. This
manufacturing capability has served to reduce the Company's supply costs and
enhance its overall piping package. The Company utilizes its proprietary
software technology to enhance the planning and scheduling efforts of its
customers, helping to reduce total installed costs and project cycle times.
As a result of its favorable cost structure, its extensive piping resources
and its ability to handle complex piping systems, Shaw has increased
substantially its market share in the worldwide pipe fabrication industry,
competing effectively on large scale piping projects worldwide. Beginning in
1991, the Company expanded its presence in international markets in anticipation
of the worldwide infrastructure build-up in the electric power, refining and
chemical industries. International revenues have increased from $4.5 million in
fiscal 1991 to $75.7 million in fiscal 1996. International projects represented
66% of the Company's backlog at August 31, 1996.
The Company estimated its backlog at approximately $150.0 million at August
31, 1996 compared to approximately $101.0 million and $75.0 million at August
31, 1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997. The
Company defines its backlog as a "working backlog", whereby only projects with a
written commitment are included.
4
<PAGE> 6
BUSINESS STRATEGY
The Company is committed to strengthening its leadership position as a
"total piping resource" for the electric power, refining and chemical industries
worldwide by providing high-quality, competitively-priced piping systems within
significantly reduced project delivery times. The key components of Shaw's
business strategy include:
- Providing a comprehensive range of products and services that enhances
the Company's prefabricated piping systems, including initial design and
engineering services, customer interactive software, induction pipe
bending, manufactured pipe components and supports and final on-site
erection and testing.
- Pursuing strategic acquisitions that will complement and enhance Shaw's
existing operations by allowing the Company to further broaden its piping
products and services, selectively expand geographic manufacturing
capabilities and maintain its technological leadership position.
- Investing in new equipment, technology and information systems designed
to increase the Company's manufacturing and fabrication capabilities and
capacity and improve overall project efficiency.
- Broadening its base of "alliance" customers through the negotiation of
"Alliance Agreements" that allow the Company to expedite individual
project contract negotiations. These Alliance Agreements are intended to
reduce total installed costs and project cycle times of prefabricated
piping systems for customers and enable the Company to forecast a larger
portion of its future revenue stream.
- Increasing the utilization of Shaw's unique design and engineering
resources as the first step in providing an integrated "turnkey" piping
systems approach.
The Company believes that by employing its business strategy it will be able to
further capitalize on the worldwide infrastructure build-up in the electric
power, refining and chemical industries and enhance its relationships with its
existing and potential domestic customers as they expand and retrofit existing
facilities. Shaw has facilities certified by the American Society of Mechanical
Engineers (ASME) for nuclear power piping and registered by the International
Organization of Standards (ISO 9001 and 9002), which registration is required to
perform certain international work.
RECENT DEVELOPMENTS
Shaw has entered into an agreement to acquire NAPTech, Inc., a fabricator
of industrial piping systems and engineered piping modules located in
Clearfield, Utah. In connection with the acquisition, the Company expects to
issue up to an aggregate of 366,790 shares of Common Stock in exchange for
NAPTech, Inc. and the 335,000 square foot facility that NAPTech, Inc. currently
leases from a related entity (collectively, "NAPTech"). For the fiscal years
ended March 29, 1996 and March 31, 1995, NAPTech, Inc. reported revenues of
$24.9 million and $21.7 million, respectively, and net losses of $3.1 million
and $224,000, respectively. The Company expects benefits from the acquisition of
NAPTech to include, among other things, increased fabrication capacity and
additional induction pipe bending capabilities. In addition, NAPTech estimates
it had a backlog of approximately $39.0 million at August 31, 1996, which
primarily consisted of a large mining industry project. The acquisition of
NAPTech is subject to various conditions, including, without limitation, the
approval of Shaw's Board of Directors and NAPTech's shareholders, as well as
necessary regulatory approvals. If consummated, the acquisition of NAPTech will
be accounted for as a pooling of interests and, accordingly, will result in a
restatement of the Company's financial statements for the year ended August 31,
1994 and subsequent periods. See "Pro Forma Condensed Consolidated Financial
Statements". Although there can be no assurance that the acquisition of NAPTech
will be completed, the Company currently anticipates that the acquisition will
be consummated on or before December 15, 1996.
5
<PAGE> 7
THE OFFERING
Common Stock being offered by:
The Company....................... 2,000,000 shares
The Selling Shareholders.......... 494,118 shares
Common Stock to be outstanding after
the Offering........................ 11,524,552 shares(1)
Time-phased voting.................. Each holder of shares of Common Stock
(including purchasers of shares offered
hereby) will be entitled to one vote
for each such share at all
shareholders' meetings until such
shares have been owned continuously for
a period of four years, in which case
the holder will be entitled to five
votes for each such share on all
matters submitted to shareholders. Each
change in beneficial ownership with
respect to a particular share will
begin a new "one vote period" for such
share. See "Description of Capital
Stock -- Common Stock".
New York Stock Exchange Symbol...... SGR
Use of Proceeds..................... To repay a portion of the Company's
indebtedness and for general corporate
purposes, including acquisitions,
equipment purchases and working
capital. See "Use of Proceeds".
- ---------------
(1) Does not include (i) 552,125 shares subject to options that have been
granted pursuant to the Company's 1993 Employee Stock Option Plan and 1996
Non-Employee Director Stock Option Plan or (ii) 366,790 shares (subject to
adjustment) issuable upon consummation of the proposed acquisition of
NAPTech. See "Description of Capital Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Recent
Acquisitions".
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including statements
regarding, among other items, (i) the Company's growth strategies, including its
intention to make acquisitions; (ii) anticipated trends in the Company's
business; and (iii) the Company's intention to enter into satisfactory contracts
with its customers, including Alliance Agreements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in this Prospectus including,
but not limited to, (i) adverse economic conditions; (ii) the impact of
competitive products and pricing; (iii) product demand and acceptance risks;
(iv) the presence of competitors with greater financial resources; (v) costs and
financing difficulties; and (vi) delays or difficulties in the production,
delivery or installation of products, including a lengthy strike or other work
stoppage by the Company's union employees at any of the Company's facilities.
See "Risk Factors". In light of these risks and uncertainties, there can be no
assurance that actual results will be as projected in the forward-looking
statements.
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth certain summary historical and pro forma
condensed consolidated financial data of the Company. The pro forma statement of
income data give effect to this Offering, the acquisitions of Word Industries
Pipe Fabricating, Inc. ("Word") and Alloy Piping Products, Inc. ("APP"), which
were consummated during fiscal 1996, and the proposed acquisition of NAPTech. If
completed, the acquisition of NAPTech would be accounted for as a pooling of
interests. The pro forma balance sheet data give effect to this Offering and the
proposed acquisition of NAPTech. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Selected Consolidated Financial Data", "Pro Forma Condensed
Consolidated Financial Statements" and the Company's Consolidated Financial
Statements and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------
1994 1995
-------- --------
1996
------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales............................................................. $113,177 $135,265 $222,017 $ 292,626
Cost of sales..................................................... 96,523 110,578 180,835 245,167
-------- -------- -------- --------
Gross profit...................................................... 16,654 24,687 41,182 47,459
General and administrative expenses............................... 11,631 15,023 25,202 32,931
-------- -------- -------- --------
Operating income.................................................. 5,023 9,664 15,980 14,528
Interest expense.................................................. (1,731) (2,829) (3,671) (2,841)
Other income, net................................................. 293 236 581 1,183
-------- -------- -------- --------
Income before income taxes........................................ 3,585 7,071 12,890 12,870
Provision for income taxes........................................ 1,368 2,217 4,216 4,258
-------- -------- -------- --------
Income before earnings (losses) from unconsolidated entities...... 2,217 4,854 8,674 8,612
Earnings (losses) from unconsolidated entities.................... 792 (588) 103 103
-------- -------- -------- --------
Income before extraordinary item.................................. $ 3,009 $ 4,266 $ 8,777 $ 8,715
======== ======== ======== ========
Income per common share before extraordinary item(1).............. $ 0.39(2) $ 0.50 $ 0.94 $ 0.72
======== ======== ======== ========
Weighted average number of common shares outstanding.............. 7,744 8,552 9,325 12,108
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 49,626 $ 91,885
Total assets............................................................................. 205,366 219,857
Long-term debt and capital lease obligations, net of current maturities.................. 32,158 32,158
Shareholders' equity..................................................................... 73,322 122,397
</TABLE>
- ---------------
(1) If the acquisition of NAPTech is consummated as discussed above, the
historical financial statements of the Company would be restated, with the
effect that income per common share before extraordinary item would be
$0.40, $0.44 and $0.68 for the years ended August 31, 1994, 1995 and 1996,
respectively. See "Pro Forma Condensed Consolidated Financial Statements".
(2) Excludes $0.05 per share ($370,455) attributable to a gain on the early
retirement of certain debt instruments (after income tax).
7
<PAGE> 9
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, together with the information provided
elsewhere in this Prospectus (or incorporated herein by reference), in
evaluating an investment in the Common Stock.
CYCLICALITY OF CUSTOMER PROJECTS
The demand for the Company's products and services depends primarily on the
existence of construction and retrofit projects, particularly in the electric
power, refining and chemical industries. These industries historically have
been, and will likely continue to be, cyclical in nature and vulnerable to
general downturns in the economy. The Company's results of operations may vary
depending on the availability of future projects from such industries.
DEPENDENCE ON MAJOR CUSTOMERS
Projects in the electric power, refining and chemical industries frequently
involve a lengthy and complex bidding and selection process, and the ability of
the Company to obtain future contracts is difficult to predict. Because a
significant portion of the Company's sales is generated from large projects, its
results of operations can fluctuate from quarter to quarter. For fiscal 1996,
Mitsubishi Heavy Industries Ltd. accounted for 12.3%, of the Company's sales.
While a concentration of customers has been historically prevalent, because of
the nature of the Company's business, the significant customers vary between
years. See "Business -- Customers and Marketing".
POTENTIAL FOR PRODUCT LIABILITY AND WARRANTY CLAIMS
Certain of the Company's products are used in potentially hazardous
environments, including without limitation, nuclear facilities. Although the
Company has not been required to pay any significant product liability claims to
date, any catastrophic occurrences in excess of insurance limits at locations
where the Company's products are used could in the future result in significant
product liability claims against the Company.
In addition, the Company under certain contracts must use new metals or
processes for producing or fabricating pipe for its customers, and the failure
of any such metals or processes could result in significant replacement or
reworking costs on a project. In the fourth quarter of fiscal 1994 and the first
quarter of fiscal 1995, the Company, at a customer's request, engaged in the
significant reworking of a project. Although the Company has not engaged in any
other significant reworking of a project to date, warranty claims against the
Company could in the future result in significant reworkings.
COMPETITION
The Company's competition in the supply and fabrication of piping systems
generally consists of a number of pipe fabricators domestically and divisions of
large industrial firms in the international sector. Some of the competitors,
especially in the international sector, have greater financial and other
resources than the Company. See "Business -- Competition".
ABILITY TO MAINTAIN GROWTH IN CORE BUSINESS AND INTEGRATE ACQUIRED BUSINESSES
In the past few years, the Company has experienced substantial growth
through internal expansion and acquisitions, and the Company plans to continue
to grow in this manner. This growth, and the resulting need to integrate
acquired companies into the Company's operations economically and efficiently,
has required, and will continue to require, significant management, production,
technical, financial and other resources. Due to a substantial increase in
sales, the Company has experienced, and is continuing to experience, billing
delays. There can be no assurance that the Company will be able to manage this
growth effectively or to integrate fully the operations of any acquired company
into the Company, and any failure to do so could have a material adverse effect
on the Company's results of operations or financial condition, or both. See
"Management's
8
<PAGE> 10
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Fiscal 1995 Compared to Fiscal 1994" and
"-- Liquidity and Capital Resources".
INTERNATIONAL CONTRACTS, OPERATIONS AND EXPANSION; FOREIGN EXCHANGE RISK
To date, a substantial portion of the Company's sales and earnings have
been attributable to its sales to and operations in international markets, and
the Company expects international sales and operations to increase and
substantially contribute to the Company's growth and earnings for the
foreseeable future. The success of the Company's sales to, operations in and
expansion into international markets depends on numerous factors, many of which
are beyond its control. Such factors include, but are not limited to, economic
conditions in the foreign countries in which the Company operates and to which
it sells its products and services and the lack of well-developed legal systems
in certain of such countries. In addition, international contracts, operations
and expansion may increase the Company's exposure to certain risks inherent in
doing business outside the United States, including currency fluctuations,
restrictions on the repatriation of profits and assets, compliance with foreign
laws and standards and political risks. The Company attempts to minimize its
foreign exchange risks, primarily through denominating contracts in United
States dollars or the inclusion of escalation provisions in contracts, or both.
Although the majority of the Company's contracts with respect to international
sales to date have been denominated in United States dollars, the Company from
time to time enters into contracts denominated in a foreign currency without
escalation provisions, thereby subjecting itself to foreign exchange risks.
Although insurance and hedging against some of these risks may be available, the
Company generally does not obtain such insurance or hedge such risks. In
addition, the Company's ability to obtain international contracts is impacted by
the relative strength or weakness of the United States dollar relative to
foreign currencies.
During the last several years, Venezuela has been experiencing a monetary
and economic crisis. In response, the Venezuelan government imposed, among other
things, foreign exchange controls that affected the Company's ability to
repatriate profits from the joint venture or otherwise convert local currency
into United States dollars. Although the foreign exchange controls were recently
lifted, given Venezuela's lack of economic stability, the Company believes that
its investment in Venezuela may be at risk from future foreign exchange and
repatriation restrictions. Although the Company is encouraged by the recent
elimination of foreign exchange and repatriation restrictions and improvements
in economic conditions in Venezuela, there can be no assurance that the
Venezuelan operations will be profitable. See "Business -- Markets".
FIXED PRICE CONTRACT EXPOSURE
Substantially all of the Company's international projects are quoted on a
"fixed" or "lump-sum" price basis. Although the Company attempts to secure fixed
pricing commitments from its suppliers at the time such a contract is entered
into, to the extent that the Company is unable to do so and experiences cost
increases for materials or labor during the performance of such a contract, the
Company's profit for such project could decrease, or the Company could
experience a loss with respect to such contract that could have a material
adverse effect on the Company's results of operations or financial condition, or
both.
CONTROL BY MANAGEMENT
At September 30, 1996, the officers and directors of the Company and its
subsidiaries beneficially owned approximately 42% of the outstanding Common
Stock but controlled approximately 73% of the voting power. Immediately after
this Offering, the officers and directors of the Company beneficially will own
approximately 30% of the outstanding Common Stock and will control approximately
63% of the voting power. Consequently, these persons will be able to exercise
effective control over corporate actions and the outcomes of matters requiring a
shareholder vote, including the election of directors. See "Principal and
Selling Shareholders" and "Description of Capital Stock".
9
<PAGE> 11
VOTING RIGHTS TIED TO DURATION OF STOCK OWNERSHIP; ANTI-TAKEOVER EFFECTS
The Company's Restated Articles of Incorporation provide that each share of
Common Stock that has been held by the same person for at least four consecutive
years is entitled to five votes on each matter to be voted upon at shareholders'
meetings, and all shares held for less than four years are entitled to one vote
per share for each such matter. This charter provision could concentrate control
in existing shareholders of the Company, increase the difficulty of removing the
incumbent Board of Directors or management, diminish the likelihood that a
potential buyer would make an offer for the Common Stock, and impede a
transaction favorable to the interests of certain shareholders. Each purchaser
of shares of Common Stock offered hereby will be entitled to one vote for each
such share at all shareholders' meetings until such shares have been, in
accordance with the Company's Restated Articles of Incorporation, continuously
owned for a period of four years, in which case the holder will be entitled to
five votes for each share on all matters submitted to shareholders. See
"Description of Capital Stock -- Common Stock".
DEPENDENCE ON KEY MANAGEMENT
The success of the Company's business will be materially dependent upon the
continued services of its founder, Chairman, President and Chief Executive
Officer, J.M. Bernhard, Jr., and other key officers and employees. The loss of
Mr. Bernhard or such other key personnel due to death, disability or termination
of employment could have a material adverse effect on the Company's results of
operations or financial condition, or both.
POSSIBLE WORK STOPPAGE
Certain of the Company's employees in the United States are represented by
the United Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry of the United States and Canada, AFL-CIO (the "Union").
While the Company believes that its current relationship with its employees and
the Union is generally good, the collective bargaining agreement between the
Company and the Union regarding one of the Company's facilities is due to expire
on November 30, 1996, and the collective bargaining agreements covering two of
the Company's other facilities are due to expire on December 31, 1996. See
"Business -- Employees". A lengthy strike or other work stoppage at any of the
Company's facilities could have a material adverse effect on the Company's
results of operations or financial condition, or both.
VOLATILITY OF STOCK PRICE
In the past, the Company has experienced significant fluctuations in the
market price of its Common Stock, and, in the future, the market price of the
Common Stock may experience fluctuations that are unrelated to the operating
performance of the Company, such as market conditions generally and developments
specifically related to the industrial piping industry. Additionally, the volume
of daily trading in the Common Stock to date has been limited, and, as a result,
the sale of a significant number of shares of Common Stock by one or more
shareholders within a relatively short time period could adversely affect the
market price for the Common Stock. See "Price Range of Common Stock and Dividend
Policy".
DIVIDEND POLICY
The Company has not paid any dividends on the Common Stock and currently
anticipates that, for the foreseeable future, any earnings will be retained for
the development of the Company's business. In addition, the Company is subject
to certain prohibitions on the payment of dividends under the terms of existing
credit facilities. See "Price Range of Common Stock and Dividend Policy".
10
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the NYSE under the symbol "SGR". The Company
delisted the Common Stock from the Nasdaq National Market on October 17, 1996,
and the Common Stock commenced trading on the NYSE on October 18, 1996. The
following table sets forth, for the quarterly periods indicated, the high and
low sale prices per share for the Common Stock as reported on the Nasdaq
National Market through October 17, 1996, and thereafter as reported by the
NYSE, for the Company's two most recent fiscal years and for the current fiscal
year to date.
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
Fiscal year ended August 31, 1995
First quarter................................................... $12 3/4 $ 2 3/4
Second quarter.................................................. 6 1/4 3 7/8
Third quarter................................................... 8 11/32 5 5/8
Fourth quarter.................................................. 10 1/4 7 1/2
Fiscal year ended August 31, 1996
First quarter................................................... $10 3/32 $ 8 1/4
Second quarter.................................................. 16 3/8 8 3/4
Third quarter................................................... 20 5/8 14 1/4
Fourth quarter.................................................. 33 1/2 15 3/8
Fiscal year ending August 31, 1997
First quarter (through November 14, 1996)....................... $37 $21 7/8
</TABLE>
The closing sale price of the Common Stock on November 14, 1996, as
reported on the NYSE, was $25.375 per share. As of September 25, 1996, the
Company had approximately 2,942 shareholders of record.
The Company has not paid any dividends on the Common Stock and currently
anticipates that, for the foreseeable future, any earnings will be retained for
the development of the Company's business. Accordingly, no dividends are
expected to be declared or paid on the Common Stock for the foreseeable future.
The declaration of dividends is at the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Board of
Directors at such future time as may be appropriate in light of relevant factors
at the time; however, the Company is subject to certain prohibitions on the
payment of dividends under the terms of existing credit facilities.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company hereby, assuming a public offering price of $25 per
share, are estimated to be $46.9 million ($55.8 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and other expenses payable by the Company. All of such
proceeds will be used to repay outstanding amounts on the Company's line of
credit, which is generally used by the Company for working capital purposes.
Approximately $12.0 million of the Company's line of credit was used to fund a
portion of the acquisition costs of Word and APP.
Pending the use of the net proceeds of this Offering, such funds will be
invested in short-term, interest-bearing, investment-grade securities. As of
November 13, 1996, the Company had outstanding $57.8 million under its
outstanding line of credit, which bears interest at 7.0% and which expires on
March 31, 1999.
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the consolidated capitalization of the
Company at August 31, 1996 (i) on an actual historical basis, (ii) as adjusted
to reflect the issuance of the Common Stock offered by the Company hereby and
the application of the net proceeds therefrom and (iii) pro forma, as adjusted,
to reflect the issuance of the Common Stock offered by the Company hereby and
the proposed acquisition of NAPTech. This table should be read in conjunction
with the Company's Consolidated Financial Statements and "Pro Forma Condensed
Consolidated Financial Statements", including the notes thereto, contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
----------------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
Short-term borrowings and current portion of long-term
debt(1)................................................ $ 52,839 $ 5,939 $ 13,655
======== ======== ========
Long-term debt, excluding current portion(1)............. 32,158 32,158 32,158
-------- -------- --------
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; no shares issued and outstanding........ -- -- --
Common Stock, no par value, 50,000,000 shares
authorized; 16,186,219 shares issued (18,186,219
shares as adjusted and 18,553,009 shares pro forma,
as adjusted); 9,523,303 shares outstanding
(11,523,303 shares as adjusted and 11,890,093 shares
pro forma, as adjusted)(2).......................... 50,120 97,020 102,485
Retained earnings...................................... 30,030 30,030 26,740
Less: 6,662,916 shares held in treasury, at cost....... (6,828) (6,828) (6,828)
-------- -------- --------
Total shareholders' equity..................... 73,322 120,222 122,397
-------- -------- --------
Total capitalization..................................... $105,480 $ 152,380 $ 154,555
======== ======== ========
</TABLE>
- ---------------
(1) Includes obligations under capital leases.
(2) Does not include 552,125 shares subject to options that have been granted
pursuant to the Company's 1993 Employee Stock Option Plan and 1996
Non-Employee Director Stock Option Plan. See "Description of Capital Stock".
12
<PAGE> 14
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Set forth on the following pages are the unaudited pro forma condensed
consolidated statements of income of the Company for the year ended August 31,
1996 and the unaudited pro forma condensed consolidated balance sheet of the
Company at August 31, 1996. The unaudited pro forma condensed consolidated
statement of income for the year ended August 31, 1996 is presented (i) giving
effect to the acquisition of Word and the acquisition of APP (together, the
"1996 Acquisitions") and this Offering and (ii) giving effect to the 1996
Acquisitions, the proposed acquisition of NAPTech and this Offering. The
unaudited pro forma condensed consolidated balance sheet gives effect to this
Offering and the proposed acquisition of NAPTech. The unaudited pro forma
condensed consolidated statement of income assumes that the 1996 Acquisitions,
the proposed acquisition of NAPTech and this Offering occurred at September 1,
1995, and the unaudited pro forma condensed consolidated balance sheet assumes
that the proposed acquisition of NAPTech and this Offering occurred at August
31, 1996. The pro forma financial information assumes that the proposed
acquisition of NAPTech will be accounted for using the pooling-of-interests
method of accounting, while the 1996 Acquisitions were accounted for using the
purchase method of accounting.
The following pages set forth (i) historical condensed consolidated
statements of income of the Company for the years ended August 31, 1994, 1995,
and 1996 and (ii) condensed consolidated statements of income of the Company for
the years ended August 31, 1994, 1995, and 1996 restated to reflect the proposed
acquisition of NAPTech as a pooling of interests which include NAPTech's results
of operations for the years ended April 1, 1994, and March 31, 1995, and the
twelve months ended June 30, 1996, respectively. Assuming the proposed
acquisition of NAPTech is consummated, these pro forma condensed consolidated
statements of income will become the restated historical statements of income of
the Company upon the publication of combined financial results of the Company
and NAPTech covering a period subsequent to the consummation of the acquisition
of NAPTech.
The unaudited pro forma condensed consolidated statement of income for the
fiscal year ended August 31, 1996, for both the historical and restated
presentations, combines the historical condensed consolidated statements of
income of (i) the Company for the twelve months ended August 31, 1996, (ii) APP
for the six months ended February 29, 1996 (the period prior to the date of
acquisition by the Company) and (iii) Word for the five months ended January 30,
1996 (the period prior to the date of acquisition by the Company).
The following unaudited pro forma condensed consolidated financial
statements should be read in conjunction with (i) the Consolidated Financial
Statements of the Company and the related notes thereto included elsewhere
herein, (ii) the historical financial statements of NAPTech for the two years
ended March 29, 1996, and the quarter ended June 30, 1996, and the related notes
thereto, included elsewhere herein, (iii) the audited historical consolidated
financial statements of Word for the year ended December 31, 1994, and related
notes, and the unaudited historical consolidated financial statements of Word
for the year ended December 31, 1995, filed with the Company's Current Report on
Form 8-K/A-1 filed on March 29, 1996, and incorporated by reference herein and
(iv) the historical combined financial statements of APP for the year ended July
31, 1995, and the six months ended January 31, 1996, and related notes filed
with the Company's Current Report on Form 8-K/A-1 filed on June 19, 1996 and
incorporated by reference herein.
The following pro forma information is not necessarily indicative of the
results that might have occurred had the transactions taken place at the
beginning of any of the periods specified and is not intended to be a projection
of future results.
13
<PAGE> 15
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are (i) the historical condensed consolidated statements of
income of the Company for the years ended August 31, 1994, 1995 and 1996 and
(ii) a pro forma condensed consolidated statement of income for the year ended
August 31, 1996 giving effect to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------- --------------------------
1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1996
1994 1995 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................................... $113,177 $135,265 $222,017 $43,268 $ 265,285
Cost of sales........................... 96,523 110,578 180,835 36,119 $ (163)(a) 216,791
-------- -------- -------- ------- -------- --------
Gross profit.................... 16,654 24,687 41,182 7,149 163 48,494
General and administrative expenses..... 11,631 15,023 25,202 6,080 9 (b) 31,454
(78)(c)
(9)(a)
250 (d)
-------- -------- -------- ------- -------- --------
Operating income................ 5,023 9,664 15,980 1,069 (9) 17,040
Interest expense........................ (1,731) (2,829) (3,671) (715) 1,778 (e) (2,608)
Other income, net....................... 293 236 581 559 1,140
-------- -------- -------- ------- -------- --------
Income before income taxes.............. 3,585 7,071 12,890 913 1,769 15,572
Provision for income taxes.............. 1,368 2,217 4,216 659 329 (f) 5,204
-------- -------- -------- ------- -------- --------
Income before earnings from
unconsolidated entities............... 2,217 4,854 8,674 254 1,440 10,368
Earnings from unconsolidated entities... 792 (588) 103 -- 103
-------- -------- -------- ------- -------- --------
Income before extraordinary item........ $ 3,009 $ 4,266 $ 8,777 $ 254 $ 1,440 $ 10,471
======== ======== ======== ======= ======== ========
Income per common share before
extraordinary item.................... $ 0.39(g) $ 0.50 $ 0.94 $ 0.89
======== ======== ======== ========
Weighted average number of common shares
outstanding........................... 7,744 8,552 9,325 11,741(h)
======== ======== ======== ========
</TABLE>
Set forth below are (i) the condensed consolidated statements of income of
the Company for the years ended August 31, 1994, 1995 and 1996, as such
statements would be required to be restated (in connection with
pooling-of-interests method of accounting) if the proposed acquisition of
NAPTech is consummated and (ii) a pro forma condensed consolidated statement of
income for the year ended August 31, 1996 giving effect to such restatement and
to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
RESTATED HISTORICAL PRO FORMA
---------------------------------------------------- --------------------------
1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1996
1994 1995 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................................... $130,663 $156,922 $249,358 $43,268 $ 292,626
Cost of sales........................... 112,005 130,715 209,211 36,119 $ (163)(a) 245,167
-------- -------- -------- ------- ------- --------
Gross profit.................... 18,658 26,207 40,147 7,149 163 47,459
General and administrative expenses..... 12,617 16,460 26,679 6,080 9 (b) 32,931
(78)(c)
(9)(a)
250 (d)
-------- -------- -------- ------- ------- --------
Operating income................ 6,041 9,747 13,468 1,069 (9) 14,528
Interest expense........................ (2,365) (3,465) (4,524) (715) 2,398 (e) (2,841)
Other income, net....................... 304 245 624 559 1,183
-------- -------- -------- ------- ------- --------
Income before income taxes.............. 3,980 6,527 9,568 913 2,389 12,870
Provision for income taxes.............. 1,508 2,027 3,053 659 546 (i) 4,258
-------- -------- -------- ------- ------- --------
Income before earnings from
unconsolidated entities............... 2,472 4,500 6,515 254 1,843 8,612
Earnings from unconsolidated entities... 751 (588) 103 -- 103
-------- -------- -------- ------- ------- --------
Income before extraordinary item........ $ 3,223 $ 3,912 $ 6,618 $ 254 $ 1,843 $ 8,715
======== ======== ======== ======= ======= ========
Income per common share before
extraordinary item.................... $ 0.40(g) $ 0.44 $ 0.68 $ 0.72
======== ======== ======== ========
Weighted average number of common shares
outstanding........................... 8,111 8,919 9,692 12,108
======== ======== ======== ========
</TABLE>
14
<PAGE> 16
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT AUGUST 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
NAPTECH
AND
HISTORICAL OFFERING HISTORICAL OFFERING
SHAW ADJUSTMENTS AS ADJUSTED NAPTECH ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash.......................... $ 2,932 $ -- $ 2,932 $ 9 $ $ 2,941
Accounts receivable........... 71,286 71,286 5,919 77,205
Receivables from
unconsolidated entities..... 701 701 701
Inventories................... 66,412 66,412 898 67,310
Prepaid expenses.............. 2,039 2,039 2,039
Other......................... 1,635 1,635 401 2,036
-------- ------- -------- ------- ------- --------
Total current assets.... 145,005 -- 145,005 7,227 -- 152,232
Investment in unconsolidated
entities...................... 1,921 1,921 0 -- 1,921
Property and equipment.......... 60,083 -- 60,083 7,200 -- 67,283
Less: Accumulated depreciation
(including amortization of
assets acquired under capital
leases)....................... (9,195) (9,195) (2,635) (11,830)
-------- ------- -------- ------- ------- --------
50,888 -- 50,888 4,565 -- 55,453
Notes receivable from related
party......................... 625 625 625
Other assets, net............... 6,927 6,927 63 2,636 (j) 9,626
-------- ------- -------- ------- ------- --------
Total assets.................... $205,366 $ -- $ 205,366 $11,855 $ 2,636 $ 219,857
======== ======= ======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks............ $ 3,105 $ 3,105 $ $ 3,105
Accounts payable.............. 25,762 25,762 3,217 28,979
Accrued liabilities........... 8,843 8,843 536 9,379
Current maturities of
long-term debt.............. 3,449 3,449 1,367 $(1,367)(k) 3,449
Revolving line of credit...... 49,322 $ (46,900)(k) 2,422 7,716 (k) 10,138
Current obligations under
capital leases.............. 68 68 68
Deferred
revenue -- prebilled........ 1,839 1,839 1,839
Advance billings.............. 2,991 2,991 399 3,390
-------- ------- -------- ------- ------- --------
Total current
liabilities........... 95,379 (46,900) 48,479 5,519 6,349 60,347
Long-term debt, less current
maturities.................... 32,113 32,113 6,349 (6,349)(k) 32,113
Obligations under capital
leases, less current
maturities.................... 45 45 45
Deferred income taxes........... 4,507 4,507 -- 448 (j) 4,955
Shareholders' equity:
Common stock.................. 50,120 46,900 (l) 97,020 51 382 (j) 102,167
4,714 (m)
Paid in capital............... -- -- 4,714 (4,714)(m) --
Retained earnings............. 30,030 30,030 (4,778) 1,806 (j) 27,058
Treasury stock................ (6,828) (6,828) (6,828)
-------- ------- -------- ------- ------- --------
Total shareholders'
equity................ 73,322 46,900 120,222 (13) 2,188 122,397
-------- ------- -------- ------- ------- --------
Total liabilities and
shareholders' equity.......... $205,366 $ -- $ 205,366 $11,855 $ 2,636 $ 219,857
======== ======= ======== ======= ======= ========
</TABLE>
15
<PAGE> 17
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes set forth the assumptions used in preparing the
unaudited Pro Forma Condensed Consolidated Financial Statements. The pro forma
adjustments are based on estimates made by the Company's management using
information currently available. As a result, the pro forma adjustments
discussed below are subject to change pending the completion of the acquisition
of NAPTech.
The adjustments to the accompanying unaudited pro forma condensed
consolidated statements of income are described below:
(a) To adjust depreciation on the APP assets acquired based on their
adjusted value per the purchase price allocation.
(b) To adjust depreciation on the Word assets acquired based on their
adjusted value per the purchase price allocation.
(c) To eliminate Word intercompany rent expense due to the acquisition of
the plant and office building from an affiliated entity.
(d) To adjust compensation for certain APP employees to conform with
contractual agreements entered into in connection with the acquisition
of APP.
(e) To reflect a net reduction in interest expense consisting of an
increase in interest expense associated with debt used to finance the
1996 Acquisitions and a reduction in interest expense associated with
the application of a portion of the net proceeds of this Offering to pay
down (i) debt used to finance the 1996 Acquisitions, (ii) debt of Word
and APP assumed by the Company, (iii) additional debt of the Company and
(iv) where appropriate, debt of NAPTech assumed by the Company.
(f) To record the income tax provision related to the net loss from the
acquisition of Word, the income of an affiliate of APP and the effect of
pro forma adjustments.
(g) Excludes $0.05 per share ($370,455) for the year ended August 31, 1994,
and $0.04 per share on a restated basis for the year ended August 31,
1994, attributable to a gain on the early retirement of certain debt
instruments (after income tax).
(h) Pro forma common shares outstanding include 385,000 shares of Common
Stock issued in connection with the acquisition of Word; 541,177 shares
of Common Stock issued in connection with the acquisition of APP;
2,000,000 shares of Common Stock issued in connection with this
Offering; and, where appropriate, 366,790 shares of Common Stock to be
issued in connection with the acquisition of NAPTech.
(i) To record income tax provision related to the net loss from the
acquisitions of Word and NAPTech, the income of an affiliate of APP and
the effect of pro forma adjustments.
The adjustments to the accompanying unaudited pro forma condensed
consolidated balance sheet are described below:
(j) To record the deferred tax assets of $2.6 million relating to tax
benefits of NAPTech and to record the deferred tax liability of $448,000
relating to differences in the book and tax basis of the net assets of
NAPTech.
(k) To record the assumed net reduction of indebtedness of the Company
through the application of a portion of the net proceeds to the Company
from this Offering.
(l) To record the issuance by the Company of 2,000,000 shares of Common
Stock and related net proceeds of $46,900,000 received in this Offering.
(m) To record the issuance by the Company of 366,790 shares of Common Stock
relating to the pooling of interests with NAPTech.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents, for the periods and as of the dates
indicated, selected statement of income data and balance sheet data of the
Company on a consolidated basis. The selected historical consolidated financial
data for each of the three fiscal years in the period ended August 31, 1996
presented below have been derived from the Company's audited consolidated
financial statements. Such data should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................................. $113,177 $135,265 $222,017
Cost of sales.......................................... 96,523 110,578 180,835
-------- -------- --------
Gross profit........................................... 16,654 24,687 41,182
General and administrative expenses.................... 11,631 15,023 25,202
-------- -------- --------
Operating income....................................... 5,023 9,664 15,980
Interest expense....................................... (1,731) (2,829) (3,671)
Other income, net...................................... 293 236 581
-------- -------- --------
Income before income taxes............................. 3,585 7,071 12,890
Provisions for income taxes............................ 1,368 2,217 4,216
-------- -------- --------
Income before earnings (losses) from unconsolidated
entities............................................ 2,217 4,854 8,674
Earnings (losses) from unconsolidated entities......... 792 (588) 103
-------- -------- --------
Income before extraordinary item....................... 3,009 4,266 8,777
Extraordinary item, less applicable income taxes....... 370 -- --
-------- -------- --------
Net income............................................. $ 3,379 $ 4,266 $ 8,777
======== ======== ========
Income per common share before extraordinary item(1)... $ 0.39 $ 0.50 $ 0.94
Extraordinary item per common share.................... 0.05 -- --
-------- -------- --------
Net income per common share(1)......................... $ 0.44 $ 0.50 $ 0.94
======== ======== ========
Weighted average number of common shares outstanding... 7,744 8,552 9,325
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT AUGUST 31, 1996
------------------
<S> <C>
Working capital........................................................... $ 49,626
Total assets.............................................................. 205,366
Long-term debt and capital lease obligations, net of current maturities... 32,158
Shareholders' equity...................................................... 73,322
</TABLE>
- ---------------
(1) If the acquisition of NAPTech is consummated, the historical financial
statements of the Company would be restated, with the effect that income per
common share before extraordinary item would be $0.40, $0.44 and $0.68 and
net income per common share would be $0.44, $0.44 and $0.68 for the years
ended August 31, 1994, 1995 and 1996, respectively. See "Pro Forma Condensed
Consolidated Financial Statements".
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the notes thereto and selected financial data,
included elsewhere in this document.
RECENT ACQUISITIONS
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. ("FCI"), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. ("PSSI"), a pipe
support fabrication facility located in Longview, Texas. These acquisitions were
completed through the issuance of 75,000 shares of the Company's Common Stock
valued at $1.4 million and cash of $2.1 million. In addition, the Company agreed
to issue options to acquire up to 57,000 shares of the Company's Common Stock
and make additional cash payments up to $300,000 based on the future earnings of
the Company's subsidiaries managed by the former owner of FCI and PSSI through
1997. See Note 3 to the Company's Consolidated Financial Statements.
On December 15, 1994, the Company acquired the 50% interest of the other
participant in the Shaw-Formiconi joint venture located in Venezuela, together
with the concurrent acquisition of certain land, buildings and other assets used
by the venture. The total amount of the purchase price related to this
acquisition, including the selling participant's share of joint venture profits,
was approximately $2.9 million. The Company had previously accounted for its
investment in the joint venture as an unconsolidated subsidiary under the equity
method. Since December 15, 1994, the Venezuelan operation has operated as a
wholly owned subsidiary and is included as a consolidated subsidiary in the
Company's consolidated statements since that date. See Notes 3 and 5 to the
Company's Consolidated Financial Statements.
On January 16, 1996, the Company purchased certain assets and assumed
certain liabilities of Word, TS&M Corporation and T.N. Word and certain of Mr.
Word's family members. The acquisition of Word increased the Company's
production capacity and added a facility in Tulsa, Oklahoma. The total purchase
price related to the acquisition was approximately $4.2 million, consisting of
the issuance of 385,000 shares of the Company's Common Stock valued at $3.4
million and cash and other consideration of approximately $750,000. See Note 3
of the Notes to Consolidated Financial Statements.
Effective March 1, 1996, the Company acquired all of the outstanding
capital stock of APP, a leading United States manufacturer of specialty
stainless and carbon steel pipe fittings and other stainless pipe products, and
the assets of an APP-related entity, Speedline. In connection with the
acquisition of APP, the Company issued 541,177 shares of the Company's Common
Stock valued at $6.8 million and paid cash of $11.6 million. See Note 3 of the
Notes to Consolidated Financial Statements.
Shaw has entered into an agreement to acquire NAPTech, Inc., a fabricator
of industrial piping systems and engineered piping modules located in
Clearfield, Utah. In connection with the acquisition, the Company expects to
issue up to an aggregate of 366,790 shares of the Company's Common Stock in
exchange for NAPTech, Inc. and the 335,000 square foot facility that NAPTech,
Inc. currently leases from a related entity. For the fiscal years ended March
29, 1996 and March 31, 1995, NAPTech, Inc. reported revenues of $24.9 million
and $21.7 million, respectively, and net losses of $3.1 million and $224,000,
respectively. The Company expects benefits from the acquisition of NAPTech to
include, among other things, increased fabrication capacity and additional
induction pipe bending capabilities. In addition, NAPTech estimates it had a
backlog of approximately $39.0 million at August 31, 1996, which primarily
consisted of a large mining industry project. The acquisition of NAPTech is
subject to various conditions, including, without limitation, the approval of
Shaw's Board of Directors and NAPTech's shareholders, as well as necessary
regulatory approvals. If consummated, the acquisition of NAPTech will be
accounted for as a pooling of interests and, accordingly, will result in a
restatement of the Company's financial statements for the year ended August 31,
1994 and subsequent periods. See "Pro Forma Condensed Consolidated Financial
Statements". Although there can be no assurance that the acquisition of NAPTech
will be completed, the Company currently anticipates that the acquisition will
be consummated on or before December 15, 1996.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of the Company's sales that certain income and expense items represent.
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Sales........................................................... 100.0% 100.0% 100.0%
Cost of sales................................................... 85.3 81.8 81.4
----- ----- -----
Gross profit.................................................... 14.7 18.2 18.6
General and administrative expenses............................. 10.3 11.1 11.4
----- ----- -----
Operating income................................................ 4.4 7.1 7.2
Interest expense, net........................................... (1.5) (2.1) (1.7)
Other income, net............................................... 0.3 0.2 0.3
----- ----- -----
Income before income taxes...................................... 3.2 5.2 5.8
Provision for income taxes...................................... 1.2 1.6 1.9
----- ----- -----
Income before earnings (losses) from unconsolidated entities.... 2.0 3.6 3.9
Earnings (losses) from unconsolidated entities.................. 0.7 (0.4) 0.1
----- ----- -----
Income before extraordinary item................................ 2.7 3.2 4.0
Extraordinary item, less applicable income taxes................ 0.3 -- --
----- ----- -----
Net income...................................................... 3.0% 3.2% 4.0%
===== ===== =====
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Sales increased $86.7 million, or 64.1%, for fiscal 1996 to $222.0 million
from $135.3 million for fiscal 1995. This increase was due primarily to
increased sales for projects in the domestic chemical and refinery sectors and
the international power sector, as well as to the acquisitions of Word and APP,
which contributed approximately $15.6 million and $24.9 million, respectively,
in sales from their respective dates of acquisition.
The Company's sales by geographic region were as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Geographic Location:
U.S.A................................ $ 86.2 63.7% $ 146.3 65.9%
Far East/Pacific Rim................. 24.3 18.0 39.6 17.8
Middle East.......................... 4.2 3.1 21.4 9.6
Latin America........................ 20.5 15.2 2.6 1.2
Europe............................... -- -- 9.0 4.1
Other................................ 0.1 0.0 3.1 1.4
------ ----- ------ -----
$ 135.3 100.0% $ 222.0 100.0%
====== ===== ====== =====
</TABLE>
19
<PAGE> 21
The Company's sales by industry sector were as follows:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Industry Sector:
Power................................ $ 59.2 43.8% $ 86.7 39.0%
Refining............................. 39.2 29.0 62.4 28.1
Chemical............................. 33.5 24.7 62.1 28.0
Other................................ 3.4 2.5 10.8 4.9
------ ----- ------ -----
$ 135.3 100.0% $ 222.0 100.0%
====== ===== ====== =====
</TABLE>
The gross margin for fiscal 1996 increased to 18.6% from 18.2% for the
prior year. The increase was attributable primarily to the increase in
international projects with their generally higher profit margins, elimination
of productivity difficulties as a result of reworking certain projects in the
first quarter of fiscal 1995, improvement in pricing in the domestic market and
contributions from the APP and Word subsidiaries. These improvements in gross
margins were offset to a large extent by a substantial decrease in sales and
gross profits from the company's Venezuelan facility, which historically has
achieved higher gross margin percentages than the Company's domestic
subsidiaries. The Company does not expect significant contributions in sales or
profits, if any, from its Venezuelan subsidiary until at least the second
quarter of fiscal 1997.
General and administrative expenses were $25.2 million for fiscal 1996,
compared to $15.0 million for the prior year. The $10.2 million increase was due
primarily to the integration of Word and APP into Shaw's business and to the
variable costs associated with the increased sales.
Interest expense for fiscal 1996 was $3.7 million, up 29.8% from the $2.8
million incurred in fiscal 1995, primarily due to increased borrowing resulting
from the expansion of business, billing delays, and the acquisitions of APP and
Word in 1996. Beginning in the fourth quarter of fiscal 1995, the Company has
benefitted from new loan and security agreements with commercial lenders and
insurance companies, as well as an industrial revenue bond financing, that
reduced overall interest rates applicable to the Company and helped reduce the
impact of the aforementioned increased borrowings.
The Company's effective tax rates for fiscal 1996 and 1995 were 32.7% and
31.4%, respectively. The increase in the fiscal 1996 tax rates, as compared to
the same period the prior year, was primarily due to an increased proportion of
the Company's net profit in the domestic market due in part to the integration
of APP and Word into the Company's operations.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales increased by 19.5% for fiscal 1995 to $135.3 million from $113.2
million for fiscal 1994. Gross profit increased 48.2% to $24.7 million for
fiscal 1995 from $16.7 million for fiscal 1994. Both sales and gross profits
were positively impacted by the increase in international sales which have
historically generated higher profit margins. International sales for fiscal
1995 included $9.4 million of sales by the Company's Venezuelan subsidiary,
which became a wholly owned subsidiary in December 1994. In addition, fiscal
1995 sales included $10.2 million of sales by the Company's engineering and pipe
support fabrication subsidiaries, which were acquired in April 1994.
20
<PAGE> 22
The Company's sales by geographic region were as follows:
<TABLE>
<CAPTION>
FISCAL 1995
---------------------------------
(IN MILLIONS) %
------------- ------
<S> <C> <C>
Geographic Location:
U.S.A................................................ $ 86.2 63.7%
Far East/Pacific Rim................................. 24.3 18.0
Middle East.......................................... 4.2 3.1
Latin America........................................ 20.5 15.2
Other................................................ 0.1 0.0
------ -----
$ 135.3 100.0%
====== =====
</TABLE>
International sales by geographic location are not available for fiscal
1994.
The Company's sales by industry sector were as follows:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
--------------------------------- ---------------------------------
(IN MILLIONS) % (IN MILLIONS) %
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Industry Sector:
Power................................ $ 57.7 51.0% $ 59.2 43.8%
Refining............................. 31.7 28.0 39.2 29.0
Chemical............................. 20.4 18.0 33.5 24.7
Other................................ 3.4 3.0 3.4 2.5
------ ----- ------ -----
$ 113.2 100.0% $ 135.3 100.0%
====== ===== ====== =====
</TABLE>
Gross margins for fiscal 1995 increased to 18.2% from 14.7% for fiscal
1994. This increase was due to higher margins on international projects,
primarily attributable to work performed by the Company's Venezuelan subsidiary,
as well as improvement in the domestic market in the third and fourth quarters
of fiscal 1995. Fiscal 1994 gross margins were down due to a number of domestic
projects that were adversely affected by competitive pricing, quick delivery
requirements and/or productivity difficulties. These factors also impacted gross
margins for the first and second quarters of fiscal 1995.
General and administrative expenses for fiscal 1995 increased by $3.4
million to $15.0 million as compared to $11.6 million in fiscal 1994. This
increase was due primarily to $1.5 million in additional overhead attributable
to the Company's engineering and pipe support fabrication subsidiaries and a
$1.2 million increase in overhead relating to the Company's international
operations. The remaining $700,000 increase was due primarily to variable costs
associated with increased sales levels.
The Company's effective tax rates for fiscal 1995 and fiscal 1994 were
31.4% and 38.2%, respectively. The decrease in fiscal 1995 from fiscal 1994 was
primarily due to tax benefits derived from export sales and lower state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $20.0 million for fiscal 1996, compared to
net cash provided by operations of $5.5 million for fiscal 1995. For fiscal
1996, net cash used in operations was a result primarily of increases of $16.1
million in receivables and $21.1 million in inventories, partially offset by an
increase of $8.3 million in accounts payable.
The increase in receivables was primarily attributable to a higher volume
of sales activity for fiscal 1996. During the year, the Company experienced some
billing delays due to an increased number of contracts with intricate and time
consuming billing provisions. At the end of fiscal 1996, there has been a shift
in the contract mix, and the Company has substantially eliminated these billing
delays.
Inventories increased due to the procurement of material for current and
future sales activities, which are expected to exceed historical levels, based
upon the Company's backlog at August 31, 1996 of approximately
21
<PAGE> 23
$154.0 million. The increase in inventories was primarily financed by the
increase in accounts payable and increases in the Company's revolving credit
agreement.
Net cash used in investing activities was $25.6 million for fiscal 1996,
compared to $2.7 million for fiscal 1995. During fiscal 1996, the Company
invested $0.8 million in cash in connection with the acquisition of Word and a
net $8.7 million of cash in connection with the acquisition of APP. In addition,
the Company purchased $18.1 million of property and equipment in fiscal 1996.
Major property and equipment purchases include $2.3 million for an induction
bending machine for the Company's subsidiary in Laurens, South Carolina; $2.6
million for an induction bending machine and $2.8 million of facility expansion
for the Company's subsidiary in Walker, Louisiana; $2.0 million of assets at the
Company's Venezuelan subsidiary; and $3.7 million of transportation equipment.
Net cash provided by financing activities was $48.8 million for fiscal
1996, compared to $2.6 million used for fiscal 1995. For fiscal 1996, $30.5
million of cash was provided from the Company's revolving line of credit
facility under the Company's loan and security agreement with its commercial
lenders. The revolving line of credit facility has been used generally to
provide working capital and fund fixed asset purchases and acquisitions. During
fiscal 1996, the Company borrowed $21.1 million in term debt. The borrowings
were used primarily to refinance $5.8 million of APP's debt, pay down $3.8
million of revolving debt and purchase two induction bending machines
aggregating $4.9 million and transportation equipment totaling $2.8 million.
Concurrent with the acquisition of APP, the Company amended its loan and
security agreement with its commercial lenders to provide for a revolving line
of credit of up to $70.0 million, depending upon the Company's collateral base
(which consists primarily of certain eligible amounts of receivables and
inventory) and up to $10.0 million in term loans at an interest rate based upon,
at the Company's option, either the London Interbank Offering Rate ("LIBOR")
plus 85 to 200 basis points or prime rate plus zero to 75 basis points,
depending on certain financial ratios. Pursuant to the amended loan and security
agreement, the line of credit facility expires on March 31, 1999, and the term
loans expire on March 31, 2001. The effective interest rate at August 31, 1996
for the line of credit and the term loans was 7.0%.
In September 1995, the Company obtained industrial development bond
financing of $4.0 million. Approximately $2.3 million of the bond proceeds were
used to purchase a bending machine for the Laurens, South Carolina facility in
November 1995. The remaining balance is held in short-term marketable securities
until used for other capital improvements at such facility. The loan is due
September 1, 2005 and is secured by a letter of credit issued under the loan and
security agreement with the Company's commercial lenders. The loan has a
variable interest rate, with the effective interest rate at August 31, 1996
being 3.95%.
In addition, since February 29, 1996, the Company has obtained an aggregate
of $16.9 million in term loans from a commercial lender and an insurance
company. The loans, which are secured by equipment, and real estate, have terms
ranging from five to seven years and variable interest rates based upon LIBOR
plus 160 basis points and 30-day commercial paper rates plus 190 and 235 basis
points for the equipment and real estate loans, respectively. The effective
rates at October 17, 1996 ranged from 7.14% to 7.28%.
The Company believes that its current financing arrangements are sufficient
to support its operations for the foreseeable future.
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company's current assets increased by $64.4 million from $80.6 million
at August 31, 1995 to $145.0 million at August 31, 1996. The increase resulted
primarily from increases in inventories of $38.0 million and accounts receivable
of $23.0 million. Receivables increased primarily due to increased sales levels
and acquisitions, and inventories increased primarily due to current and future
production requirements and acquisitions. At August 31, 1996, approximately
$23.4 million of the inventories and $9.5 million of the receivables were
attributable to the newly acquired Word and APP subsidiaries.
Property and equipment increased by $33.7 million to $60.1 million at
August 31, 1996 from $26.4 million at August 31, 1995. This increase resulted
primarily from the $12.3 million of property and equipment acquired in the
acquisition of APP, the $5.4 million of property and equipment acquired in the
22
<PAGE> 24
acquisition of Word, the purchase of two induction bending machines aggregating
$4.9 million, $4.8 million in fixed asset additions relating to the expansion of
the facilities for the Company's subsidiaries in Walker, Louisiana and
Venezuela, and transportation equipment of $3.7 million.
The Company's current liabilities increased $54.8 million from $40.6
million at August 31, 1995 to $95.4 million at August 31, 1996. The increase is
due primarily to increases of $35.3 million in the revolving line of credit and
$10.7 million in accounts payable. The increases in accounts payable and the
revolving line of credit were used to finance the Company's increase in accounts
receivable, inventories, fixed asset purchases and acquisitions.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In December 1990, Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Post-Retirement Benefits Other Than Pensions ("SFAS
106"), was issued and required to be adopted by the Company no later than fiscal
1994. The Company presently offers no post-retirement benefits which would be
required to be reflected in its financial statements by SFAS 106.
In November 1992, Statement of Financial Accounting Standards No. 112,
Employer's Accounting for Post-Employment Benefits ("SFAS 112"), was issued and
required to be adopted by the Company no later than fiscal 1995. The Company
presently offers no post-employment benefits which would be required to be
reflected in its financial statements by SFAS 112.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
be Disposed of", was issued and required to be adopted by the Company no later
than the fiscal year ending August 31, 1997. The adoption of this new standard
will not have a material impact on the Company's financial position or results
of operations.
In December 1995, Statement of Financial Accounting Standards No.
123 -- "Accounting for Stock-Based Compensation" ("SFAS 123") was issued which
establishes, among other things, financial accounting and reporting standards
for stock-based employee compensation plans. Entities may either adopt a "fair
value based method" of accounting for an employee stock option as defined by
SFAS 123 or may continue to use accounting methods as prescribed by APB Opinion
No. 25 -- "Accounting for Stock Issued to Employees". Entities electing to
remain with the accounting in APB Opinion No. 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS 123 had been applied. The Company expects
to continue following APB Opinion No. 25 and make appropriate disclosures in the
future in accordance with SFAS 123.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Prospectus, including the information incorporated by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including statements
regarding, among other items, (i) the Company's growth strategies, including its
intention to make acquisitions; (ii) anticipated trends in the Company's
business; and (iii) the Company's intention to enter into satisfactory contracts
with its customers, including Alliance Agreements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in this Prospectus, including,
but not limited to, (i) adverse economic conditions; (ii) the impact of
competitive products and pricing; (iii) product demand and acceptance risks;
(iv) the presence of competitors with greater financial resources; (v) costs and
financing difficulties; and (vi) delays or difficulties in the production,
delivery or installation of products, including a lengthy strike or other work
stoppage by the Company's union employees at any of the Company's facilities.
See "Risk Factors". In light of these risks and uncertainties, there can be no
assurance that actual results will be as projected in the forward-looking
statements.
23
<PAGE> 25
BUSINESS
COMPANY OVERVIEW
Shaw is a leading supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for customers
in the electric power, refining and chemical industries. Shaw is committed to
being the "total piping resource" for its customers by offering comprehensive
design and engineering services, piping system fabrication, manufacturing and
sale of specialty pipe fittings and design and fabrication of pipe support
systems.
The Company was founded in 1987 by current management and subsequently
purchased the assets of Benjamin F. Shaw Company, a century-old pipe fabricator.
The Company has increased its revenues from $29.3 million in fiscal 1988 to
$222.0 million in fiscal 1996, both increasing its domestic market share and
developing its international business. Through internal expansion and a series
of strategic acquisitions, the Company has increased its fabrication capacity,
increased its bending capabilities and broadened its piping system products and
services. These actions have provided the Company with the ability to achieve
substantial economies of scale in purchasing, manufacturing and transporting
fabricated products and the ability to provide customers with complete piping
systems.
The Company believes it has earned a reputation as an efficient, low-cost
supplier of complex piping systems as a result of several competitive
advantages. Specifically, the Company coordinates and integrates project
engineering and fabrication processes in order to maximize overall efficiency in
time, cost and performance. In addition, the Company's significant investment in
state-of-the-art induction bending equipment provides it with time, labor and
raw material savings as compared to traditional fabrication methods. Shaw also
manufactures specialty pipe fittings, pipe hangers and other pipe products. This
manufacturing capability has served to reduce the Company's supply costs and
enhance its overall piping package. The Company utilizes its proprietary
software technology to enhance the planning and scheduling efforts of its
customers, helping to reduce total installed costs and project cycle times.
As a result of its favorable cost structure, its extensive piping resources
and its ability to handle complex piping systems, Shaw has increased
substantially its market share in the worldwide pipe fabrication industry,
competing effectively on large scale piping projects worldwide. Beginning in
1991, the Company expanded its presence in international markets in anticipation
of the worldwide infrastructure build-up in the electric power, refining and
chemical industries. International revenues have increased from $4.5 million in
fiscal 1991 to $75.7 million in fiscal 1996. International projects represented
approximately 66% of backlog at August 31, 1996.
The Company estimated its backlog at approximately $154.0 million at August
31, 1996 compared to approximately $101.0 million and $75.0 million at August
31, 1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997. The
Company defines its backlog as a "working backlog", whereby only projects with a
written commitment are included.
BUSINESS STRATEGY
The Company is committed to strengthening its leadership position as a
"total piping resource" for the electric power, refining and chemical industries
worldwide by providing high-quality, competitively-priced piping systems within
significantly reduced project delivery times. The key components of Shaw's
business strategy include:
- Providing a comprehensive range of products and services that enhances
the Company's prefabricated piping systems, including initial design and
engineering services, customer interactive software, induction pipe
bending, manufactured pipe components and supports and final on-site
erection and testing.
- Pursuing strategic acquisitions that will complement and enhance Shaw's
existing operations by allowing the Company to further broaden its piping
products and services, selectively expand geographic manufacturing
capabilities and maintain its technological leadership position.
24
<PAGE> 26
- Investing in new equipment, technology and information systems designed
to increase the Company's manufacturing and fabrication capabilities and
capacity and improve overall project efficiency.
- Broadening its base of "alliance" customers through the negotiation of
"Alliance Agreements" that allow the Company to expedite individual
project contract negotiations. These Alliance Agreements are intended to
reduce total installed costs and project cycle times of prefabricated
piping systems for customers and enable the Company to forecast a larger
portion of its future revenue stream.
- Increasing the utilization of Shaw's unique design and engineering
resources as the first step in providing an integrated "turnkey" piping
systems approach.
The Company believes that by employing its business strategy it will be able to
further capitalize on the worldwide infrastructure build-up in the electric
power, refining and chemical industries and enhance its relationships with its
existing and potential domestic customers as they expand and retrofit existing
facilities. Shaw has facilities certified by the American Society of Mechanical
Engineers (ASME) for nuclear power piping and registered by the International
Organization of Standards (ISO 9001 and 9002), which registration is required to
perform certain international work.
INDUSTRY OVERVIEW
The industrial pipe fabrication industry provides piping systems for new
construction and retrofit projects in the electric power, refining, chemical and
other industries, including the gas processing, pulp and paper, pharmaceutical
and food processing industries. The Company estimates that prefabricated piping
systems account for approximately 3% of the total costs of a new construction
project and are crucial components of each project. The Company divides the
industry into two major segments, the electric power industry segment and the
process industry segment. The refining and chemical sectors represent the
largest portion of the process industry segment.
The domestic pipe fabrication industry depends largely on new construction
and retrofit projects in the chemical, refining, gas processing, pulp and paper,
pharmaceutical, food processing and other industries. These industries have
historically been cyclical in nature and vulnerable to general downturns in the
economy. The chemical sector began to experience an upturn in mid-1995 driven by
an increase in capital expenditures for capacity expansions and retrofits. This
resulted in a significant improvement in the domestic pricing environment during
fiscal 1996. Project activity in the chemical and refining sectors continues to
be robust and the Company anticipates that a significant portion of domestic
project work over the next several years will be generated by chemical plant
expansions and refinery retrofits relating to the modernization of aging
facilities and compliance with environmental regulations. Due to the minimal
demand for new electric power plant construction in the United States, the
electric power piping market in the United States consists almost exclusively of
retrofits.
In contrast to the domestic market, the international pipe fabrication
market has exhibited significant growth over the last several years, and
industry sources project this growth to continue. New construction represents
the majority of work performed in the electric power sector overseas. Strong
demand for electricity, particularly in underdeveloped and overpopulated areas
of the world, has resulted in a significant increase in new power plant
construction.
Generally, United States pipe fabricators can fabricate electric power
piping systems domestically and ship the finished goods to selected
international markets less expensively than their major overseas competitors,
due primarily to significantly lower labor costs than in certain other
industrialized countries (principally Germany and Japan), greater availability
of raw materials in the United States and a more favorable valuation of the
United States dollar relative to certain foreign currencies. Typically, the
Company's international competitors are divisions of large industrial firms.
Most international projects require a certain percentage of "local content"
sourcing. Therefore, non-critical, or low pressure piping for electric power
projects is frequently fabricated at the project site by local welders or in
local fabrication facilities. The same is true for the chemical and refining
sectors, which utilize less critical piping systems. In most areas of the
Pacific Rim and South America, this work is performed at
25
<PAGE> 27
significantly lower labor costs. In order to bid more competitively for the
process and low pressure piping portion of an overseas project, Shaw has
established overseas facilities and has developed for delivery in January 1997 a
portable induction bending machine that can be used on international job
construction sites.
PRODUCTS AND SERVICES
As part of its commitment to being a "total piping resource" for its
customers, the Company provides a complete range of piping products and
services, including pipe fabrication, bending, engineering and design and pipe
fittings manufacturing.
Pipe Fabrication
Shaw's core business is the fabrication of complex piping systems from raw
material made of carbon steel, stainless and other alloys, as well as other
materials, including nickel, titanium and aluminum. The Company produces
prefabricated piping systems by cutting pipe to length, welding fittings on the
pipe and bending the pipe, each to precise customer specifications. Shaw owns
and operates six fabrication facilities in South Carolina, Louisiana, Oklahoma
and Venezuela as well as a 49% interest in a joint venture fabrication facility
in Bahrain. These seven fabrication facilities are capable of handling and
fabricating pipe ranging in diameter from one inch to 72 inches, with overall
wall thicknesses from 1/8 inch to 7 inches. Prefabricated pipe assemblies up to
100 feet in length and weighing up to 45 tons can be processed by the Company.
The Company's products must meet rigid quality control standards. In
addition to visual inspection, the Company uses radiography, hydro testing, dye
penetration and ultrasonic flaw detection to confirm that its products meet
specifications. A significant portion of Shaw's work is the fabrication of
"critical piping systems" for use in high pressure, high temperature or
corrosive applications, including systems designed to withstand pressures of up
to 2,700 pounds per square inch and temperatures of up to 1,020 degrees
Fahrenheit.
Bending
Beginning in fiscal 1994, the Company began purchasing state-of-the-art
induction bending equipment, which significantly increased the Company's
capacity to fabricate piping systems, in both volume and complexity. In
addition, on certain projects Shaw can substitute bends for the cutting of pipe
and welding fittings, resulting in labor, time and raw material savings.
Although the Company has historically been capable of bending pipe using
traditional methods, such bending capabilities were limited with respect to pipe
composition, diameter, wall thickness and bend characteristics. As a result, the
Company generally was required to subcontract for more complex bends,
particularly for pipes with large diameters and wall thicknesses.
The market for pipe fabrication is increasingly moving in the direction of
custom pipe bending according to the specifications of customers, since bending
generally allows for significant reductions in labor, time and materials costs
as compared to traditional means of fabrication. The Company believes its
state-of-the-art equipment makes it a market leader in this growing segment of
the market.
26
<PAGE> 28
The Company currently owns four induction pipe bending machines and has
another machine on order. The Company believes its Cojafex model PB Special 16,
currently on order and expected to be delivered in January 1997, will be the
only portable machine of its class in existence and will allow the Company to
perform multi-directional pipe bends at project sites around the world. The
following table shows the locations and technical capabilities of the Company's
pipe bending machines.
<TABLE>
<CAPTION>
PIPE BENDING CAPABILITIES
-----------------------------------
MAXIMUM PIPE MAXIMUM PIPE
MODEL LOCATION DIAMETER WALL THICKNESS
- ----------------------------- ------------------------------ ------------ --------------
<S> <C> <C> <C>
Cojafex PB Special 16 Walker, Louisiana 16 inches 2.5 inches
Cojafex PB Special 16 Laurens, South Carolina 16 inches 2.5 inches
Cojafex PB Special 16 Tulsa, Oklahoma 16 inches 2.5 inches
Cojafex PB Special 16 Portable(1) 16 inches 2.5 inches
Cojafex PB-1200 Walker, Louisiana 48 inches 4.0 inches
</TABLE>
- ---------------
(1) Expected delivery in January 1997.
In addition to the induction bending machines in the above table, the
Company will acquire three additional machines in the proposed acquisition of
NAPTech. Specifically, NAPTech's Clearfield, Utah facility has the following
machines: a Cojafex model PB-1600, which is capable of bending pipe with
diameters of up to 66 inches and wall thicknesses of up to 5 inches, a Cojafex
model PB-850, which is capable of bending pipe with diameters of up to 34 inches
and wall thicknesses of up to 3 inches; and a Cojafex model PB Special 12, which
is capable of bending pipe with diameters of up to 12 inches and wall
thicknesses of up to 3/4 of an inch. The acquisition of NAPTech is subject to
various conditions, including the approval of Shaw's Board of Directors and
NAPTech's shareholders, as well as necessary regulatory approvals. Although
there can be no assurance that the acquisition of NAPTech will close, the
Company currently anticipates that the acquisition will be consummated on or
before December 15, 1996.
Engineering and Design
In 1994, as an integral part of its strategy of becoming a "total piping
resource", the Company integrated engineering and design capabilities into its
business for complex piping systems for electric power projects, mainly for the
Company's customers outside the United States. Shaw also designs and engineers
pipe hanger and support systems and specializes in engineering analyses of
complex piping systems and related services, primarily for the electric power
industry. These engineering, design and pipe support capabilities complement the
Company's fabrication business, particularly for electric power projects,
enabling the Company to provide more comprehensive piping packages with reduced
overall lead times and lower total installed costs.
The Company utilizes sophisticated plant design software to create virtual
three-dimensional piping system models. The result is a clear, understandable
picture of the complete project which allows clients to "walk through" the
three-dimensional model for an accurate design review. The Company currently
operates 28 workstations utilizing the plant design software at its offices in
Englewood, New Jersey and Toronto, Canada.
The Company's engineering capabilities are directly linked to the Company's
fabrication shops and the Company's proprietary computer aided design system,
SHAW-DRAW(TM). SHAW-DRAW(TM) converts customer design drawings to the Company's
detailed production drawings in seconds, significantly reducing the lead time
required before fabrication can begin and substantially eliminating detailing
errors. The Company has also implemented SHAW-MAN(TM), which efficiently manages
and controls the movement of all required materials into and through each stage
of the fabrication process utilizing bar code technology. These proprietary
programs enhance the planning and scheduling efforts for Shaw's customers,
helping to reduce total installed costs and project cycle times.
27
<PAGE> 29
Pipe Fittings Manufacturing
Shaw's manufacturing capabilities extend to specialty stainless, alloy and
carbon steel pipe fittings for the electric power, refining, chemical and other
industries, including the gas processing, pulp and paper, pharmaceutical and
food processing industries. These fittings include stainless and other alloy
elbows, tees, reducers and stub ends ranging in wall thicknesses from 1/2 to 12
inches and heavy wall carbon and chrome elbows, tees, caps and reducers with
wall thicknesses of up to 3 1/2 inches. In addition to its manufacturing
facility in Shreveport, Louisiana, Shaw has manufacturing outlets in New Jersey,
North Carolina, Georgia, Louisiana, Texas, Oklahoma and Arizona, which also
distribute pipe and fittings manufactured by third parties. Shaw's in-house
manufacturing capabilities for pipe fittings further enhance the Company's
piping package, enable the Company to realize greater efficiencies in the
purchase of raw materials, help reduce overall lead times and lower total
installed costs, and are additional steps in the integration of the Company's
"total piping resource" strategy.
MARKETS
The Company's principal markets are new construction and retrofits in the
electric power, refining and chemical industries, both in the United States and
internationally. The Company also historically has supplied piping systems to
the gas processing, pulp and paper, pharmaceutical and manufacturing industries.
The following table sets forth the Company's sales by industry for the two
fiscal years ended August 31, 1995 (in millions):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
-------------------
INDUSTRY SECTOR 1995 1996
---------------------------------------------------------------- ------ ------
<S> <C> <C>
Electric Power.................................................. $ 59.2 $ 86.7
Refining........................................................ 39.2 62.4
Chemical........................................................ 33.5 62.1
Other........................................................... 3.4 10.8
------ ------
$135.3 $222.0
====== ======
</TABLE>
The Company's sales for the two fiscal years ended August 31, 1996 by
geographic region were (in millions):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
-------------------
GEOGRAPHIC REGION 1995 1996
---------------------------------------------------------------- ------ ------
<S> <C> <C>
United States................................................... $ 86.2 $146.3
Far East/Pacific Rim............................................ 24.3 39.6
Middle East..................................................... 4.2 21.4
Latin America................................................... 20.5 2.6
Europe.......................................................... -- 9.0
Other........................................................... 0.1 3.1
------ ------
$135.3 $222.0
====== ======
</TABLE>
Prior to February 1994, the Company's international business was conducted
exclusively from its plants in the United States. The Company believes that
having fabrication facilities in certain key international locations will assist
it in securing additional overseas work, specifically for chemical and refining
projects, where the piping is generally fabricated at the project site or in a
regional shop by local welders. The Company currently has a wholly owned
subsidiary operating in Venezuela and a joint venture facility operating in
Bahrain.
Demand for the Company's products and services in Venezuela was low during
the fiscal year ended August 31, 1996. Although the Company is encouraged by
recent improvements in economic conditions in Venezuela, there can be no
assurance that the Venezuelan operations will be profitable.
28
<PAGE> 30
In November 1993, the Company also entered into a joint venture agreement
to construct and operate a fabrication facility in Bahrain. The Company's joint
venture partner is Abdulla Ahmed Nass, a leading Bahrain industrialist. The
Bahrainian joint venture facility is one of the first modern pipe fabrication
facilities in the Middle East and has received the Gulf States Certification
from the Gulf Cooperation Council. The Gulf States Certification enables the
venture to export products to other Arab countries without payment of additional
tariffs. For fiscal 1996, the joint venture had sales of $11.5 million and the
Company's share of the joint venture's net earnings was approximately $100,000.
In the future, the Company's use of joint venture relationships for foreign
operations will be determined on a case-by-case basis depending on market,
operational, legal and other relevant factors.
CONTRACTS AND PRICING
The Company obtains orders through competitive bidding, negotiated
contracts and awards under Alliance Agreements. The awarding of contracts is
frequently not based exclusively on price but on the Company's reputation and
ability to meet project deadlines.
The Company's contracts are priced on either a "unit" or a "fixed" or
"lump-sum" price basis. The majority of the Company's contracts are bid on a
"unit" basis, pursuant to which the customer pays an agreed-upon rate for each
individual service provided, such as a weld, radiograph inspection, bend or
engineering revision, or the amount of inventory items used. Raw materials
generally are billed to customers at published prices in effect at the date of
the contract, and the Company generally obtains fixed pricing commitments from
its suppliers at such time for most of the items necessary to complete the
project. The Company thereby minimizes the risk of raw material price increases
that may occur during the fabrication process.
Substantially all of the Company's international projects are quoted on a
"fixed" or "lump-sum" price basis. Increasingly, this type of contract is being
requested by the Company's customers, particularly for international electric
power projects. The Company generally does not quote the actual contract price
until it has secured a fixed pricing commitment from its suppliers for most of
the items necessary to complete the project, thereby minimizing any risk of
price increases between the contract date and the time the project is completed.
The Company also obtains work under Alliance Agreements, which are
agreements that the Company enters into with its customers in order to expedite
individual project contract negotiations through means other than the formal
bidding process. These agreements are typically implemented by establishing a
joint steering committee to provide guidance and direction on alliance issues.
Normally this committee meets on a periodic basis to monitor alliance progress
and assign resources to effect continuous improvements in the various work
processes associated with project execution.
Alliance Agreements allow the customer to achieve greater cost efficiency
and reduced cycle times in the design and fabrication of complex piping systems
for electric power, chemical and refinery projects. In addition, the Company
believes that these agreements will provide Shaw with a steady source of new
projects and help minimize the impact of short-term pricing volatility.
BACKLOG
Shaw generally bids for projects that require delivery of piping systems
over a period of three to eighteen months. The Company defines its backlog as a
"working backlog", whereby only projects with a written commitment are included.
Typically, electric power projects remain in the Company's backlog for at least
nine months, depending on the size of the project or whether the Company is
doing the design and engineering as well as the fabrication for a given project.
Refining and chemical projects remain in the Company's backlog three to six
months on average.
On occasion, customers will cancel or delay projects for reasons out of the
Company's control. Projects will remain in the Company's backlog for longer
periods if delays occur. Historically, on average less than one percent of
booked projects have been canceled from the Company's backlog or delayed for an
extended period
29
<PAGE> 31
of time. This low cancellation rate is due to the fact that piping systems are
one of the final steps in the construction of a project and are essential to the
construction of these systems as a whole.
The Company estimated its backlog at approximately $150.0 million at August
31, 1996, not including approximately $3.0 million in joint-venture backlog.
This compares to approximately $101.0 million and $75.0 million at August 31,
1995 and 1994, respectively. The Company estimates that $141.8 million, or
92.1%, of its backlog at August 31, 1996 will be completed in fiscal 1997.
The following table breaks out the percentage of backlog by industry sector
and geographic region for the periods indicated:
<TABLE>
<CAPTION>
AT AUGUST 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
INDUSTRY SECTOR:
Electric Power................................................ 47% 51% 57%
Chemical...................................................... 14 20 32
Refining...................................................... 38 28 10
Other......................................................... 1 1 1
--- ---- ----
100% 100% 100%
GEOGRAPHIC REGION:
Domestic...................................................... * 56% 34%
International................................................. * 44 66
---- ----
100% 100%
</TABLE>
- ---------------
* Backlog by geographic location is not available for fiscal year 1994.
CUSTOMERS AND MARKETING
The Company's customers are principally major multi-national engineering
and construction firms, equipment manufacturers and industrial corporations. For
fiscal 1996, Mitsubishi Heavy Industries Ltd. accounted for 12.3% of the
Company's sales. No other customers represented more than 10% of the Company's
sales for fiscal 1996.
The Company's marketing is principally conducted through its own sales
force, comprised of eleven employees. In addition, certain customers and
territories are covered by independent representatives. The Company's sales
force is paid a base salary plus an annual bonus, while independent
representatives receive commissions.
RAW MATERIALS AND SUPPLIERS
The Company's principal raw materials are carbon steel, stainless and other
alloy piping, which it obtains from a number of domestic and foreign primary
steel producers. The Company believes that it is not generally dependent upon
any one of its suppliers for raw materials, that the market is extremely
competitive and that its relationship with its suppliers is good. Certain types
of raw materials, however, are available from only one or a few specialized
suppliers, and although the Company has not experienced any significant sourcing
problems to date, there can be no assurance that sourcing problems will not
occur in the future. Shaw purchases a majority of its piping directly from
manufacturers. This eliminates the need for a distributor and results in lower
costs to the Company. Because of the volume of these materials purchased, the
Company is often able to negotiate advantageous purchase prices for steel
piping. Certain items are kept in stock at each of the Company's facilities and
are transported between facilities as required. The Company obtains more
specialized materials from suppliers when required for a project. To date, the
Company has not experienced any significant shortages or delays in obtaining raw
materials.
In recent months, the prices for carbon steel have increased. At the time
of obtaining a contract, the Company generally obtains fixed pricing commitments
from its suppliers for most of the items necessary to
30
<PAGE> 32
complete the project, thereby minimizing any risk of price increases that may
occur during the fabrication process. See "Business -- Contracts and Pricing".
INDUSTRY CERTIFICATION
In order to perform fabrication and repairs of coded piping systems, the
Company's domestic fabrication facilities have obtained the required American
Society of Mechanical Engineers (ASME) stamp, and its Laurens, South Carolina
and Walker, Louisiana facilities have obtained the National Board stamp. In
addition, the Laurens, South Carolina facility is licensed to fabricate piping
for nuclear power plants and is registered by the International Organization of
Standards (ISO 9002), which is required to perform certain international work.
The Company's engineering subsidiary is also registered by the International
Organization of Standards (ISO 9001), as is its pipe support fabrication
facility (ISO 9002).
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any patents, registered trademarks or licenses.
However, the Company considers its design and project control systems,
SHAW-DRAW(TM) and SHAW-MAN(TM), to be proprietary information of the Company.
COMPETITION
The Company experiences significant competition from a limited number of
competitors in both international and domestic markets. In the United States,
there are a number of smaller pipe fabricators. Internationally, the principal
competitors are divisions of large industrial firms. See "Risk Factors --
Competition".
Orders are obtained by the Company through competitive bidding, negotiated
contracts and awards under Alliance Agreements. In a competitive bid, the
awarding of contracts is frequently not based solely on price but also on the
Company's reputation and ability to meet project deadlines.
EMPLOYEES
At October 1, 1996, the Company employed 1,964 full-time employees, 846 of
whom are represented by the Union and 130 of whom worked in the Company's wholly
owned subsidiary in Venezuela. In January 1993, the Company settled a dispute
with the Union pursuant to which Shaw agreed to allow the Union to solicit
membership at all of its non-union pipe fabricating facilities in the United
States. To date, employees at four of the five United States pipe fabrication
facilities of the Company have approved a Union contract.
The Company believes that the current relationship with its employees and
the Union is generally good. The Company is not aware of any circumstances that
are likely to result in a work stoppage at any of its facilities, although the
collective bargaining agreement with the Union for the Laurens, South Carolina
facility expires on November 30, 1996, and the collective bargaining agreement
with the Union for the Walker, Louisiana and Prairieville, Louisiana facilities
expires on December 31, 1996.
ENVIRONMENTAL
The Company is subject to environmental laws and regulations, including
those concerning emissions into the air, discharges into waterways, generation,
storage, handling, treatment and disposal of waste materials and health and
safety. These laws and regulations generally impose limitations and standards
for certain pollutants or waste materials to obtain a permit and comply with
various other requirements. In addition, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA") and
comparable state laws, the Company may be required to investigate and remediate
hazardous substances. CERCLA and these comparable state laws typically impose
liability without regard to whether a company knew of or caused the release, and
liability has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis of allocation. The Company has not
been notified
31
<PAGE> 33
that it is a potentially responsible party under CERCLA or any comparable state
law at any site. The Company's foreign operations are also subject to various
requirements governing environmental protection.
The environmental, health and safety laws and regulations to which the
Company is subject are constantly changing, and it is impossible to predict the
effect of such laws and regulations on the Company in the future. The Company
believes that it is in substantial compliance with all applicable environmental,
health and safety laws and regulations. However, with respect to environmental
matters, the Company has not conducted environmental audits of all of its
properties. To date, the Company's costs with respect to environmental
compliance have not been material, and the Company does not anticipate any
material environmental liability.
PROPERTIES
The principal properties of the Company are as follows:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION SQUARE FEET
- --------------------- ------------------------------------ -----------
<S> <C> <C>
Baton Rouge, LA Corporate Headquarters 20,000(1)
Laurens, SC Fabrication Facility 200,000
Prairieville, LA Fabrication Facility 60,000(1)
West Monroe, LA Fabrication Facility 70,000
Walker, LA Fabrication Facility 154,000
Maracaibo, Venezuela Fabrication Facility 45,000
Tulsa, OK Fabrication Facility 158,600
Baton Rouge, LA Distribution Facility 30,000(1)
Englewood, NJ Design and Engineering Headquarters 14,000(1)
Toronto, Canada Design and Engineering Office 5,750(1)
Longview, TX Pipe Support Fabrication Facility 28,000
Shreveport, LA Manufacturing Facility 385,000
Shreveport, LA Pipe Storage Facility 40,000
</TABLE>
- ---------------
(1) Leased facility.
In addition to the above properties, the Company will obtain a 335,000
square foot fabrication facility located in Clearfield, Utah, upon successful
completion of the proposed acquisition of NAPTech.
The Bahrain joint venture leases a 94,000 square foot facility in Manama,
Bahrain.
The Company considers each of its current facilities to be in good
operating condition and adequate for its present use.
32
<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information with respect to the directors and
executive officers of the Company. With the exception of R. Dale Brown, Sr.,
each director has been elected by a vote at the annual meeting of the
shareholders and serves for a term of one year. In connection with the
acquisition of APP, the Company's Board of Directors, pursuant to the Restated
of Articles of Incorporation and Restated Bylaws of the Company, elected Mr.
Brown to fill a newly-created Board position. Each executive officer has been
elected to serve until his successor is duly appointed or elected by the Board
of Directors or his earlier removal or resignation from office.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
J. M. Bernhard, Jr............ 42 President, Chief Executive Officer and Director
Bret M. Talbot................ 36 Chief Financial Officer, Treasurer and Director
George R. Shepherd............ 58 Chief Operating Officer and Director
R. Dale Brown, Sr. ........... 62 Chairman of Alloy Piping Products, Inc.* and Director
Frank Fronek.................. 48 President of Fronek Company, Inc.* and F.C.I. Pipe
Support Sales, Inc.* and Director
L. Lane Grigsby............... 55 Director
David W. Hoyle................ 57 Director
Albert McAlister.............. 45 Director
John W. Sinders, Jr........... 42 Director
A. W. Angelo.................. 63 Executive Vice President
John W. Dalton, Sr. .......... 46 Executive Vice President
G. Ray Wilkie, Jr............. 51 Executive Vice President
Michael H. Wootton............ 50 President of Shaw International, Inc.*
</TABLE>
- ---------------
* Wholly owned subsidiaries of the Company.
J. M. BERNHARD, JR., founder of the Company, has been President and Chief
Executive Officer of the Company since its inception in September 1987. He has
also been a director of the Company since its inception. Mr. Bernhard has been
Chairman of the Board since August 1990. Mr. Bernhard has spent the last 20
years in the pipe fabrication business. Immediately prior to his position with
the Company, Mr. Bernhard was Vice President and General Manager of Sunland
Services and served on the Board of Directors of Barnard and Burk Engineers &
Constructors.
BRET M. TALBOT has been Chief Financial Officer and Treasurer of the
Company since February 1989. Mr. Talbot has been a director of the Company since
January 1993. He also served as Secretary for the Company from February 1989
until March 1994. Prior to his position with the Company, Mr. Talbot was Audit
Manager for Hannis T. Bourgeois & Co., LLP.
GEORGE R. SHEPHERD joined the Company in August 1993 as Vice President and
has been its Chief Operating Officer since 1993. Mr. Shepherd has been a
director of the Company since 1994. Prior to joining the Company, Mr. Shepherd
served as President of International Piping Systems, Inc. from March 1984 to
July 1993. He has spent the last 39 years in the pipe fabrication business.
R. DALE BROWN, SR. has served the Company as Chairman of APP since April
1996, when such business was acquired by the Company. Prior to joining the
Company, Mr. Brown was the owner and Chairman of APP, which he founded in 1972.
Mr. Brown has been a director of the Company since March 1996. He has 42 years
of experience in the manufacture and distribution of specialty pipe fittings.
FRANK FRONEK has served the Company as the President of Fronek Company,
Inc. and F.C.I. Pipe Support Sales, Inc. since April 1994, when such businesses
were acquired by the Company. Prior to joining the Company, Mr. Fronek was the
owner and President of such businesses, which he founded in 1980 and
33
<PAGE> 35
1986, respectively. Mr. Fronek has been a director of the Company since 1994. He
has 26 years of experience in the engineering and design of piping systems and
piping support systems.
L. LANE GRIGSBY has served as a director of the Company since January 1995
and a member of its Compensation Committee since March 1995. Mr. Grigsby is also
the Chairman of the Board of Cajun Contractors, Inc., for which he served as
President and Chief Executive Officer from April 1973 to June 1994. He has 29
years of experience in the industrial construction industry. He also serves as a
director for several industry and charitable organizations, including the
Associated Builders and Contractors and the Louisiana Association of Business
and Industry, for which he serves as Chairman.
DAVID W. HOYLE has served as a director of the Company since January 1995
and a member of its Compensation Committee since March 1995. For the past ten
years, he has been self-employed primarily as a real estate developer and has
been a member of the Senate Chamber of the North Carolina General Assembly since
1992. Senator Hoyle serves as a director of several private corporations, as
well as several civic, educational and charitable organizations.
ALBERT MCALISTER has been a director of the Company since April 1990 and
has served on the Company's Audit Committee since November 1993. He also served
on the Company's Compensation Committee from November 1993 to March 1995. Since
1975, Mr. McAlister has been a partner in the law firm of McAlister & McAlister,
P.A., in Laurens, South Carolina. He also served as Chairman of the Democratic
Party in South Carolina from 1990 until 1994.
JOHN W. SINDERS, JR. has served as a director of the Company and a member
of its Audit Committee since March 1995. He has served as a managing director of
Jefferies & Company, Inc. since 1993. From 1987 to 1993, Mr. Sinders served as a
managing director of Howard, Weil, Labouisse, Friedrichs Incorporated and a
member of the Board of Directors of Howard Weil from 1990 to 1993. Prior to
joining Howard Weil, he was a director with the law firm of McGlinchey,
Stafford, Mintz, Cellini & Lang, P.C.
A. W. ANGELO joined the Company in September 1987 and has been Executive
Vice President of the Company since September 1990. Mr. Angelo served as a
director of the Company from August 1990 to March 1995. Mr. Angelo served as
President of Lone Star Fabricators, Inc., a wholly owned subsidiary of the
Company located in Texas City, Texas, which was closed in August 1994, from
March 1990 until July 1993. Mr. Angelo has spent the last 41 years in the pipe
fabrication business.
JOHN W. DALTON, SR. has been Executive Vice President of the Company since
April 1995. Prior to joining the Company, he was employed by the Bechtel Group
in various positions for 19 years, most recently as Manager of Business
Development. His experience includes, among other things, positions in
construction, manufacturing, project management, procurement and contracts, as
well as managerial and financial functions.
G. RAY WILKIE, JR. joined the Company in March 1988 and served as Vice
President of B. F. Shaw, Inc., a wholly-owned subsidiary of the Company, from
September 1990 until May 1993 and President of B. F. Shaw, Inc. from May 1993
until November 1995, when he was appointed Executive Vice President of the
Company. Mr. Wilkie also served as a director of the Company from January 1993
to March 1995. Mr. Wilkie has spent the last 30 years in the pipe fabrication
business.
MICHAEL H. WOOTTON has been employed by the Company since October 1991 and
has been President of Shaw International, Inc. since April 1993. Prior to his
employment with the Company, Mr. Wootton was President of Connex Piping Systems.
Mr. Wootton has spent the last 28 years in the pipe fabrication business.
34
<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock at October 31, 1996 (except as otherwise noted) with respect
to (i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each named executive officer, director
and nominee for director of the Company, (iii) all executive officers and
directors as a group, and (iv) certain other selling shareholders of the
Company. Each of the following shareholders has sole voting and investment power
with respect to shares beneficially owned by such shareholder, except to the
extent that authority is shared by spouses under applicable law or as otherwise
noted. The Common Stock constitutes the only class of equity securities of the
Company which is outstanding.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
----------------------- -----------------------
BENEFICIAL OWNERSHIP SHARES TO BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER SHARES PERCENT BE SOLD SHARES PERCENT
- -------------------------------------- ---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
J. M. Bernhard, Jr.................... 1,708,146 17.9% 300,000 1,408,146 12.2%
11100 Mead Road
Baton Rouge, Louisiana 70816
R. Dale Brown, Sr..................... 394,118 4.1 94,118 300,000 2.6
G. Ray Wilkie, Jr.(1)................. 318,238 3.3 -- 318,238 2.8
A. W. Angelo.......................... 282,757 3.0 -- 282,757 2.5
Bret M. Talbot(2)..................... 148,002 1.6 -- 148,002 1.3
Frank Fronek(3)....................... 80,000 * -- 80,000 *
Albert McAlister...................... 69,042 * -- 69,042 *
George R. Shepherd(4)................. 10,400 * -- 10,400 *
David W. Hoyle(5)..................... 10,000 * -- 10,000 *
John W. Sinders, Jr................... 9,500 * -- 9,500 *
John W. Dalton, Sr.................... 4,450 * -- 4,450 *
L. Lane Grigsby....................... 3,850 * -- 3,850 *
Michael H. Wootton.................... -- -- -- -- --
All executive officers and directors
as a group (13 persons)(6).......... 3,038,503 31.8 394,118 2,644,385 22.9
Ronald D. Brown, Jr................... 147,059 1.5 100,000 47,059 *
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 7,500 shares of which Mr. Wilkie may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(2) Includes 8,750 shares of which Mr. Talbot may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(3) Includes 12,500 shares owned of record by Mr. Fronek's spouse and 5,000
shares of which Mr. Fronek may be deemed to be the beneficial owner as a
result of rights that Mr. Fronek may exercise to acquire beneficial
ownership within 60 days.
(4) Includes 8,750 shares of which Mr. Shepherd may be deemed to be beneficial
owner as a result of rights that he may exercise to acquire beneficial
ownership within 60 days.
(5) Includes 2,000 shares owned of record by Mr. Hoyle's spouse.
(6) Includes 14,500 shares owned of record by the spouses of executive officers
and directors and 30,000 shares of which executive officers and directors
may be deemed to be the beneficial owners as a result of rights they may
exercise to acquire beneficial ownership within 60 days.
The Company will pay the expenses of registering the shares of Common Stock
to be offered by the Selling Shareholders under the Securities Act, including
the registration and filing fees, printing expenses and the fees and
disbursements of counsel and accountants for the Company.
35
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, no par value; and 5,000,000 shares of Preferred Stock, no par
value. The following summary of certain provisions of the Company's capital
stock describes all material provisions of, but does not purport to be complete
and is subject to and is qualified in its entirety by, the Restated Articles of
Incorporation and the Amended and Restated By-Laws of the Company that are
incorporated herein by reference as exhibits to the Registration Statement of
which this Prospectus forms a part and by the provisions of applicable law.
COMMON STOCK
At August 31, 1996, there were 9,523,303 shares of Common Stock
outstanding. In addition, at August 31, 1996, 804,875 shares of Common Stock are
reserved for issuance pursuant to the Company's 1993 Employee Stock Option Plan
and 50,000 shares of Common Stock are reserved under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Plan"). The Director Plan
and awards made thereunder are subject to approval at the Company's 1997 Annual
Meeting of Shareholders. Cumulative voting is prohibited in the election of
directors. The holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets available for
distribution after payment of all liabilities, and subject to any prior rights
of any holders of preferred stock that at the time may be outstanding. The
Common Stock is not redeemable, does not have any conversion rights and is not
subject to call. Holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage of ownership in future offerings or sales
of stock by the Company. The shares of Common Stock presently outstanding are
fully paid and non-assessable. The Company delisted the Common Stock from the
Nasdaq National Market on October 17, 1996, and the Common Stock commenced
trading on the NYSE under the symbol "SGR" on October 18, 1996.
Each outstanding share of Common Stock will entitle the holder thereof to
five votes on each matter properly submitted to the shareholders of the Company
for their vote, waiver, release or other action; except that no holder of
outstanding shares of Common Stock will be entitled to exercise more than one
vote on any such matter in respect of any share of Common Stock with respect to
which there has been a change in beneficial ownership during the four years
immediately preceding the date on which a determination is made of the
shareholders of the Company who are entitled to vote or to take any other
action. A change in beneficial ownership of an outstanding share of Common Stock
will be deemed to have occurred whenever a change occurs in any person or
persons who, directly or indirectly, through any contract, agreement,
arrangement, understanding, relationship or otherwise has or shares any of the
following:
(a) voting power, which includes, without limitation, the right to
vote or the power to direct the voting power of such share of Common Stock;
(b) investment power, which includes, without limitation, the power to
direct the sale or other disposition of such share of Common Stock;
(c) the right to receive or to retain the proceeds of any sale or
other disposition of such share of Common Stock; or
(d) the right to receive or to retain any distributions, including,
without limitation, cash dividends, in respect of such share of Common
Stock.
Without limiting the generality of the foregoing, the following events or
conditions will be deemed to involve a change in beneficial ownership of a share
of Common Stock:
(a) in the absence of proof to the contrary provided in accordance
with certain procedures set forth below, a change in beneficial ownership
will be deemed to have occurred (i) whenever an outstanding share of Common
Stock is transferred of record into the name of any other person, and (ii)
upon the issuance of shares in a public offering;
36
<PAGE> 38
(b) in the case of an outstanding share of Common Stock held of record
in the name of a corporation, general partnership, limited partnership,
voting trustee, bank, trust company, broker, nominee or clearing agency, if
it has not been established pursuant to the procedures set forth below that
there has been no change in the person or persons who or that direct the
exercise of the rights referred to in (a) through (d), inclusive, above
with respect to such outstanding share of Common Stock during the four
years immediately preceding the date on which a determination is made of
the shareholders of the Company entitled to vote or to take any other
action, then a change in beneficial ownership of such share of Common Stock
shall be deemed to have occurred during such period;
(c) in the case of an outstanding share of Common Stock held of record
in the name of any person as a trustee, agent, guardian or custodian under
the Uniform Gifts to Minors Act as in effect in any jurisdiction, a change
in beneficial ownership will be deemed to have occurred whenever there is a
change in the beneficiary of such trust, the principal of such agent, the
ward of such guardian, the minor for whom such custodian is acting or a
change in such trustee, agent, guardian or custodian; or
(d) in the case of outstanding shares of Common Stock beneficially
owned by a person or group of persons, who, after acquiring, directly or
indirectly, the beneficial ownership of 5% of the outstanding shares of
Common Stock, fails to notify the Company of such ownership within ten days
after such acquisition, a change in beneficial ownership of such shares of
Common Stock will be deemed to occur on each day while such failure
continues.
Notwithstanding any other provisions in the Company's Restated Articles of
Incorporation to the contrary, no change in beneficial ownership of an
outstanding share of Common Stock shall be deemed to have occurred solely as a
result of:
(a) any transfer of any interest in an outstanding share of Common
Stock pursuant to a bequest or inheritance, by operation of law upon the
death of any individual or by any other transfer without valuable
consideration, including, without limitation, a gift that is made in good
faith and not for the purpose of circumventing the provisions of the
Company's Restated Articles of Incorporation;
(b) any changes in beneficiary of any trust, or any distribution of an
outstanding share of Common Stock from trust, by reason of the birth,
death, marriage or divorce of any natural person; the adoption of any
natural person prior to age 18; or the passage of a given period of time or
the attainment by any natural person of a specific age; or the creation or
termination of any guardianship or custodial arrangement;
(c) any appointment of a successor trustee, agent, guardian or
custodian with respect to an outstanding share of Common Stock if neither
such successor has nor its predecessor had the power to vote or to dispose
of such share of Common Stock without further instructions from others;
(d) any change in the person to whom dividends or other distributions
in respect of an outstanding share of Common Stock are to be paid pursuant
to the issuance or modification of a revocable dividend payment order;
(e) any issuance of a share of Common Stock by the Company or any
transfer by the Company of a share of Common Stock held in treasury other
than in a public offering thereto, unless otherwise determined by the Board
of Directors at the time of authorizing such issuance or transfer;
(f) any giving of a proxy in connection with a solicitation of proxies
subject to the provisions of Section 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder promulgated;
(g) any transfer, whether or not with consideration, among individuals
related or formerly related by blood, marriage or adoption ("relatives") or
between a relative and any person controlled by one or more relatives where
the principal purpose for the transfer is to further the estate tax
planning objectives of the transferor or of relatives of the transferor;
37
<PAGE> 39
(h) any appointment of a successor trustee as a result of the death of
the predecessor trustee (which predecessor trustee shall have been a
natural person);
(i) any appointment of a successor trustee who or which was
specifically named in a trust instrument prior to the effective date of
this Offering; or
(j) any appointment of a successor trustee as a result of the
resignation, removal or failure to qualify of a predecessor trustee or as a
result of mandatory retirement pursuant to the express terms of a trust
instrument; provided, that less than 50% of the trustees administering any
single trust will have changed (including in such percentage the
appointment of the successor trustee) during the four-year period preceding
the appointment of such successor trustee.
All determinations concerning changes in beneficial ownership, or the
absence of any such change, are made by the Board of Directors of the Company
or, at any time when the Company employs a transfer agent with respect to the
shares of Common Stock, at the Company's request, by such transfer agent on the
Company's behalf. Written procedures designated to facilitate such
determinations are to be established and may be amended, from time to time, by
the Board of Directors. Such procedures will provide, among other things, the
manner of proof of facts that will be accepted and the frequency with which such
proof may be required to be renewed. The Company and any transfer agent will be
entitled to rely on any and all information concerning beneficial ownership of
the outstanding shares of Common Stock coming to their attention from any source
and in any manner reasonably deemed by them to be reliable, but neither the
Company nor any transfer agent shall be charged with any other knowledge
concerning the beneficial ownership of outstanding shares of Common Stock.
In the event of any stock split or stock dividend with respect to the
outstanding shares of Common Stock, each share of Common Stock acquired by
reason of such split or dividend will be deemed to have been beneficially owned
by the same person from the same date as that on which beneficial ownership of
the outstanding share or shares of Common Stock, with respect to which such
share of Common Stock was distributed, was acquired.
Each outstanding share of Common Stock, whether at any particular time the
holder thereof is entitled to exercise five votes or one vote, shall be
identical to all other shares of Common Stock in all respects, and together the
outstanding shares of Common Stock will constitute a single class of shares of
the Company.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of
5,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers, designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights, dividend rate, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the shareholders of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of Common Stock. For example, issuance of Preferred Stock
could result in a series of securities outstanding that would have preferences
over the Common Stock with respect to dividends and in liquidation and that
could (upon conversion or otherwise) enjoy all of the rights appurtenant to the
Common Stock. The authority possessed by the Board of Directors to issue
Preferred Stock could potentially be used to discourage attempts by others to
obtain control of the Company through merger, tender offer, proxy, consent or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock without shareholder approval and
with voting and conversion rights which could adversely affect the voting power
of holders of Common Stock. There are no agreements or understandings for the
issuance of Preferred Stock, and the Board of Directors has no present intention
to issue any shares of Preferred Stock.
38
<PAGE> 40
LOUISIANA FAIR PRICE AND CONTROL ACQUISITION STATUTES
Under Louisiana law, the acquisition of voting power (a "control share
acquisition") of an "issuing public corporation" that results in the purchaser
acquiring voting power in excess of 20%, 33 1/3% or 51% of the total voting
power of the issuing public corporation requires approval of a majority of the
voting power of the issuing public corporation and each class entitled to vote
separately on the proposal, excluding the shares of the acquiring person, any
officer of the issuing public corporation and any employee of the issuing public
corporation who is also a director of such corporation. Shares acquired in a
control share acquisition without such approval will have no voting rights and
under certain circumstances may be subject to a redemption by the corporation.
The restrictions imposed under such law are applicable to all Louisiana
corporations that fall within the definition of an "issuing public corporation"
(as does the Company) unless the issuing public corporation's articles of
incorporation or by-laws, as in effect before the acquisition has occurred,
provide that such provisions do not apply. The Company's Restated Articles of
Incorporation and Amended and Restated By-Laws do not contain such a provision;
therefore, the above restrictions contained in Louisiana law do apply to the
Company.
In addition, if certain elections were to be made by the Company's Board of
Directors under the Louisiana Business Corporation Law, unless certain price and
procedural requirements are met, certain business combinations involving the
Company and any holder of 20% or more of the Company's outstanding voting stock
may be required to be approved by at least (i) 80% of the votes entitled to be
cast by holders of the outstanding voting stock and (ii) two-thirds of the votes
entitled to be cast by the holders of voting stock other than the voting stock
held by such holder. This provision could be regarded as a deterrent to a
takeover of the Company and could be applied selectively by the Board of
Directors.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Company's Restated Articles of Incorporation contain provisions which
eliminate the personal liability of its directors and officers for monetary
damages resulting from breaches of their fiduciary duty other than liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for violations
under Section 92(D) of the Louisiana Business Corporation Law or any transaction
from which the director or officer derived an improper personal benefit. The
Restated Articles of Incorporation contain provisions requiring the
indemnification of the Company's directors and officers to the fullest extent
permitted by Section 83 of the Louisiana Business Corporation Law, including
circumstances in which indemnification is otherwise discretionary. The Company
agents believe that these provisions are necessary to attract and retain
qualified persons as directors and officers.
CLASSIFIED BOARD OF DIRECTORS
The Company's Restated Articles of Incorporation provide that if the number
of directors constituting the entire Board of Directors is increased to twelve
or more members, then at the next meeting of shareholders at which directors are
to be elected, the Board of Directors shall be divided into three classes, the
members of which will serve staggered three-year terms. The Company believes
that a classified board of directors could help to assure the continuity and
stability of the Board's and Shaw's business strategies and policies as
determined by the Board of Directors. The classified board provision, if
implemented, could have the effect of making the removal of incumbent directors
more time-consuming and, therefore, discouraging a third party from making a
tender offer or otherwise attempting to obtain control of Shaw, even though such
an attempt might be beneficial to Shaw and its shareholders. Thus, the
classified board provision could increase the likelihood that incumbent
directors would retain their positions.
ADVANCE NOTICE PROVISIONS FOR CERTAIN SHAREHOLDER ACTIONS
The Company's Amended and Restated By-Laws establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board or a committee thereof, of candidates for election as directors (the
"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of shareholders of the Company (the "Business Procedure").
39
<PAGE> 41
Under the Business Procedure, a shareholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Company's Amended and Restated By-Laws. If the
Chairman or other officer presiding at a meeting determines that other business
was not properly brought before such meeting in accordance with the Business
Procedure, such business will not be conducted at the meeting.
The Nomination Procedure requires that a shareholder give prior written
notice, in proper form, of a planned nomination for the Company's Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the By-Laws. If the election inspectors
determine that a person was not nominated in accordance with the Nomination
Procedure, such person will not be eligible for election as a director.
Although the By-Laws do not give the Board of Directors any power to
approve or disapprove shareholder nominations for the election of directors or
of any other business desired by shareholders to be conducted at an annual or
any other meeting, the Company's Amended and Restated By-Laws (i) may have the
effect of precluding a nomination for the election of directors or precluding
the conduct of business at a particular annual meeting if the proper procedures
are not followed, or (ii) may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
solicitation or such attempt might be beneficial to the Company and its
shareholders.
SUPER MAJORITY PROVISIONS
The Company's Restated Articles of Incorporation contain provisions
requiring the affirmative vote of the holders of at least 75% of voting power of
the Company's capital stock to amend certain provisions of the Articles,
including provisions relating to the removal of directors.
The Company's Restated Articles of Incorporation require the approval of
the holders of at least 75% of the Company's outstanding shares of Common Stock,
not including shares held by a Related Person (as defined below), to approve
certain Business Combinations (as defined below) and related transactions. The
term "Related Person" is defined to include any individual, corporation,
partnership or other entity which owns beneficially, directly or indirectly,
more than 5% of the outstanding shares of Common Stock of the Company. The term
"Business Combination" is defined to include, among other things, (i) any merger
or consolidation of the Company or a subsidiary of the Company which constitutes
more than 50% of the assets of the Company, other than a merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto continuing to represent more than 50% of the combined voting power
of the voting securities of the surviving entity; (ii) any sale, lease,
exchange, transfer or other disposition of more than 50% of the assets of the
Company; (iii) any reclassification of the Common Stock of the Company; and (iv)
any liquidation or dissolution of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank, Charlotte, North Carolina.
40
<PAGE> 42
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholder have agreed to sell to each
of the Underwriters named below (the "Underwriters"), for whom Smith Barney
Inc., Jefferies & Company, Inc. and Hoak Breedlove Wesneski & Co. are acting as
representatives (the "Representatives"), and the Underwriters have severally
agreed to purchase from the Company and the Selling Shareholders, the number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc. ........................................................
Jefferies & Company, Inc. ................................................
Hoak Breedlove Wesneski & Co. ............................................
---------
Total...........................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to various conditions. The nature of the
Underwriters' obligations are such that they are committed to take and pay for
all of the shares offered hereby if any are purchased.
The Company and the Selling Shareholders have been advised by the
Underwriters that they propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page hereof and to certain
selected dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering, the public offering price,
the concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 374,000 shares of Common Stock, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares that is proportional to such Underwriter's initial commitment.
The Company and the executive officers and directors of the Company,
including the Selling Shareholders, have agreed that they will not, for a period
of 90 days following the date of this Prospectus, without the prior written
consent of the Representatives, offer, sell or contract to sell, or otherwise
dispose of, directly or indirectly, or announce an offering of, any shares of
Common Stock beneficially owned by such person or entity or any securities
convertible into, or exchangeable for, any shares of Common Stock (i) in a
public offering or (ii) in a private offering, unless, in the case of the
Company only, (a) such private offering shall occur more than 30 days after the
date of this Prospectus, (b) the Company will issue shares of Common Stock in
such private offering as full or partial consideration for the acquisition by
merger or purchase of assets or businesses, and (c) the recipient of such Common
Stock shall agree not to sell, offer to sell, grant any option for the sale of,
or otherwise dispose of, such Common Stock for the remaining portion of the
90-day period from the date of this Prospectus.
41
<PAGE> 43
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
John W. Sinders, Jr., a director of the Company and a member of its Audit
Committee since March 1995, is a Managing Director of Jefferies & Company, Inc.
As noted above, Jefferies & Company, Inc. is one of the Representatives. Mr.
Sinders beneficially owns 9,500 shares of Common Stock.
LEGAL MATTERS
The validity of the issuance of the Common Stock will be passed upon for
the Company and the Selling Shareholders by Fulbright & Jaworski L.L.P.,
Houston, Texas. Vinson & Elkins L.L.P., Dallas, Texas, is acting as counsel for
the Underwriters in connection with certain legal matters relating to the Common
Stock offered hereby. Fulbright & Jaworski L.L.P. and Vinson & Elkins L.L.P.
will rely as to all matters of Louisiana law upon the opinion of Kantrow Spaht
Weaver & Blitzer (A Professional Law Corporation), Baton Rouge, Louisiana, local
counsel of the Company.
EXPERTS
The consolidated financial statements of The Shaw Group Inc. included and
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP and Hannis T. Bourgeois & Co., L.L.P., independent public
accountants, as indicated in their reports with respect thereto, and are
included and incorporated by reference herein in reliance upon the authority of
such firms as experts in accounting and auditing. The single jointly signed
auditor's report is considered to be the equivalent of two separately signed
auditor's reports. Thus, each firm represents that it has complied with
generally accepted auditing standards and is in a position that would justify
being the only signatory of the report.
The financial statements of Alloy Piping Products, Inc. incorporated by
reference in this Prospectus have been audited by Roberts, Cherry & Company,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and the supplemental consolidating
schedules of Word Industries, Inc. and subsidiaries as of December 31, 1994 and
1993 and for the years then ended incorporated by reference in this prospectus
from The Shaw Group Inc. Amendment No. 1 on Form 8-K/A-1 filed on March 29, 1996
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of NAPTech, Inc. and subsidiary as of
March 29, 1996 and March 31, 1995 and for the years then ended included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
42
<PAGE> 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE SHAW GROUP INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996.......................... F-3
Consolidated Statements of Income for each of the three years in the period ended
August 31, 1996.................................................................. F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the
period ended August 31, 1996..................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended August 31, 1996............................................................ F-6
Notes to Consolidated Financial Statements.......................................... F-7
NAPTECH, INC. AND SUBSIDIARY:
Report of Independent Public Accountants............................................ F-20
Consolidated Balance Sheets as of June 30, 1996, March 29, 1996 and
March 31, 1995................................................................... F-21
Consolidated Statements of Operations for the three months ended June 30, 1996,
the year ended March 29, 1996, and the year ended March 31, 1995................. F-22
Consolidated Statements of Stockholders' Equity for the three months ended June 30,
1996, the year ended March 29, 1996, and the year ended March 31, 1995........... F-23
Consolidated Statements of Cash Flows for the three months ended
June 30, 1996, the year ended March 29, 1996, and the year ended March 31,
1995............................................................................. F-24
Notes to Consolidated Financial Statements.......................................... F-25
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Shaw Group Inc.:
We have audited the accompanying consolidated balance sheets of The Shaw
Group Inc. (a Louisiana corporation) and subsidiaries as of August 31, 1995 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended August 31, 1996.
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 The Shaw Group Inc. and
subsidiaries as of August 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1996, in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
/s/ Arthur Andersen LLP /s/ Hannis T. Bourgeois & Co., L.L.P.
Arthur Andersen LLP Hannis T. Bourgeois & Co., L.L.P.
New Orleans, Louisiana Baton Rouge, Louisiana
</TABLE>
October 31, 1996
F-2
<PAGE> 46
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 766,319 $ 2,932,434
Accounts receivable, net -- Note 7........................... 48,238,346 71,286,099
Receivables from unconsolidated entities -- Note 5........... 1,630,862 700,479
Inventories -- Notes 4 and 7................................. 28,456,393 66,411,960
Prepaid expenses............................................. 644,300 2,039,182
Deferred income taxes -- Note 8.............................. 857,400 1,634,817
------------ ------------
Total current assets................................. 80,593,620 145,004,971
Investment in unconsolidated entities -- Note 5................ 1,824,448 1,920,880
Property and equipment -- Notes 6 and 10:
Transportation equipment..................................... 939,616 4,593,249
Furniture and fixtures....................................... 3,837,829 5,895,454
Machinery and equipment...................................... 10,210,324 29,482,645
Buildings and improvements................................... 7,302,977 16,213,648
Assets acquired under capital leases......................... 2,693,616 896,677
Land......................................................... 1,411,030 3,001,626
------------ ------------
26,395,392 60,083,299
Less: Accumulated depreciation (including amortization of
assets acquired under capital leases).................... (6,338,976) (9,194,533)
------------ ------------
20,056,416 50,888,766
Note receivable from related party -- Notes 3 and 15........... -- 625,000
Other assets, net -- Notes 3, 8 and 15......................... 3,893,022 6,926,849
------------ ------------
$106,367,506 $205,366,466
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance................. $ 781,185 $ 3,104,746
Accounts payable -- Note 15.................................. 15,059,300 25,761,803
Accrued liabilities.......................................... 5,561,045 8,843,391
Current maturities of long-term debt -- Note 6............... 1,676,890 3,448,670
Revolving line of credit -- Note 7........................... 14,001,285 49,322,111
Current portion of obligations under capital leases -- Note
10........................................................ 481,411 68,143
Deferred revenue -- prebilled................................ 902,004 1,839,689
Advanced billings............................................ 2,135,820 2,990,631
------------ ------------
Total current liabilities............................ 40,598,940 95,379,184
Long-term debt, less current maturities -- Note 6.............. 8,896,537 32,112,869
Obligations under capital leases, less current portion -- Note
10........................................................... 709,547 44,696
Deferred income taxes -- Note 8................................ 2,024,800 4,507,411
Shareholders' equity -- Notes 9 and 12:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued and outstanding.......................... -- --
Common stock, no par value, 50,000,000 shares authorized;
15,214,917 and 16,186,219 shares issued in 1995 and 1996;
8,552,001 and 9,523,303 shares outstanding in 1995 and
1996...................................................... 39,711,434 50,119,560
Retained earnings............................................ 21,254,083 30,030,581
Treasury stock, 6,662,916 shares............................. (6,827,835) (6,827,835)
------------ ------------
Total shareholders' equity........................... 54,137,682 73,322,306
------------ ------------
$106,367,506 $205,366,466
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 47
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Sales.......................................... $113,176,824 $135,264,643 $222,017,437
Cost of sales.................................. 96,522,760 110,578,027 180,834,668
------------ ------------ ------------
Gross profit................................... 16,654,064 24,686,616 41,182,769
General and administrative expenses.............. 11,631,175 15,022,595 25,202,302
------------ ------------ ------------
Operating income.......................... 5,022,889 9,664,021 15,980,467
Interest expense, net............................ (1,731,456) (2,828,968) (3,671,431)
Other income, net................................ 292,990 235,619 580,934
------------ ------------ ------------
(1,438,466) (2,593,349) (3,090,497)
------------ ------------ ------------
Income before income taxes....................... 3,584,423 7,070,672 12,889,970
Provision for income taxes -- Note 8............. 1,368,188 2,217,058 4,216,403
------------ ------------ ------------
Income before earnings (losses) from
unconsolidated entities........................ 2,216,235 4,853,614 8,673,567
Earnings (losses) from unconsolidated
entities -- Note 5............................. 792,144 (587,569) 102,931
------------ ------------ ------------
Income before extraordinary item................. 3,008,379 4,266,045 8,776,498
Extraordinary item, less applicable income taxes
of
$204,000 -- Note 2............................. 370,455 -- --
------------ ------------ ------------
Net income..................................... $ 3,378,834 $ 4,266,045 $ 8,776,498
============ ============ ============
Earnings per common share -- Note 12:
Income before extraordinary item............... $ .39 $ .50 $ .94
Extraordinary item............................. .05 -- --
------------ ------------ ------------
Net income..................................... $ .44 $ .50 $ .94
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 48
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
------------------------- ------------------------ RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
---------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1,
1993...................... 12,264,917 $ 748,713 5,789,041 $(1,977,835) $13,609,204 $12,380,082
Net income................ -- -- -- -- 3,378,834 3,378,834
Share purchase............ -- -- 873,875 (4,850,000) -- (4,850,000)
Share sale................ 2,875,000 37,612,721 -- -- -- 37,612,721
Shares issued to acquire
F.C.I. Pipe Support
Sales, Inc. -- Note 3.. 75,000 1,350,000 -- -- -- 1,350,000
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1994.... 15,214,917 39,711,434 6,662,916 (6,827,835) 16,988,038 49,871,637
Net income................ -- -- -- -- 4,266,045 4,266,045
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1995.... 15,214,917 39,711,434 6,662,916 (6,827,835) 21,254,083 54,137,682
Net income.................. -- -- -- -- 8,776,498 8,776,498
Shares issued to acquire
Word -- Note 3............ 385,000 3,401,900 -- -- -- 3,401,900
Shares issued to acquire
APP -- Note 3............. 541,177 6,724,712 -- -- -- 6,724,712
Exercise of options......... 45,125 281,514 -- -- -- 281,514
---------- ----------- --------- ----------- ----------- -----------
Balance, August 31, 1996.... 16,186,219 $50,119,560 6,662,916 $(6,827,835) $30,030,581 $73,322,306
========== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 49
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 3,378,834 $ 4,266,045 $ 8,776,498
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 1,494,588 2,234,187 4,040,100
Provision (benefit) for deferred income taxes................ 90,500 809,900 (1,231,745)
(Earnings) losses from unconsolidated entities after
dividends received......................................... (442,145) 663,569 (102,931)
Translation loss............................................. -- -- 863,822
Gain on sale of marketable securities........................ -- -- (855,047)
Other........................................................ (314,981) 55,692 (251,170)
Changes in assets and liabilities, net of effects of
acquisitions:
(Increase) in receivables.................................... (12,208,847) (8,265,755) (16,143,275)
(Increase) in inventories.................................... (641,726) (2,830,372) (21,052,970)
(Increase) decrease in other current assets.................. 8,853 (67,571) (1,127,130)
(Increase) decrease in other assets.......................... (200,713) (1,004,108) (863,184)
Increase (decrease) in accounts payable...................... (2,822,608) 6,650,126 8,255,580
Increase (decrease) in deferred revenue -- prebilled......... (288,563) 156,014 937,685
Increase (decrease) in accrued liabilities................... (2,812,737) 665,216 (2,114,045)
Increase in advanced billings................................ -- 2,135,820 854,811
------------ ------------ ------------
Net cash provided by (used in) operating activities.............. (14,759,545) 5,468,763 (20,013,001)
Cash flows from investing activities:
Investment in unconsolidated entities.......................... (1,316,408) (381,678) 95,513
Investment in subsidiaries, net of cash received............... (2,101,909) (482,243) (9,516,276)
Proceeds from sale of property and equipment................... 9,537 70,275 1,702,573
Purchase of property and equipment............................. (4,708,509) (4,591,595) (18,145,089)
Purchase of marketable securities.............................. (920,411) (269,351) (1,433,143)
Cash transferred (to) from escrow fund......................... (802,000) 1,295,000 --
Proceeds from sale of marketable securities.................... -- 1,694,070 2,288,190
Issuance of note receivable to a related party................. -- -- (625,000)
------------ ------------ ------------
Net cash used in investing activities............................ (9,839,700) (2,665,522) (25,633,232)
Cash flows from financing activities:
Net proceeds (repayments) from revolving credit agreement...... (2,173,750) (10,930,673) 30,466,289
Proceeds from issuance of debt................................. 1,245,884 10,208,218 21,109,541
Repayment of debt and leases................................... (11,115,124) (2,250,250) (5,414,414)
Increase (decrease) in outstanding checks in excess of bank
balance...................................................... (380,255) 380,734 2,323,561
Purchase of treasury stock..................................... (1,000,000) -- --
Issue common stock............................................. 37,619,309 -- 281,514
------------ ------------ ------------
Net cash provided by (used in) financing activities............ 24,196,064 (2,591,971) 48,766,491
Effects of exchange rate changes on cash....................... -- -- (954,143)
------------ ------------ ------------
Net increase (decrease) in cash.................................. (403,181) 211,270 2,166,115
Cash and cash equivalents -- beginning of year................... 958,230 555,049 766,319
------------ ------------ ------------
Cash and cash equivalents -- end of year......................... $ 555,049 $ 766,319 $ 2,932,434
============ ============ ============
Supplemental disclosures:
Cash payments for:
Interest....................................................... $ 1,823,509 $ 2,842,980 $ 4,012,283
============ ============ ============
Income taxes (refund).......................................... $ 3,151,457 $(2,370,260) $ 7,712,620
============ ============ ============
Noncash investing and financing activities:
Property and equipment acquired through issuance of debt....... $ 366,852 $ 86,363 $ --
============ ============ ============
Investment in subsidiaries acquired through issuance of common
stock........................................................ $ 1,350,000 $ -- $10,126,613
============ ============ ============
Treasury stock acquired through issuance of debt............... $ 3,850,000 $ -- $ --
============ ============ ============
Investment in unconsolidated entities through reduction in
receivables.................................................. $ -- $ 1,015,000 $ 89,014
============ ============ ============
Property and equipment acquired through recovery of investment
in unconsolidated subsidiary................................. $ -- $ 1,075,300 $ --
============ ============ ============
Other assets acquired through issuance of debt................. $ -- $ -- $ 2,131,515
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 50
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries (the
Company). All material intercompany accounts and transactions have been
eliminated in these financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Nature of Operations
The Company is a supplier of industrial piping systems for new construction
and retrofit projects throughout the world, primarily for customers in the
electric power, refining and chemical industries. The Company offers
comprehensive design and engineering services, piping system fabrication,
manufacturing and sale of speciality pipe fittings and design and fabrication of
pipe support systems. The Company's operations are conducted through eight
fabrication facilities, two engineering offices and one manufacturing facility.
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid investments with a
maturity of three months or less when purchased are cash equivalents.
Accounts Receivable and Credit Risk
The Company's customers include major multi-national construction and
engineering firms and industrial corporations. Work is performed under contract
and the Company believes that its credit risk is minimal. The Company grants
short-term credit to its customers.
During 1996, the Company established an allowance for doubtful accounts and
contract adjustments. The reserve balance as of August 31, 1996 is $430,000.
Prior to 1996, uncollectible accounts receivable and contract adjustments were
charged directly against earnings when they were determined to be uncollectible.
Charge-offs have not been material. The use of this method did not result in a
material difference from the valuation method required by generally accepted
accounting principles.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) cost method in 1996 and the average cost
method in 1995 and 1994. The effect of changing from the average to the FIFO
cost method during 1996 was not material.
Work in Process
Work in process includes primarily the costs accumulated in the fabrication
process for units only partially completed.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized. Maintenance and repair expenses are charged to income as incurred.
The cost of property sold or otherwise disposed of and
F-7
<PAGE> 51
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the accumulated depreciation thereon are eliminated from the property and
related accumulated depreciation accounts, and any gain or loss is credited or
charged to income.
For financial reporting purposes, depreciation is provided by utilizing the
straight-line method over the following estimated useful service lives:
<TABLE>
<S> <C>
Transportation Equipment............................... 5 - 15 Years
Furniture and Fixtures................................. 5 - 7 Years
Machinery and Equipment................................ 3 - 18 Years
Buildings and Improvements............................. 8 - 40 Years
</TABLE>
Income Taxes
The Company provides for deferred taxes in accordance with FASB Statement
109, which requires an asset and liability approach for measuring deferred tax
assets and liabilities due to temporary differences existing at year end using
currently enacted tax rates.
Revenues
Revenue on fabrication contracts is generally recognized upon the
completion of an individual spool of production. A spool consists of piping
materials and associated shop labor to form a pre-fabricated unit according to
contract specifications. During the fabrication process, all direct and indirect
costs related to the fabrication process are capitalized as work in process
inventory. Capitalized costs are charged to earnings upon completion of the
fabrication process for each spool. Spools are generally shipped to job site
locations when complete.
The Company also contracts with certain customers on a fixed price basis.
Revenue is recognized as spools are completed. Costs and estimated earnings in
excess of billings included in accounts receivable totaled $1,943,128 and
$5,597,175 for the years ended August 31, 1995 and 1996, respectively. Billings
in excess of costs and estimated earnings for both years are not material.
Profit related to prebilled materials is deferred until the fabrication of
the spools is completed.
Intangible Assets
Intangible assets represent the excess of the purchase price of
acquisitions over the fair value of the net assets acquired. Such excess costs
are being amortized on a straight-line basis over a twenty year period. The
Company periodically assesses the recoverability of the unamortized balance
based on expected future profitability and undiscounted future cash flows of the
acquisitions and their contribution to the overall operation of the Company.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current reporting practices.
New Accounting Standards
In 1995, Statement of Financial Accounting Standards No. 121 -- "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
was issued and required to be adopted by the Company no later than the fiscal
year ending August 31, 1997. Management believes that such adoption will not
have a material effect on the Company's financial statements taken as a whole.
F-8
<PAGE> 52
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also in 1995, Statement of Financial Accounting Standards No.
123 -- "Accounting for Stock-Based Compensation" (the "Statement") was issued
which establishes, among other things, financial accounting and reporting
standards for stock-based employee compensation plans. Entities may either adopt
a "fair value based method" of accounting for an employee stock option as
defined by the Statement or may continue to use accounting methods as prescribed
by APB Opinion No. 25 -- "Accounting for Stock issued to Employees." Entities
electing to remain with the accounting in APB Opinion No. 25 are required to
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in the Statement had been applied. The
Company expects to continue following APB Opinion No. 25 and make appropriate
disclosures in the future in accordance with the Statement.
NOTE 2 -- INITIAL PUBLIC OFFERING
In December 1993, the Company completed the initial public offering (the
"IPO") of its common stock. The Company issued 2,875,000 shares at $14.50 per
share. Net proceeds to the Company, after underwriting discounts and commissions
and other expenses of the offering, were approximately $38 million. The net
proceeds from the offering were used primarily to repay the Company's
outstanding indebtedness. As a result of its early retirement of certain debt
instruments, the Company recognized an extraordinary gain of approximately
$370,000 (net of income tax).
NOTE 3 -- ACQUISITIONS
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. (FCI), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. (PSSI), a pipe support
fabrication facility in Longview, Texas. These acquisitions were completed
through the issuance of 75,000 shares of the Company's common stock valued at
$1,350,000 and cash of $2,130,524. In addition, the Company agreed to issue
options to acquire up to 57,000 shares of common stock and additional cash
payments up to $300,000 based on the future earnings of the Company's
subsidiaries managed by the former owner through 1997.
These acquisitions were accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of the net assets
acquired of $1,565,912, included in other assets, is being amortized over twenty
years using the straight-line method. The pro forma effect of this acquisition,
as though it had occurred at the beginning of year ended August 31, 1994, is not
material to the operating results of the Company.
On December 15, 1994, the Company acquired the 50% interest of the other
participant in the Shaw-Formiconi joint venture located in Venezuela, together
with the concurrent acquisition of certain land, buildings and other assets used
by the venture. The total amount of the purchase price related to this
acquisition, including the selling participant's share of joint venture profits,
was approximately $2,900,000. The purchase method was used to account for the
acquisition. The $926,825 of excess cost over the estimated fair value of the
assets acquired, which is included in other assets, is being amortized over
twenty years using the straight-line method. The name of the wholly-owned
continuing entity is Manufacturas Shaw South America, C.A.
On January 16, 1996, the Company's newly formed, wholly-owned subsidiary,
Word Industries Fabricators, Inc. (Word), purchased certain assets and assumed
certain liabilities from Word Industries Pipe Fabricating, Inc. (WIPF), TS&M
Corporation and T.N. Word and certain of his family members. The acquisition was
completed through the issuance of 385,000 shares of the Company's common stock
valued at $3,442,000 and cash of $503,000. Acquisition costs of $246,000 were
incurred by the Company. The purchase
F-9
<PAGE> 53
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method was used to account for the acquisition. The purchase price has been
allocated to the estimated fair value of assets acquired and liabilities assumed
at the date of acquisition as follows:
<TABLE>
<S> <C>
Property and Equipment........................................... $5,405,000
Notes Payable.................................................... (294,000)
Accrued Liabilities.............................................. (306,000)
Deferred Income Taxes............................................ (614,000)
----------
Purchase Price......................................... $4,191,000
==========
</TABLE>
The operating results of Word have been included in the consolidated
statements of income from the date of acquisition.
In addition to the transactions described above, the Company agreed to loan
WIPF an aggregate of $1,725,000 pursuant to two separate loan agreements, each
dated as of January 15, 1996, one in the amount of $625,000 and the other in the
amount of $1,100,000. The $625,000 loan has been funded and is secured by a
pledge of 115,000 shares of the Company's common stock received by WIPF in
connection with the acquisition. The $1,100,000 loan will be secured by (i) a
mortgage covering an approximately 6-acre tract of land in Tulsa, Oklahoma and
(ii) a mortgage covering an approximately 12-acre tract of land in Tulsa,
Oklahoma. This $1,100,000 loan had not been funded as of August 31, 1996.
Effective March 1, 1996, the Company purchased all of the outstanding
capital stock of Alloy Piping Products, Inc. (APP), a leading U.S. manufacturer
of specialty stainless and carbon steel pipe fittings and other stainless pipe
products, and the assets of an APP-related entity, Speedline, a Louisiana
partnership (Speedline). The acquisition was completed through the issuance of
541,177 shares of the Company's common stock valued at $6,765,000 and cash of
$11,280,000. Acquisition costs of $366,000 were incurred by the Company. The
purchase method was used to account for the acquisitions. The purchase price has
been allocated to the estimated fair value of assets purchased and liabilities
assumed at the date of acquisition as follows:
<TABLE>
<S> <C>
Accounts Receivable............................................. $ 6,751,000
Inventory....................................................... 16,923,000
Other Current Assets............................................ 268,000
Property and Equipment.......................................... 12,253,000
Other Assets.................................................... 222,000
Revolving Line of Credit........................................ (4,855,000)
Notes Payable................................................... (5,789,000)
Accounts Payable and Accrued Liabilities........................ (8,117,000)
Deferred Income Taxes........................................... (2,205,000)
-----------
Purchase price (net of cash received of $2,960,000)... $15,451,000
===========
</TABLE>
The operating results of APP have been included in the consolidated
statements of income from the effective date of acquisition.
In addition, in connection with the Company's acquisition of APP and
Speedline, options to acquire an aggregate of 85,000 shares of the Company's
common stock at an exercise price of $19.50 per share were issued. The options
are exercisable in 25% increments on each April 5, 1997, 1998, 1999 and 2000
based upon continued employment of the recipients by the Company.
F-10
<PAGE> 54
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized income statement data reflects the impact the
above acquisitions would have had on the Company's results of operations if the
Shaw-Formiconi transaction had taken place on September 1, 1993 and the Word and
APP acquisitions had taken place on September 1, 1994:
<TABLE>
<CAPTION>
PRO FORMA RESULTS FOR THE YEAR ENDED AUGUST 31,
------------------------------------------------
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Gross revenue.......................... $120,512,408 $215,744,556 $265,285,338
============ ============ ============
Net income............................. $ 4,170,978 $ 7,585,139 $ 9,009,967
============ ============ ============
Earnings per common share.............. $.54......... $ .80 $ .92
============ ============ ============
</TABLE>
The Company has entered into an agreement to acquire NAPTech, Inc.
("NAPTech"), a fabricator of industrial piping systems and engineered piping
modules located in Clearfield, Utah. In connection with the acquisition, the
Company expects to issue up to an aggregate of 366,790 shares of common stock in
exchange for NAPTech and the 335,000 square foot facility that NAPTech currently
leases from a related entity. The acquisition of NAPTech is subject to various
conditions, including, without limitation, the approval of the Company's Board
of Directors and NAPTech's shareholders, as well as necessary regulatory
approvals. If consummated, the acquisition of NAPTech will be accounted for as a
pooling of interests and, accordingly, will result in a restatement of the
Company's financial statements. Although there can be no assurance that the
acquisition of NAPTech will be completed, the Company currently anticipates that
the acquisition will be consummated on or before December 15, 1996.
NOTE 4 -- INVENTORIES
The major components of inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Finished Goods........................................... $ 2,023,748 $23,138,238
Raw Materials............................................ 21,596,205 32,972,692
Work In Process.......................................... 4,836,440 10,301,030
----------- -----------
$28,456,393 $66,411,960
=========== ===========
</TABLE>
NOTE 5 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
During the years ended August 31, 1994 and 1995, the Company invested
$250,000 and $1,880,000, respectively in Shaw-Nass Middle East, W.L.L., the
Company's Bahrain joint venture ("Shaw-Nass"). The Company owns 49% of Shaw-Nass
and accounts for this investment on the equity basis. As such, during the years
ended August 31, 1994, 1995, and 1996 the Company recognized earnings (losses)
of $-0-, ($205,968) and $102,931 respectively from Shaw-Nass. No distributions
have been received through August 31, 1996 from Shaw-Nass. In addition, as of
August 31, 1995 and 1996, the Company had outstanding receivables from Shaw-Nass
totaling $1,630,862 and $700,479 respectively. These receivables relate
primarily to inventory and equipment sold to Shaw-Nass.
As discussed in Note 3, the Company purchased the 50% interest of the other
participant in its Venezuelan joint venture, together with the concurrent
acquisition of certain land, buildings and other assets used by the venture. The
Company had previously accounted for its investment in the joint venture as an
unconsolidated subsidiary under the equity method and had recognized net income
of approximately $792,000 during the year ended August 31, 1994 and $29,000
during the period from September 1 to December 15, 1994.
F-11
<PAGE> 55
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1994, the Company entered into a joint venture agreement with
Sino-Thai Engineering and Construction Co., Ltd. and PAE (Thailand) Company
Limited for the formation of Shaw Asia Company, Ltd. (Shaw Asia) to construct
and operate a pipe fabrication facility in Thailand. During the year ended
August 31, 1994, the Company recognized no income from Shaw Asia as its
operations were not significant. During the year ended August 31, 1995, the
venture did not achieve the desired level of activity, and the Company withdrew
from the joint venture. In conjunction with the withdrawal, the Company
recovered approximately $1.1 million in equipment from the joint venture which
reduced its net investment to approximately $400,000. The remaining balance was
charged off.
NOTE 6 -- LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to insurance companies; variable interest
rates based on 30-day commercial paper rates plus 190
to 235 basis points ranging from 7.26% to 7.74% as of
August 31, 1996; payable in monthly installments based
on amortization over the respective note lives;
maturing from 2001 to 2005; secured by property and
equipment with an approximate net book value of
$20,253,000 as of August 31, 1996 and guaranties by the
Company and certain subsidiaries of the Company........ $ 7,089,437 $15,971,239
Note payable to a bank; variable interest rate based upon
London Interbank Offering Rate (LIBOR) plus 85 to 200
basis points depending upon certain financial ratios.
Interest rate as of August 31, 1996 was 7.0%; 60
monthly principal payments of $50,000 through May 31,
2000; secured by equipment with an approximate net book
value of $2,832,000 as of August 31, 1996.............. 2,900,000 2,300,000
Note payable to a corporation; interest payable quarterly
at 60% of prime rate; repayable in annual installments
through December 15, 1995, unsecured................... 580,000 --
Note payable to a bank; interest payable annually at
LIBOR plus 1.6%; payable in 28 annual installments of
$264,286 with remaining balance due in 2003; secured by
equipment with an approximate net book value of
$8,757,000............................................. -- 7,400,000
Mortgages payable to a bank; interest payable monthly at
8.375%; 95 monthly payments of $9,850 and $26,935 with
remaining balance due on June 1, 2002; secured by real
property with an approximate net book value of
$2,074,000 and deposits at financial institutions with
an approximate value of $2,010,000..................... -- 3,432,531
South Carolina Revenue Bonds payable; principal due in
2005; interest paid monthly accruing at a variable rate
of 3.95% as of August 31, 1996; secured by $4,000,000
letter of credit....................................... -- 4,000,000
</TABLE>
F-12
<PAGE> 56
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Notes payable to employees relating to non-competition
agreements; interest payable monthly at 7%; monthly
payments of $42,000, and $5,000 until April 2001 and
August 2000 respectively; unsecured -- see Note 15..... -- 2,131,515
Installment notes payable; variable interest rates
ranging from 8% to 11.5%; payable in monthly
installments based on amortization over the respective
note lives; maturing from 1996 to 1998................. 3,990 326,254
----------- -----------
Total debt............................................... 10,573,427 35,561,539
Less: current maturities................................. (1,676,890) (3,448,670)
----------- -----------
Total long-term debt..................................... $ 8,896,537 $32,112,869
========== ==========
</TABLE>
Annual maturities of long-term debt during each year ending August 31, are
as follows:
<TABLE>
<S> <C>
1997............................................................ $ 3,448,670
1998............................................................ 3,458,867
1999............................................................ 3,603,497
2000............................................................ 3,730,780
2001 and thereafter............................................. 21,319,725
-----------
$35,561,539
===========
</TABLE>
Certain of the debt agreements contain restrictive covenants which the
Company is required to meet including financial ratios and minimum capital
levels. As of August 31, 1996, the Company was in compliance with the covenants
or had obtained the required waivers.
The estimated fair value of long-term debt approximated its carrying value,
based on borrowing rates currently available to the Company for notes with
similar terms and average maturities, as of August 31, 1995 and 1996.
NOTE 7 -- REVOLVING LINE OF CREDIT
In 1996, the Company entered into a new loan and security agreement with
its commercial lenders which allows the Company to borrow up to $70,000,000,
depending upon the Company's collateral base (which consists primarily of
certain eligible amounts of receivables and inventory), under a revolving line
of credit at an interest rate not to exceed 2% over the London Interbank
Offering Rate (LIBOR) or .75% over the Prime rate. The index used to determine
the interest rate is selected by the Company and the spread over the index is
dependent upon certain financial ratios of the Company. The interest rate
adjusts quarterly. This replaced the prior year revolving line of credit which
allowed the Company to borrow up to $30,000,000 at an interest rate based upon
the LIBOR plus 85 to 200 basis points depending upon certain financial ratios of
the Company. During 1995 and 1996, the maximum amount outstanding was
approximately $29,318,000 and $55,512,000, respectively, and the average amount
outstanding was $24,441,000 and $31,752,000, respectively, at weighted average
interest rates of 9.79% and 7.04%, respectively. The new agreement expires March
31, 1999.
The line of credit is secured by the Company's accounts receivable and
inventories.
The line of credit is also subject to certain restrictive covenants similar
to those of the long-term debt. As of August 31, 1996, the Company was in
compliance with these covenants or had obtained the required waivers.
F-13
<PAGE> 57
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
A summary of net deferred taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets....................................... $ 857,400 $1,971,900
Deferred tax liabilities (Net of deferred tax liabilities
assumed in Word and APP acquisitions totaling -0- in
1995 and $2,818,541 in 1996)............................ (2,024,800) (1,688,870)
----------- -----------
Net deferred taxes........................................ $(1,167,400) $ 283,030
=========== ===========
</TABLE>
The significant components of net deferred taxes are as follows:
<TABLE>
<S> <C> <C>
Assets:
Tax basis of inventory in excess of book basis.......... $ 184,200 $ 244,800
Expenses not currently deductible....................... 673,200 1,727,100
---------- ----------
$ 857,400 $1,971,900
========== ==========
Liabilities:
Excess of financial reporting over tax basis of
assets............................................... $1,751,300 $4,009,273
Income not currently taxable............................ 273,500 498,138
---------- ----------
$2,024,800 $4,507,411
Less: Deferred tax liabilities assumed in Word and APP
acquisitions......................................... -- (2,818,541)
---------- ----------
$2,024,800 $1,688,870
========== ==========
</TABLE>
Long-term deferred tax assets as of August 31, 1995 and 1996 were $0 and
$337,083, respectively. These balances are included in other assets.
Income before provision for income taxes for the years ended August 31 was
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Domestic...................................... $3,584,423 $1,803,426 $12,848,236
Foreign....................................... -- 5,267,246 41,734
---------- ---------- -----------
Total......................................... $3,584,423 $7,070,672 $12,889,970
========== ========== ===========
</TABLE>
The provision for income taxes for the years ended August 31 was as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current....................................... $1,271,888 $1,423,158 $5,546,833
Deferred...................................... (113,500) 809,900 (1,450,430)
State......................................... 209,800 (16,000) 120,000
---------- ---------- ----------
Total......................................... $1,368,188 $2,217,058 $4,216,403
========== ========== ==========
</TABLE>
F-14
<PAGE> 58
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate........................................ 34% 34% 34%
State taxes provided.................................. 5 -- 1
Other................................................. (1) (3) (2)
--- --- ---
38% 31% 33%
=== === ===
</TABLE>
NOTE 9 -- TREASURY STOCK
The Company previously had two classes of common stock. The classes had
identical rights, preferences and powers except that Class A common stock had
certain voting preferences. In connection with the Company's initial public
offering, the Company's charter was amended to provide for only one class of
common stock; however, holders for at least four consecutive years generally
have voting preferences. Also, the amended charter authorizes the Board of
Directors to approve the issuance of preferred stock.
During fiscal 1994, prior to its initial public offering, the Company
repurchased 873,875 shares of common stock from one of its stockholders for
$4,850,000.
NOTE 10 -- LEASES
Capital leases -- The Company leases computers, office equipment and
machinery under various non-cancelable lease agreements. Minimum lease rentals
have been capitalized and the related assets and obligations recorded utilizing
various interest rates. The assets are amortized on the straight-line method
over the lease terms and interest expense is accrued on the basis of the
outstanding lease obligations.
Assets acquired under capital leases -- net of accumulated amortization are
as follows:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------
1995 1996
--------- --------
<S> <C> <C>
Transportation equipment..................................... $1,710,270 $ --
Furniture and fixtures....................................... 899,352 878,236
Machinery and equipment...................................... 83,994 18,441
---------- --------
$2,693,616 $896,677
Less: accumulated amortization............................... (595,520) (245,385)
---------- --------
$2,098,096 $651,292
========== ========
</TABLE>
F-15
<PAGE> 59
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of future obligations under capital leases
(present value of future minimum rentals):
<TABLE>
<S> <C>
Minimum lease payments:
1997.................................................... $ 75,986
1998.................................................... 29,839
1999.................................................... 18,591
--------
Total minimum lease payments.............................. $124,416
Less: amount representing interest........................ (11,577)
--------
$112,839
Less: current portion..................................... (68,143)
--------
Long-term obligations under capital leases................ $ 44,696
========
</TABLE>
Operating leases -- The Company leases certain offices, fabrication shops,
warehouse facilities, office equipment and machinery under noncancelable
operating lease agreements which expire at various times and which require
various minimum rentals. The non-cancelable operating leases which were in
effect as of August 31, 1996 require the Company to make the following future
minimum lease payments:
<TABLE>
<S> <C>
For the year ending August 31:
1997..................................................... $1,187,869
1998..................................................... 927,145
1999..................................................... 517,493
2000..................................................... 371,856
----------
Total minimum lease payments............................. $3,004,363
==========
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
As of August 31, 1996, the Company has committed to purchase approximately
$4.3 million of additional pipe bending machines for its domestic facilities.
The Company has posted letters of credit aggregating approximately $4
million as of August 31, 1996 to secure its performance under certain contracts
and insurance arrangements, as well as its purchase of a pipe bending machine
for one of its domestic facilities.
For the year ended August 31, 1996, 58% of the Company's labor force was
covered by collective bargaining agreements. Of this amount, 92% are covered by
collective bargaining agreements which will expire during the Company's next
fiscal year. The Company does not expect the renewal of the agreements will have
an adverse impact on the Company's results of operations or financial position.
See Note 3 regarding the Company's proposed acquisition of NAPTech.
NOTE 12 -- EARNINGS PER COMMON SHARE
In connection with the initial public offering of 2,500,000 shares of its
common stock, the Company's shareholders approved a stock split and
recapitalization on December 6, 1993 which caused the number of outstanding
shares to increase from 4,567.5 to 5,602,000. For all periods, the share amounts
and per share data throughout the financial statements have been adjusted to
give effect to the stock split. Earnings per common share is calculated based on
the weighted average number of shares outstanding, including dilutive common
stock equivalents when material, during the periods adjusted for the effect of
the stock split. The weighted average number of shares outstanding for 1994,
1995, and 1996 were 7,744,209, 8,552,001, and 9,324,729 respectively.
F-16
<PAGE> 60
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- MAJOR CUSTOMERS AND EXPORT SALES
For the year ended August 31, 1994, sales to customers accounting for more
than 10% of sales totaled $13,100,000 and $11,900,000 for two customers and
comprised 22% of sales. For the year ended August 31, 1995, sales to a customer
accounting for more than 10% of sales totaled $19,100,000 and comprised 14% of
sales. For the year ended August 31, 1996, sales to a customer accounting for
more than 10% of sales totaled $27,200,000 and comprised 12% of sales. Because
of the nature of the Company's business, the significant customers vary between
years.
For the years ended August 31, 1994, 1995 and 1996, the Company has
included as part of its international sales approximately $32,000,000,
$40,000,000, and $74,000,000 respectively, of exports from its domestic
facilities.
NOTE 14 -- EMPLOYEE BENEFIT PLANS
Effective with its initial public offering, the Company adopted a Stock
Option Plan (the Plan) under which both qualified and non-qualified options may
be granted. In addition, 804,875 shares of common stock are reserved for
issuance under the Plan. The Plan is administered by a committee of the Board,
which selects persons eligible to receive options and determines the number of
shares subject to each option, the vesting schedule, the option price, and the
duration of the option. In the case of qualified options, the exercise price
cannot be less than 100% of the fair market value on date of grant and the
duration cannot exceed 10 years.
In connection with the Company's acquisition of FCI and PSSI during 1994,
5,000 options with an exercise price of $18.00 were issued. The options expire
in 2004 and are currently exercisable. In January 1995, the exercise price of
these options was amended to $5.875 per share. In addition, in 1994 the Company
granted options contingent upon the ability of FCI and PSSI to generate
consolidated net income in excess of certain thresholds during the fiscal years
ending August 31, 1995, 1996 and 1997. The maximum number of options issuable
under this plan is 19,000 per year or 57,000. These options expire in 2004 and
have an exercise price equal to the closing price quoted on the last business
day of the immediately preceding fiscal year to which the grant of options
relate. The minimum threshold for the year ended August 31, 1995 was not met,
and therefore, no options were issued for that year. For the year ended August
31, 1996, 9,000 options with an exercise price of $9.59 per share were earned
and will be issued in fiscal 1997.
The following table summarizes the activity in the outstanding stock
options of the Company:
<TABLE>
<CAPTION>
SHARES
-------------------------
PLAN ACQUISITIONS OPTION PRICE
------- ------------ ---------------
<S> <C> <C> <C>
Outstanding at September 1, 1994............ -- .... -- --
Granted..................................... 210,500 5,000 $5.875
Exercised................................... -- -- --
------- ------------ ---------------
Outstanding at August 31, 1994.............. 210,500 5,000 $5.875
Granted..................................... 220,000 -- $5.875-$6.75
Exercised................................... -- -- --
------- ------------ ---------------
Outstanding at August 31, 1995.............. 430,500 5,000 $5.875-$6.75
Granted..................................... 20,000 85,000 $17.375-$19.50
Exercised................................... (45,125) -- $5.875-$6.75
------- ------------ ---------------
Outstanding at August 31, 1996.............. 405,375 90,000 $5.875-$19.50
======= ========= ==============
Exercisable at August 31, 1996.............. 58,125 5,000 $5.875-$6.75
======= ========= ==============
</TABLE>
F-17
<PAGE> 61
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994, the Company adopted a voluntary 401(k) profit sharing plan for
substantially all employees who are not subject to collective bargaining
agreements. The plan provides for the eligible employee to contribute from 1% to
10% of annual compensation, subject to an annual limit, with the Company
matching 50% of the employee's eligible contribution up to 6%. The Company's
contribution to this plan during 1994, 1995 and 1996 was approximately $102,000,
$220,000, and $285,000 respectively.
APP has a defined contribution profit sharing plan covering substantially
all of APP's employees. The plan allows APP to make a discretionary contribution
to the plan of up to 15% of eligible employee compensation. For the period from
the effective date of acquisition through August 31, 1996, APP accrued $175,000
in contributions to the plan.
NOTE 15 -- RELATED PARTY TRANSACTIONS
During 1994, the Company entered into an employment agreement with the
President and Chief Executive Officer (CEO) of the Company. Under terms of the
agreement, the President and CEO has agreed to serve in that capacity until
December 31, 1996 (subject to an automatic three-year extension) and will
receive, among other things, an annual base salary of $500,000, participation in
the Company's annual bonus plan as determined by the Compensation Committee of
the Board of Directors, and other benefits such as health and life insurance. In
the event the President and CEO's employment is terminated due to events as
defined in the agreement, the President and CEO will receive a lump-sum payment
equal to the full amount payable under the agreement.
During 1995, the Company entered into several loan agreements with key
management some of which were non-interest bearing. The impact of discounting
such loans to record interest income was not significant. The balance of these
employee loan receivables as of August 31, 1995 and 1996 was $231,900 and
$220,191, respectively. These balances are included in other assets.
As discussed in Note 3, in connection with the Word acquisition, the
Company entered into a $625,000 loan agreement with Word Industries Pipe
Fabricating, Inc. ("WIPF"). WIPF is owned primarily by certain stockholders of
the Company. The loan is due on January 15, 2001 and bears interest at a rate
equal to that charged on the Company's revolving line of credit.
In addition, as of August 31, 1996 the Company has included in its accounts
payable approximately $280,000 to WIPF.
During 1996, in connection with an acquisition, the Company has entered
into non-competition agreements with certain employees. Related assets totaling
approximately $2.3 million, included in other assets, are being amortized over
five years using the straight-line method. The corresponding liabilities are
included in long-term debt as further discussed in Note 6.
NOTE 16 -- FOREIGN CURRENCY TRANSACTIONS
The Company's wholly-owned subsidiary in Venezuela has net assets of
approximately $7,000,000 denominated in Venezuelan Bolivars. In accordance with
SFAS 52, the U.S. dollar is used as the functional reporting currency since the
Venezuelan economy is defined as highly inflationary. Therefore, the assets and
liabilities must be translated into U.S. dollars using a combination of current
and historical exchange rates. During 1995, the Venezuelan government fixed the
exchange rate for Bolivars, thus there was no change in the exchange rate used
to translate these assets and liabilities, and accordingly no gain or loss was
recognized in 1995 by this translation. During the year ended August 31, 1995,
the Company recognized as part of its sales aggregate exchange gains of
approximately $.9 million relating to collections on contracts in progress
during the year.
F-18
<PAGE> 62
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Venezuelan government lifted all foreign exchange
controls. Subsequent to this action, the Bolivar devalued from 170 to 475 to the
U.S. dollar. As a result, the Company recorded a translation loss of
approximately $864,000 in translating the assets and liabilities into U.S.
dollars. The Company also recognized a gain of approximately $818,000 during
1996 related to a Venezuelan Government bond purchased at a fixed exchange rate
which was subsequently sold. The earnings from this subsidiary in 1996 were not
material to the consolidated results of operations.
F-19
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
NAPTech, Inc.:
We have audited the accompanying consolidated balance sheets of NAPTech,
Inc. and subsidiary (the Company) as of March 29, 1996 and March 31, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 29,
1996 and March 31, 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
June 4, 1996
(November 15, 1996 as to the first
paragraph of Note 4 and to Note 9)
F-20
<PAGE> 64
NAPTECH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 29, MARCH 31,
1996 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash (Note 1)..................................... $ 8,624 $ 381,755 $ 6,324
Trade accounts receivable -- (less a combined
allowance for doubtful accounts and for
contract adjustments of $433,000, $210,865 and
$55,000 for June 30, 1996, March 29, 1996 and
March 31, 1995, respectively) (Note 4)......... 3,951,012 4,702,298 3,221,125
Costs and estimated earnings in excess of billings
on uncompleted contracts (Notes 1 and 2)....... 1,967,976 3,489,206 3,493,749
Inventories (Notes 1 and 4)....................... 898,056 1,157,500 1,124,767
Other............................................. 401,321 49,864 49,018
------------ ------------ ------------
Total current assets (Note 1)............. 7,226,989 9,780,623 7,894,983
PROPERTY, PLANT, AND EQUIPMENT -- Net (Notes 1, 3,
and 4)............................................ 4,565,216 4,731,922 5,152,376
DEFERRED INCOME TAX ASSET (Notes 1 and 5)........... -- -- 26,591
OTHER ASSETS........................................ 62,973 110,804 74,983
------------ ------------ ------------
TOTAL............................................... $11,855,178 $14,623,349 $13,148,933
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 3,217,021 $ 5,888,583 $ 2,255,293
Accrued liabilities (Notes 1 and 4)............... 535,508 585,496 571,581
Lines of credit (Notes 1 and 4)................... -- -- 2,500,000
Current portion of long-term debt (Notes 1 and
4)............................................. 1,366,367 293,690 3,176,827
Billings in excess of costs and estimated earnings
on uncompleted contracts (Notes 1 and 2)....... 399,760 729,970 436,656
Deferred income tax liability (Notes 1 and 5)..... -- -- 26,591
------------ ------------ ------------
Total current liabilities (Note 1)........ 5,518,656 7,497,739 8,966,948
LONG-TERM DEBT (Notes 1 and 4)...................... 6,349,875 5,744,122 284,255
------------ ------------ ------------
Total liabilities......................... 11,868,531 13,241,861 9,251,203
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 4, and 6)
STOCKHOLDERS' EQUITY:
Common stock -- $.01 par value; 10,000,000 shares
authorized; 5,124,058, 5,124,058 and 4,774,058
shares issued and outstanding for June 30,
1996, March 29, 1996, and March 31, 1995,
respectively
(Notes 1, 4, and 7)............................ 51,241 51,241 47,741
Additional paid-in capital........................ 4,713,542 4,713,542 4,147,042
Accumulated deficit
(Notes 1 and 4)................................ (4,778,136) (3,383,295) (297,053)
------------ ------------ ------------
Total stockholders' equity
(deficit) -- net........................ (13,353) 1,381,488 3,897,730
------------ ------------ ------------
TOTAL............................................... $11,855,178 $14,623,349 $13,148,933
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE> 65
NAPTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED ---------------------------
JUNE 30, MARCH 29, MARCH 31,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
NET SALES (Note 1).................................. $ 6,299,024 $24,853,722 $21,657,126
DIRECT COST OF SALES................................ 5,141,174 19,618,638 13,441,753
----------- ----------- -----------
DIRECT MARGIN....................................... 1,157,850 5,235,084 8,215,373
INDIRECT COST OF SALES.............................. 1,961,591 6,326,574 7,024,564
----------- ----------- -----------
GROSS MARGIN........................................ (803,741) (1,091,490) 1,190,809
----------- ----------- -----------
OPERATING EXPENSES:
Selling expense................................... 87,060 523,879 701,547
General and administrative expense (Note 6)....... 348,610 849,091 735,774
----------- ----------- -----------
Total operating expenses.................. 435,670 1,372,970 1,437,321
----------- ----------- -----------
OPERATING LOSS...................................... (1,239,411) (2,464,460) (246,512)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Other income...................................... -- 51,058 8,696
Interest expense.................................. (155,430) (672,840) (476,486)
----------- ----------- -----------
Total other (expense) -- net.............. (155,430) (621,782) (467,790)
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY GAIN...................... (1,394,841) (3,086,242) (714,302)
EXTRAORDINARY GAIN (Note 4)......................... -- -- 490,625
----------- ----------- -----------
NET LOSS (Note 1)................................... $(1,394,841) $(3,086,242) $ (223,677)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE> 66
NAPTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1994............ 3,300,000 $33,000 $1,462,500 $(1,381,375) $ 114,125
Issuance of common stock
(Note 1)..................... 1,474,058 14,741 2,684,542 -- 2,699,283
Redeemable preferred stock
cancellation (Note 4)........ -- -- -- 1,062,690 1,062,690
Cumulative redeemable preferred
stock dividend cancellation
(Note 4)..................... -- -- -- 245,309 245,309
Net loss........................ -- -- -- (223,677) (223,677)
--------- ------- ---------- ----------- -----------
BALANCE, MARCH 31, 1995........... 4,774,058 47,741 4,147,042 (297,053) 3,897,730
Issuance of common stock
(Note 1)..................... 350,000 3,500 566,500 -- 570,000
Net loss........................ -- -- -- (3,086,242) (3,086,242)
--------- ------- ---------- ----------- -----------
BALANCE, MARCH 29, 1996........... 5,124,058 $51,241 $4,713,542 $(3,383,295) $ 1,381,488
Net loss (Unaudited)............ -- -- -- (1,394,841) (1,394,841)
--------- ------- ---------- ----------- -----------
BALANCE, JUNE 30, 1996
(Unaudited)..................... 5,124,058 $51,241 $4,713,542 $(4,778,136) $ (13,353)
========= ======= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 67
NAPTECH, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 30, MARCH 29, MARCH 31,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(1,394,841) $(3,086,242) $ (223,677)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 191,517 728,723 684,377
Provision for bad debts and contract
adjustments.................................. 222,135 169,815 133,152
Extraordinary gain............................. -- -- (490,625)
Changes in operating assets and liabilities:
Trade accounts receivable.................... 529,151 (1,650,988) (455,858)
Costs and estimated earnings in excess of
billings on uncompleted contracts......... 1,521,230 4,543 (1,288,333)
Inventories.................................. 259,444 (32,733) (242,665)
Other current assets......................... (303,625) (846) (9,095)
Accounts payable............................. (2,671,562) 3,633,290 (45,240)
Accrued liabilities.......................... (49,988) 13,915 64,084
Billings in excess of costs and estimated
earnings on uncompleted contracts......... (330,209) 293,314 154,881
----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. (2,026,748) 72,791 (1,718,999)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment....... (24,813) (308,269) (1,218,870)
Purchases of other assets......................... -- (35,821) (7,586)
----------- ----------- -----------
Net cash used in investing activities..... (24,813) (344,090) (1,226,456)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 1,075,000 59,640 3,578,694
Principal payments on long-term debt.............. (20,607) (332,910) (3,483,697)
Proceeds from lines of credit borrowings.......... 624,037 350,000 1,396,056
Proceeds from issuance of common stock............ -- 570,000 1,330,883
----------- ----------- -----------
Net cash provided by financing
activities.............................. 1,678,430 646,730 2,821,936
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (373,131) 375,431 (123,519)
CASH AND CASH EQUIVALENTS, Beginning of period...... 381,755 6,324 129,843
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period............ $ 8,624 $ 381,755 $ 6,324
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest............ $ 155,430 $ 501,886 $ 464,359
=========== =========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In connection with the cancellation of the note payable to Vinson (see Note
4) during the year ended March 31, 1995, the Company wrote-off the book value of
the related redeemable preferred stock and cumulative redeemable preferred stock
dividends of $1,062,690 and $245,309, respectively, as a credit to the Company's
accumulated deficit.
During the years ended March 29, 1996 and March 31, 1995, several notes
payable to individuals were converted into common stock for approximately
$35,000 and $460,000, respectively.
During the year ended March 31, 1995, the Company issued 310,000 shares of
its common stock in exchange for a contract payable of $908,399 (see Note 1).
During the years ended March 29, 1996 and March 31, 1995, the Company
acquired equipment in the amount of approximately $15,300 and $18,600,
respectively, by entering into capital leases.
See notes to consolidated financial statements.
F-24
<PAGE> 68
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- NAPTech, Inc. (the Company) was incorporated on
January 10, 1992 and is engaged in the business of forming, fabricating, and
welding steel and alloy piping, building piping sub-assemblies, and fabricating
engineered skids and modules for customers throughout the world. The Company
also bends pipe and structural steel utilizing induction bending technology.
NAPTech Pressure Systems Corp. (NPSC), a wholly-owned subsidiary of the Company,
is engaged in the business of manufacturing seamless steel pressure vessels.
In March 1995, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(the Statement). The Statement establishes accounting standards for long-lived
assets, certain identifiable intangibles, and goodwill and applies to all
entities. The Statement is required to be applied for fiscal years beginning
after December 15, 1995, although earlier adoption is allowed. In the year
adopted, the Statement requires that impairment losses resulting from
application shall be reported in the period in which the recognition criteria
are first applied and met. The Company will apply the Statement effective March
30, 1996; however, management has not determined the impact the Statements
application will have on the Company's financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (the Second
Statement). The Second Statement establishes accounting standards for
establishment of a fair value based method of accounting for stock-based
compensation plans. The Second Statement is required to be applied for fiscal
years beginning after December 15, 1995, although earlier adoption is allowed.
The Company will apply the Second Statement effective March 30, 1996; however,
management has not determined the impact the Second Statements application will
have on the Company's financial statements.
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant of
such policies.
Basis of Presentation -- The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As shown in the consolidated financial statements, the Company incurred a net
loss during the periods ended March 29, 1996 and March 31, 1995 of $3,086,242
and $223,677, respectively. The Company's ability to continue as a going concern
is dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, and ultimately to attain successful operations.
Subsequent to March 29, 1996, the Company renegotiated its line of credit and
note payable to a bank (see Note 4) which allowed the Company to reduce the loan
payments required to be made during 1997. Management is of the opinion that a
subsequent infusion of working capital and this renegotiation of its long-term
debt commitments, along with management's plans to improve operations and reduce
costs as well as to generate additional cash during 1997 will enable the Company
to continue as a going concern (see Note 9).
NAPTech's interim financial statements as of June 30, 1996 include all
adjustments which, in the opinion of management, are necessary in order to make
a fair presentation of such financial statements. All such adjustments are of a
normal recurring nature. Operating results for the three months ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
entire year ending March 31, 1997.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and NPSC. All material intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates in Preparing Financial Statements -- The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and
F-25
<PAGE> 69
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Purchase of Assets -- On February 10, 1992, the Company purchased certain
assets and assumed certain liabilities from Vinson Supply Company (Vinson). The
Company acquired assets of approximately $5,442,000 and assumed liabilities of
approximately $383,000 in exchange for redeemable preferred stock of $1,062,690,
a note payable of $3,800,000, and $200,000 cash. The 106,269 shares of
redeemable preferred stock ($.01 par value) were recorded at its mandatory
redemption price of $10.00 per share. The liquidating preference of the stock is
$10.00 per share plus accrued dividends. The stock had an annual dividend
requirement of $1.00 per share. The acquisition has been accounted for by the
purchase method of accounting. Accordingly, the purchase price has been
allocated to assets acquired and liabilities assumed based on their fair market
value on the date of acquisition.
On June 13, 1994, the Company entered into an agreement with Vinson to
cancel the aforementioned note payable, redeemable preferred stock, and
cumulative redeemable preferred stock dividends (see Note 4).
Purchase of Assets -- On January 20, 1994, NPSC acquired assets of
approximately $1,222,000 and assumed liabilities of approximately $147,000 from
Pressure Products International, Inc. (PPI) in exchange for cash of
approximately $143,000 and a contract payable. The Company also granted PPI an
option to purchase 100,000 shares of the Company's common stock at $1.00 per
share. This acquisition has been accounted for as a purchase.
During fiscal 1995, the Company issued 310,000 shares of its common stock
in exchange for the contract payable, and PPI has exercised the option to
purchase 100,000 shares of common stock for $1.00 per share.
Fiscal Year -- The Company uses a 52-53 week fiscal year which ends on the
Friday nearest to March 31, which was March 29 in 1996 and March 31 in 1995.
Long-term Contracts -- Revenues from long-term contracts are recorded on
the basis of the Company's estimates of the percentage of completion of
individual contracts. That portion of the total contract price is accrued to
income that is in proportion to the Company's estimates of the percentage of
completion based on incurred labor costs to date in relation to estimated total
labor costs. At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss is accrued.
Inventories -- Inventories are stated at the lower of cost (determined on
the first-in, first-out basis), or market.
Property, Plant, and Equipment -- Property, plant, and equipment are stated
at cost. Assets held under capital leases are included with property owned (see
Note 3). Depreciation and amortization are computed using the straight-line
method over the shorter of the estimated lives of the related assets or the
related lease terms as follows:
<TABLE>
<S> <C>
Machinery................................................................ 5-10 years
Computer and office equipment............................................ 3-5 years
Other.................................................................... 3-5 years
</TABLE>
Income Taxes -- The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes.
Statements of Cash Flows -- The Company considers all short-term
investments with original maturities of three months or less to be cash
equivalents.
Reclassifications -- Certain reclassifications to the 1995 amounts have
been made to conform to the 1996 classifications.
F-26
<PAGE> 70
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. CONTRACTS IN PROCESS
The following relates to contracts in process for the years ended March 29,
1996 and March 31, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Expenditures on uncompleted contracts..................... $15,522,462 $ 8,800,524
Estimated earnings thereon................................ 3,111,577 5,599,998
----------- -----------
Total..................................................... 18,634,039 14,400,522
Less applicable billings.................................. 15,874,803 11,343,429
----------- -----------
Net....................................................... $ 2,759,236 $ 3,057,093
=========== ===========
</TABLE>
These amounts are included in the accompanying balance sheets under the
following captions for the years ended March 29, 1996 and March 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $3,489,206 $3,493,749
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (729,970) (436,656)
---------- ----------
Net......................................................... $2,759,236 $3,057,093
========== ==========
</TABLE>
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following as of March 29,
1996 and March 31, 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Machinery................................................. $ 6,702,302 $ 6,439,132
Computer and office equipment............................. 347,533 307,707
Other..................................................... 149,970 144,697
----------- -----------
Total..................................................... 7,199,805 6,891,536
Accumulated depreciation and amortization................. (2,467,883) (1,739,160)
----------- -----------
Property, plant, and equipment -- net..................... $ 4,731,922 $ 5,152,376
=========== ===========
</TABLE>
Certain computer and office equipment items are recorded under capital
leases (see Note 4). As of March 29, 1996 and March 31, 1995, the cost of such
equipment was approximately $102,000 and $111,000, respectively, and the related
accumulated amortization was approximately $28,900 and $37,500, respectively.
4. LINES OF CREDIT AND LONG-TERM DEBT
Line of Credit and Long-Term Debt Refinancing -- As of March 29, 1996 and
June 30, 1996, the Company was in violation of certain debt covenants on its
line of credit and note payable to a bank. On May 10, 1996, the Company
renegotiated terms and conditions for a new $3,400,000 line of credit and a
$3,037,500 note payable to a bank (collectively, the Refinanced Debt) which
eliminated the violations as of March 29, 1996. The Refinanced Debt contains
certain covenants which include maintaining minimum tangible net worth and an
established debt service ratio, and covenants which prohibit quarterly losses,
payments of dividends, acquisitions of treasury stock, accelerated long-term
debt payments, mergers or acquisitions, and a covenant which restricts capital
expenditures. On June 30, 1996 and through November 15, 1996, the Company was in
violation of certain loan covenants of the Refinanced Debt. Therefore, on
November 15, 1996 the Company requested and obtained a waiver of all existing
covenant violations through
F-27
<PAGE> 71
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 14, 1997. Accordingly, the Company has shown the June 30, 1996 and the
March 29, 1996 line of credit as long-term debt and the note payable to a bank
as short-term and long-term in accordance with the terms of the Refinanced Debt.
Lines of Credit -- As of March 29, 1996, the Company had a line of credit
with a bank for $2,850,000 (which was increased by $550,000 as of May 10, 1996).
The line of credit is collateralized by accounts receivable, inventory, and
equipment and accrues interest at 2% above the bank's prime (8.25% at March 29,
1996) and expires July 31, 1997. Accordingly, the line of credit as of June 30,
1996 and March 29, 1996 is presented as a long-term obligation. As of March 31,
1995, the Company had a line of credit with a bank for $2,500,000. The line of
credit was collateralized by accounts receivable, inventory, and equipment and
accrued interest at 1.6% above the bank's prime. As of March 29, 1996 and March
31, 1995, the Company owed $2,850,000 and $2,500,000, respectively, under these
lines of credit.
Long-Term Debt -- Long-term debt consists of the following as of March 29,
1996 and March 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a bank, interest at 9.36%, payable in
monthly installments of $39,559 through May 10, 2001,
collateralized by accounts receivable and equipment....... $2,853,078 $2,917,182
Line of credit payable to a bank, interest at prime plus 2%,
payable in full on July 31, 1997, collateralized by
accounts receivable, inventory and equipment.............. 2,850,000 --
Notes payable to individuals not related to the Company,
interest at 8.5% payable monthly, principal due July 26,
1996, uncollateralized; convertible into common stock of
the Company at $2.00 per share at the lender's option or
upon notice of prepayment by the Company.................. 36,000 45,000
Note payable to a leasing company, interest at 8.59%,
payable in monthly installments of $7,606 through
September 1999, collateralized by equipment............... 275,094 339,708
Note payable to a vendor of NPSC to purchase equipment,
interest at 6%, payable in full on July 31, 1995,
uncollateralized.......................................... -- 10,000
Note payable to an individual who is related to the Company,
interest at 10%, payable on demand, uncollateralized...... -- 100,000
Obligations under capital leases, interest at 13.88%,
payable monthly through January 1999...................... 23,640 49,192
---------- ----------
Total....................................................... 6,037,812 3,461,082
Less current portion........................................ 293,690 3,176,827
---------- ----------
Long-term portion........................................... $5,744,122 $ 284,255
========== ==========
</TABLE>
The Company entered into an agreement with Vinson dated June 13, 1994 in
which the Company agreed to pay Vinson $3,000,000 plus $55,000 for accounts
payable to Vinson, and Vinson agreed to cancel the note payable to Vinson of
approximately $3,539,000, cancel the 106,269 shares of redeemable preferred
stock, and cancel the preferred stock dividend liability (see Note 1). The
Company entered into a note payable to a bank in order to fund this settlement
with Vinson.
Based upon the consummation of the aforementioned agreement, in 1995 the
Company recognized an extraordinary gain of $490,625 for the early retirement of
debt and wrote-off the book value relating to the
F-28
<PAGE> 72
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
redeemable preferred stock and redeemable cumulative preferred stock dividend of
$1,062,690 and $245,309, respectively, as a credit to the Company's accumulated
deficit.
Principal payments required on those obligations were as follows as of
March 29, 1996:
<TABLE>
<S> <C>
Year ending:
1997.................................................. $ 293,690
1998.................................................. 3,169,007
1999.................................................. 348,317
2000.................................................. 326,874
2001.................................................. 309,950
Thereafter............................................ 1,589,974
---------
Total......................................... $6,037,812
=========
</TABLE>
The future minimum lease payments for the obligations under capital leases,
included in the annual payments above are as follows as of March 29, 1996:
<TABLE>
<S> <C>
Year ending:
1997..................................................... $ 9,679
1998..................................................... 9,679
1999..................................................... 8,065
-------
Total future minimum lease payments........................ 27,423
Less amounts representing interest......................... 3,783
-------
Present value of future minimum lease payments............. $23,640
=======
</TABLE>
Since the interest rates of the Company's line of credit and long-term
notes payable approximate the current market rates for comparable financial
instruments, the carrying amounts are considered reasonable estimates of fair
value.
F-29
<PAGE> 73
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Deferred tax assets and liabilities as of March 29, 1996 and March 31,
1995 consist of the following temporary differences and carryforward items:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------
CURRENT LONG-TERM CURRENT LONG-TERM
--------- ----------- -------- ---------
<S> <C> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Inventory adjustments...................... $ 118,568 -- -- --
Allowance for contract adjustments......... 54,408 -- -- --
Allowance for doubtful accounts............ 24,245 -- $ 1,865 --
Accrued vacation........................... 12,719 -- 29,492 --
Contracts.................................. 36,014 -- -- --
Charitable contributions................... 1,886 -- 4,616 --
Net operating loss carryforward............ -- $ 1,916,070 -- $ 796,382
--------- ----------- --------- ---------
Total.............................. 247,840 1,916,070 35,973 796,382
--------- ----------- --------- ---------
DEFERRED INCOME TAX
LIABILITIES:
Depreciation and amortization.............. -- (465,553) -- (243,950)
Contracts.................................. -- -- (62,564) --
--------- ----------- --------- ---------
Total.............................. -- (465,553) (62,564) (243,950)
--------- ----------- --------- ---------
Net deferred tax asset (liability) before
valuation allowance........................ 247,840 1,450,517 (26,591) 552,432
Valuation allowance.......................... (247,840) (1,450,517) -- (525,841)
--------- ----------- --------- ---------
Net deferred taxes after valuation
allowance.................................. -- -- $(26,591) $ 26,591
========= =========== ========= =========
</TABLE>
As of March 29, 1996 and March 31, 1995, for Federal income tax return
purposes, the Company had approximately $4,913,000 and $2,039,000 of net
operating loss carryforwards available to offset taxable income of future years.
The carryforwards expire beginning in 2008 through 2010.
6. EMPLOYEE BENEFIT PLANS
The Company has a qualified, contributory 401(k) savings plan covering all
employees who belong to the Certified Metal Trades Journeymen collective
bargaining unit. The Company is required to make a contribution of 3% of
participants' compensation on an annual basis. The Company made a contribution
to the plan of approximately $23,900 and $9,000 for the years ended March 29,
1996 and March 31, 1995, respectively.
The Company has a separate qualified, contributory 401(k) savings plan
covering all non-union employees. The Company may, at its discretion, make a
matching contribution in an amount determinable by the board of directors. The
Company made a contribution to the plan of approximately $6,600 for the year
ended March 29, 1996 and did not make a contribution to the plan for the year
ended March 31, 1995.
7. STOCK OPTIONS
The Company has issued non-qualified stock options to various individuals
to acquire common stock of the Company at prices ranging from $.01 to $2.00 per
share. Options to acquire 477,500 were unexpired as of March 29, 1996 and March
31, 1995.
F-30
<PAGE> 74
NAPTECH, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company leases a building on a month-to-month basis from an entity
owned by certain of its officers and directors. Lease payments for the years
ended March 29, 1996 and March 31, 1995 to the related entity were approximately
$419,700 and $301,000, respectively.
On March 28, 1996, two senior officers of the Company formed a separate
limited liability company (LLC). Subsequent to March 29, 1996, the LLC was
awarded a substantial contract with amendments totaling approximately
$32,400,000 to provide rubber lined piping spools to a customer of NAPTech. The
LLC intends to subcontract with the Company to provide all labor, overhead,
contract accounting, and management services.
9. SUBSEQUENT EVENTS
On August 5, 1996, the Company signed a Plan and Agreement of Merger (the
Agreement) to sell the Company in a stock-for-stock transaction. The purchaser
intends to issue shares of its common stock. In conjunction with the merger of
the Company, the owners of the LLC, referred to in Note 8, have agreed to
transfer their membership interests to the Company.
Subsequent to March 29, 1996, the Company received working capital
infusions of $1,045,000 which was recorded as 120-day notes payable.
F-31
<PAGE> 75
==============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE 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 BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR A SOLICITATION OF AN OFFER TO BUY THOSE TO WHICH IT RELATES IN ANY STATE TO
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Price Range of Common Stock and
Dividend Policy..................... 11
Use of Proceeds....................... 12
Capitalization........................ 12
Pro Forma Condensed Consolidated
Financial Statements................ 13
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 33
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 36
Underwriting.......................... 41
Legal Matters......................... 42
Experts............................... 42
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
==============================================================================
==============================================================================
2,494,118 SHARES
THE SHAW GROUP INC.
COMMON STOCK
[LOGO]
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
HOAK BREEDLOVE WESNESKI & CO.
==============================================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 26,889
NASD Filing Fee........................................................... 9,374
NYSE Listing Fee.......................................................... *
Legal Fees and Expenses................................................... *
Accounting Fees and Expenses.............................................. *
Blue Sky Fees and Expenses (including legal fees)......................... *
Printing Expenses......................................................... *
Transfer Agent and Registrar Fees......................................... *
Miscellaneous............................................................. *
--------
TOTAL........................................................... $600,000
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 83 of the Louisiana Business Corporation Law (the "LBCL") provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
business, foreign or nonprofit corporation, partnership, joint venture, or other
enterprise. The indemnity may include expenses, including attorney fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Section
83 of the LBCL further provides that a Louisiana corporation may indemnify
officers and directors in an action by or in the right of the corporation under
the same conditions except that no indemnification is permitted without judicial
approval if the director or officer shall have been adjudged to be liable for
willful or intentional misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the merits or
otherwise in any defense of any action referred to above or any claim therein,
the corporation must indemnify him against such expenses that such officer or
director actually incurred. Section 83 of the LBCL permits a corporation to pay
expenses incurred by the officer or director in defending an action, suit or
proceeding in advance of the final disposition thereof if approved by the board
of directors.
Pursuant to Section 83 of the LBCL, the Company has adopted provisions in
its Restated Articles of Incorporation which require the Company to indemnify
its directors and officers to the fullest extent permitted by the LBCL.
The Company has entered into indemnification agreements with its directors
and certain of its officers which provide that the Company will, if certain
conditions are met and the director or officer acted in accordance with the
applicable standards and subject to certain procedures and exceptions, indemnify
such persons for claims, judgments and related expenses resulting from their
service on behalf of the Company and its affiliated entities in any pending,
threatened or completed action, suit or proceeding, whether civil,
administrative or criminal, except where (i) the Company is prohibited by law
from providing such indemnification; (ii) payment of the indemnification amounts
has been made under an insurance policy; (ii) payment of the indemnification
amounts has been made under an insurance policy; or (iii) the director or
II-1
<PAGE> 77
officer gained a personal profit to which he or she was not legally entitled
including profits arising from the violation of certain securities laws.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
+1.1 -- Form of Underwriting Agreement.
+2.1 -- Plan and Agreement of Merger dated as of August 5, 1996, as amended,
among the shareholders of NAPTech, Inc., NAPTech, Inc., The Shaw
Group Inc. and SAON, Inc.
4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form S-1 filed October 22, 1993,
as amended (Registration No. 33-70722)).
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Hannis T. Bourgeois & Co., L.L.P.
*23.4 -- Consent of Deloitte & Touche LLP.
*23.5 -- Consent of Roberts, Cherry & Company.
**24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
has not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such instruments
does not exceed 10% of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of any such
agreement to the Commission upon request.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Securities Act or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 78
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
the Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baton Rouge, State of Louisiana, on November 15,
1996.
THE SHAW GROUP INC.
By: /s/ BRET M. TALBOT
------------------------------
Bret M. Talbot
Vice President, Chief Financial
Officer, Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
* President, Chief Executive November 15, 1996
- --------------------------------------------- Officer and Director
J. M. Bernhard, Jr. (Principal Executive
Officer)
/s/ BRET M. TALBOT Vice President, Chief November 15, 1996
- --------------------------------------------- Financial Officer,
Bret M. Talbot Treasurer and Director
(Principal Financial and
Accounting Officer)
* Vice President, Chief November 15, 1996
- --------------------------------------------- Operating Officer and
George R. Shepherd Director
* Chairman of Alloy Piping November 15, 1996
- --------------------------------------------- Products, Inc. and
R. Dale Brown, Sr. Director
* President of Fronek Company November 15, 1996
- --------------------------------------------- Inc. and F.C.I. Pipe
Frank Fronek Support Sales and Director
* Director November 15, 1996
- ---------------------------------------------
L. Lane Grigsby
* Director November 15, 1996
- ---------------------------------------------
David W. Hoyle
* Director November 15, 1996
- ---------------------------------------------
Albert McAlister
* Director November 15, 1996
- ---------------------------------------------
John W. Sinders, Jr.
*By: /s/ BRET M. TALBOT
-----------------------------------------
Bret M. Talbot
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<S> <C>
+1.1 -- Form of Underwriting Agreement.
+2.1 -- Plan and Agreement of Merger dated as of August 5, 1996, as amended,
among the shareholders of NAPTech, Inc., NAPTech, Inc., The Shaw
Group Inc. and SAON, Inc.
4.1 -- Form of Common Stock Certificate (incorporated by reference to the
Company's Registration Statement on Form S-1 filed October 22, 1993,
as amended (Registration No. 33-70722)).
+5.1 -- Opinion of Fulbright & Jaworski L.L.P.
+23.1 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Hannis T. Bourgeois & Co., L.L.P.
*23.4 -- Consent of Deloitte & Touche LLP.
*23.5 -- Consent of Roberts, Cherry & Company.
**24.1 -- Powers of Attorney from certain members of the Board of Directors of
the Company.
*27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and the incorporation by reference in this registration statement of our
reports dated October 31, 1995 included in or made a part of this registration
statement and in The Shaw Group Inc.'s Form 10-K for the year ended August 31,
1995 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 15, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and the incorporation by reference in this registration statement of our
reports dated October 31, 1995 included in or made a part of this registration
statement and in The Shaw Group Inc.'s Form 10-K for the year ended August 31,
1995 and to all references to our Firm included in this registration statement.
HANNIS T. BOURGEOIS & CO., L.L.P.
Baton Rouge, Louisiana
November 15, 1996
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
NAPTech, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-14711 of The Shaw Group on Form S-3 of our report dated June 4, 1996
(November 15, 1996, as to the first paragraph of Note 4 and to Note 9) on the
consolidated financial statements of NAPTech, Inc. and subsidiary as of March
29, 1996 and March 31, 1995 and for the years then ended, appearing in the
Prospectus, which is a part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
November 15, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the registration statement of our reports dated June 14, 1996
included in The Shaw Group Inc.'s Form 8-K/A-1 dated April 17, 1996 and to all
references to our Firm included in this registration statement.
ROBERTS, CHERRY & COMPANY
Shreveport, Louisiana
November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914024
<NAME> THE SHAW GROUP INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,932,434
<SECURITIES> 0
<RECEIVABLES> 71,286,099
<ALLOWANCES> 0
<INVENTORY> 66,411,960
<CURRENT-ASSETS> 145,004,971
<PP&E> 60,083,299
<DEPRECIATION> 9,194,533
<TOTAL-ASSETS> 205,366,466
<CURRENT-LIABILITIES> 95,379,184
<BONDS> 0
0
0
<COMMON> 50,119,560
<OTHER-SE> 23,202,746
<TOTAL-LIABILITY-AND-EQUITY> 205,366,466
<SALES> 222,017,437
<TOTAL-REVENUES> 222,598,371
<CGS> 180,834,668
<TOTAL-COSTS> 180,834,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,671,431
<INCOME-PRETAX> 12,889,970
<INCOME-TAX> 4,216,403
<INCOME-CONTINUING> 8,776,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,776,498
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
