<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value........ 2,868,118 $27.3125 $78,335,472.88 $23,738.02
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</TABLE>
(1) Includes 374,000 shares reserved for the over-allotment option granted to
the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act.
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 OCTOBER 23, 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 October 22, 1996, the last reported sale price of the Common Stock as
reported on the New York Stock Exchange (the "NYSE") was $27.375 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
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</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
$135.3 million in fiscal 1995, 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 $4.2 million in
fiscal 1991 to $49.1 million in fiscal 1995. International projects represented
66% of the Company's 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.
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 November 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, NINE MONTHS ENDED MAY 31,
--------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
-------- -------- -------------------- ------- --------------------
PRO PRO
FORMA, FORMA,
AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................... $120,665 $113,177 $135,265 $235,461 $90,096 $152,156 $216,466
Cost of sales........................... 98,978 96,523 110,578 192,338 74,119 123,412 180,723
-------- -------- -------- -------- ------- -------- --------
Gross profit............................ 21,687 16,654 24,687 43,123 15,977 28,744 35,743
General and administrative expenses..... 13,187 11,631 15,023 26,600 10,454 17,614 24,907
-------- -------- -------- -------- ------- -------- --------
Operating income........................ 8,500 5,023 9,664 16,523 5,523 11,130 10,836
Interest expense........................ (2,234) (1,731) (2,829) (436) (2,271) (2,404) (1,230)
Other income, net....................... 91 293 236 786 -- -- 602
-------- -------- -------- -------- ------- -------- --------
Income before income taxes.............. 6,357 3,585 7,071 16,873 3,252 8,726 10,208
Provision for income taxes.............. 2,445 1,368 2,217 5,641 975 3,059 3,669
-------- -------- -------- -------- ------- -------- --------
Income before earnings (losses) from
unconsolidated entities............... 3,912 2,217 4,854 11,232 2,277 5,667 6,539
Earnings (losses) from unconsolidated
entities.............................. 301 792 (588) (588) (4) 286 286
-------- -------- -------- -------- ------- -------- --------
Income before extraordinary item........ $ 4,213 $ 3,009 $ 4,266 $ 10,644 $ 2,273 $ 5,953 $ 6,825
======== ======== ======== ======== ======= ======== ========
Income per common share before
extraordinary item(1)................. $ 0.63 $ 0.39(2) $ 0.50 $ 0.90 $ 0.27 $ 0.67 $ 0.56
======== ======== ======== ======== ======= ======== ========
Weighted average number of common shares
outstanding........................... 6,697 7,744 8,552 11,845 8,552 8,921 12,214
======== ======== ======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1996
------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 44,898 $ 90,098
Total assets............................................................................. 198,665 219,973
Long-term debt and capital lease obligations, net of current maturities.................. 28,135 28,135
Shareholders' equity..................................................................... 70,285 124,351
</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
$0.49, $0.40 and $0.44 for the years ended August 31, 1993, 1994 and 1995,
respectively, and $0.50 for the nine months ended May 31, 1996. 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 1995,
ABB Asea Brown Boveri Ltd. affiliates accounted for 14.1%, 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 $ 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 $ 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 October 22, 1996)........................ $37 $26 5/8
</TABLE>
The closing sale price of the Common Stock on October 22, 1996, as reported
on the NYSE, was $27.375 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 are estimated to be $51.4 million ($61.1
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
October 16, 1996, the Company had outstanding $53.6 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 May 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 MAY 31, 1996
-------------------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term borrowings and current portion of
long-term debt(1)................................ $ 43,556 $ 5,968 $ 5,968
======= ======= =======
Long-term debt, excluding current portion(1)....... 28,135 28,135 28,135
------- ------- -------
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; 16,152,468 shares issued
(18,152,468 shares as adjusted and 18,519,258
shares pro forma, as adjusted); 9,489,552
shares outstanding (11,489,552 shares as
adjusted and 11,856,342 shares pro forma, as
adjusted)(2).................................. 49,905 101,318 106,783
Retained earnings................................ 27,208 27,208 24,396
Less: 6,662,916 shares held in treasury, at
cost.......................................... (6,828) (6,828) (6,828)
------- ------- -------
Total shareholders' equity............... 70,285 121,698 124,351
------- ------- -------
Total capitalization............................... $ 98,420 $ 149,833 $ 152,486
======= ======= =======
</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,
1995 and the nine months ended May 31, 1996, and the unaudited pro forma
condensed consolidated balance sheet of the Company at May 31, 1996. The
unaudited pro forma condensed consolidated statements of income for the year
ended August 31, 1995 and for the nine months ended May 31, 1996 are 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 statements of income assume that the 1996 Acquisitions,
the proposed acquisition of NAPTech and this Offering occurred at September 1,
1994, and the unaudited pro forma condensed consolidated balance sheet assumes
that the proposed acquisition of NAPTech and this Offering occurred at May 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, 1993, 1994,
and 1995; (ii) condensed consolidated statements of income of the Company for
the years ended August 31, 1993, 1994, and 1995 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 2, 1993, April 1, 1994, and March 31,
1995, respectively; (iii) condensed consolidated statements of income of the
Company for the nine months ended May 31, 1996; and (iv) condensed consolidated
statements of income for the nine months ended May 31, 1996 restated to reflect
the proposed acquisition of NAPTech as a pooling of interests which include
NAPTech's results of operations for the nine months ended March 29, 1996.
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 statements of income for the
fiscal year ended August 31, 1995, for both the historical and restated
presentations, combine the historical condensed consolidated statements of
income for the Company, APP and Word, each for the fiscal year ended August 31,
1995. The unaudited pro forma condensed consolidated statements of income for
the nine months ended May 31, 1996 combines the historical condensed
consolidated statements of income of (i) the Company for the nine months ended
May 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 the 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, 1993, 1994 and 1995 and
(ii) a pro forma condensed consolidated statement of income for the year ended
August 31, 1995 giving effect to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------
---------------------------------------------------- 1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1995
1993 1994 1995 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................................... $120,665 $113,177 $135,265 $78,539 $ 213,804
Cost of sales........................... 98,978 96,523 110,578 61,909 $ (286)(a) 172,201
-------- -------- -------- ------- -------- --------
Gross profit.................... 21,687 16,654 24,687 16,630 286 41,603
General and administrative expenses..... 13,187 11,631 15,023 11,418 17 (b) 25,163
(155)(c)
(15)(a)
(1,125)(d)
-------- -------- -------- ------- -------- --------
Operating income................ 8,500 5,023 9,664 5,212 1,564 16,440
Interest expense........................ (2,234) (1,731) (2,829) (1,330) 3,723(e) (436)
Other income, net....................... 91 293 236 541 777
-------- -------- -------- ------- -------- --------
Income before income taxes.............. 6,357 3,585 7,071 4,423 5,287 16,781
Provision for income taxes.............. 2,445 1,368 2,217 1,673 1,718(f) 5,608
-------- -------- -------- ------- -------- --------
Income before earnings from
unconsolidated entities............... 3,912 2,217 4,854 2,750 3,569 11,173
Earnings from unconsolidated entities... 301 792 (588) -- (588)
-------- -------- -------- ------- -------- --------
Income before extraordinary item........ $ 4,213 $ 3,009 $ 4,266 $ 2,750 $ 3,569 $ 10,585
======== ======== ======== ======= ======== ========
Income per common share before
extraordinary item.................... $ 0.63 $ 0.39(g) $ 0.50 $ 0.92
======== ======== ======== ========
Weighted average number of common shares
outstanding........................... 6,697 7,744 8,552 11,478(h)
======== ======== ======== ========
</TABLE>
Set forth below are (i) the condensed consolidated statements of income of
the Company for the years ended August 31, 1993, 1994 and 1995, 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, 1995 giving effect to such restatement and
to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------
---------------------------------------------------- 1996
ACQUISITIONS YEAR ENDED
YEAR ENDED AUGUST 31, AND AUGUST 31,
------------------------------------ 1996 OFFERING 1995
1993 1994 1995 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
-------- -------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales................................... $130,210 $130,663 $156,922 $78,539 $ 235,461
Cost of sales........................... 107,932 112,005 130,715 61,909 $ (286)(a) 192,338
-------- -------- -------- ------- ------- --------
Gross profit.................... 22,278 18,658 26,207 16,630 286 43,123
General and administrative expenses..... 14,447 12,617 16,460 11,418 17 (b) 26,600
(155)(c)
(15)(a)
(1,125)(d)
-------- -------- -------- ------- ------- --------
Operating income................ 7,831 6,041 9,747 5,212 1,564 16,523
Interest expense........................ (2,722) (2,365) (3,465) (1,330) 4,359(e) (436)
Other income, net....................... 101 304 245 541 786
-------- -------- -------- ------- ------- --------
Income before income taxes.............. 5,210 3,980 6,527 4,423 5,923 16,873
Provision for income taxes.............. 2,043 1,508 2,027 1,673 1,941(f) 5,641
-------- -------- -------- ------- ------- --------
Income before earnings from
unconsolidated entities............... 3,167 2,472 4,500 2,750 3,982 11,232
Earnings from unconsolidated entities... 301 751 (588) -- (588)
-------- -------- -------- ------- ------- --------
Income before extraordinary item........ $ 3,468 $ 3,223 $ 3,912 $ 2,750 $ 3,982 $ 10,644
======== ======== ======== ======= ======= ========
Income per common share before
extraordinary item.................... $ 0.49 $ 0.40(g) $ 0.44 $ 0.90
======== ======== ======== ========
Weighted average number of common shares
outstanding........................... 7,064 8,111 8,919 11,845(h)
======== ======== ======== ========
</TABLE>
14
<PAGE> 16
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are (i) the unaudited historical condensed consolidated
statement of income of the Company for the nine months ended May 31, 1996 and
(ii) a pro forma condensed consolidated statement of income for such period
giving effect to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
HISTORICAL 1996
---------------------------- ACQUISITIONS
NINE MONTHS AND
ENDED 1996 OFFERING
MAY 31, 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Sales........................................................ $152,156 $43,268 $ 195,424
Cost of sales................................................ 123,412 36,119 $ (163)(a) 159,368
-------- ------- ------ --------
Gross profit......................................... 28,744 7,149 163 36,056
General and administrative expenses.......................... 17,614 6,080 9 (b) 23,866
(78)(c)
(9)(a)
250(d)
-------- ------- ------ --------
Operating income..................................... 11,130 1,069 (9) 12,190
Interest expense............................................. (2,404) (715) 2,009(e) (1,110)
Other income, net............................................ -- 559 559
-------- ------- ------ --------
Income before income taxes................................... 8,726 913 2,000 11,639
Provision for income taxes................................... 3,059 659 410(f) 4,128
-------- ------- ------ --------
Income before earnings from unconsolidated entities.......... 5,667 254 1,590 7,511
Earnings from unconsolidated entities........................ 286 -- 286
-------- ------- ------ --------
Net income........................................... $ 5,953 $ 254 $1,590 $ 7,797
======== ======= ====== ========
Net income per common share.................................. $ 0.67 $ 0.66
======== ========
Weighted average number of common shares outstanding......... 8,921 11,847(h)
======== ========
</TABLE>
Set forth below are (i) the unaudited historical condensed consolidated
statement of income of the Company for the nine months ended May 31, 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 nine months ended May 31, 1996 giving effect to such restatement
and to the 1996 Acquisitions and this Offering.
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
HISTORICAL 1996
---------------------------- ACQUISITIONS
NINE MONTHS AND
ENDED 1996 OFFERING
MAY 31, 1996 ACQUISITIONS ADJUSTMENTS AS ADJUSTED
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sales........................................................ $173,198 $43,268 $ 216,466
Cost of sales................................................ 144,767 36,119 $ (163)(a) 180,723
-------- ------- -------- --------
Gross profit......................................... 28,431 7,149 163 35,743
General and administrative expenses.......................... 18,655 6,080 9 (b) 24,907
(78)(c)
(9)(a)
250(d)
-------- ------- -------- --------
Operating income..................................... 9,776 1,069 (9) 10,836
Interest expense............................................. (3,062) (715) 2,547(e) (1,230)
Other income, net............................................ 43 559 602
-------- ------- -------- --------
Income before income taxes................................... 6,757 913 2,538 10,208
Provision for income taxes................................... 2,370 659 640(f) 3,669
-------- ------- -------- --------
Income before earnings from unconsolidated entities.......... 4,387 254 1,898 6,539
Earnings from unconsolidated entities........................ 286 -- 286
-------- ------- -------- --------
Net income........................................... $ 4,673 $ 254 $ 1,898 $ 6,825
======== ======= ======== ========
Net income per common share.................................. $ 0.50 $ 0.56
======== ========
Weighted average number of common shares outstanding......... 9,288 12,214(h)
======== ========
</TABLE>
15
<PAGE> 17
THE SHAW GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT MAY 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.......................... $ 3,341 $ 13,826(i) $ 17,167 $ 40 $(8,432)(k) $ 8,775
Accounts receivable........... 75,805 75,805 3,849 79,654
Receivables from
unconsolidated entities..... 1,896 1,896 -- 1,896
Inventories................... 58,512 58,512 2,568 61,080
Prepaid expenses.............. 1,985 1,985 -- 1,985
Other......................... 857 857 143 1,000
-------- ------- -------- ------- ------- --------
Total current assets.... 142,396 13,826 156,222 6,600 (8,432) 154,390
Investment in unconsolidated
entities...................... 2,200 2,200 0 2,200
Property and equipment.......... 55,268 55,268 9,410 64,678
Less: Accumulated depreciation
(including amortization of
assets acquired under capital
leases)....................... (8,587) (8,587) (2,803 ) (11,390)
-------- ------- -------- ------- ------- --------
46,681 46,681 6,607 53,288
Other assets, net............... 7,388 7,388 71 2,636(j) 10,095
-------- ------- -------- ------- ------- --------
Total assets.................... $198,665 $ 13,826 $ 212,491 $13,278 $(5,796) $ 219,973
======== ======= ======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks............ $ 3,782 $ 3,782 $ -- $ 3,782
Accounts payable.............. 30,502 30,502 3,988 34,490
Accrued liabilities........... 6,678 6,678 393 7,071
Current maturities of
long-term debt.............. 5,583 5,583 291 $ (291)(i) 5,583
Revolving line of credit...... 37,587 $ (37,587)(k) -- 3,400 (3,400)(k) --
Current obligations under
capital leases.............. 385 385 -- 385
Deferred revenue -- prebilled. 2,173 2,173 -- 2,173
Advance billings.............. 10,808 10,808 -- 10,808
-------- ------- -------- ------- ------- --------
Total current
liabilities........... 97,498 (37,587) 59,911 8,072 (3,691) 64,292
Long-term debt, less current
maturities.................... 26,458 26,458 4,741 (4,741)(k) 26,458
Obligations under capital
leases, less current
maturities.................... 1,677 1,677 -- 1,677
Deferred income taxes........... 2,747 2,747 -- 448(j) 3,195
Shareholders' equity:
Common stock.................. 49,905 51,413(l) 101,318 51 4,714(m) 106,783
700(j)
Paid in capital............... -- -- 4,714 (4,714)(m) --
Retained earnings............. 27,208 27,208 (4,300 ) 1,488(j) 24,396
Treasury stock................ (6,828) (6,828) -- (6,828)
-------- ------- -------- ------- ------- --------
Total shareholders'
equity................ 70,285 51,413 121,698 465 2,188 124,351
-------- ------- -------- ------- ------- --------
Total liabilities and
shareholders' equity.......... $198,665 $ 13,826 $ 212,491 $13,278 $(5,796) $ 219,973
======== ======= ======== ======= ======= ========
</TABLE>
16
<PAGE> 18
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.
The adjustments to the accompanying unaudited pro forma condensed
consolidated balance sheet are described below:
(i) To record the net increase in cash after application of the net
proceeds to the Company from this Offering and the repayment of certain
indebtedness.
(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 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 $51,412,500 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.
17
<PAGE> 19
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, 1995
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". The selected historical
consolidated financial data at May 31, 1996 and for the nine months ended May
31, 1995 and May 31, 1996 presented below are unaudited and, in the opinion of
the Company, include all adjustments that are of a normal recurring nature and
necessary for a fair presentation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AUGUST 31, MAY 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales................................ $120,665 $113,177 $135,265 $90,096 $152,156
Cost of sales........................ 98,978 96,523 110,578 74,119 123,412
-------- -------- -------- ------- --------
Gross profit......................... 21,687 16,654 24,687 15,977 28,744
General and administrative
expenses.......................... 13,187 11,631 15,023 10,454 17,614
-------- -------- -------- ------- --------
Operating income..................... 8,500 5,023 9,664 5,523 11,130
Interest expense..................... (2,234) (1,731) (2,829) (2,271) (2,404)
Other income, net.................... 91 293 236 -- --
-------- -------- -------- ------- --------
Income before income taxes........... 6,357 3,585 7,071 3,252 8,726
Provisions for income taxes.......... 2,445 1,368 2,217 975 3,059
-------- -------- -------- ------- --------
Income before earnings (losses) from
unconsolidated entities........... 3,912 2,217 4,854 2,277 5,667
Earnings (losses) from unconsolidated
entities.......................... 301 792 (588) (4) 286
-------- -------- -------- ------- --------
Income before extraordinary item..... 4,213 3,009 4,266 2,273 5,953
Extraordinary item, less applicable
income taxes...................... -- 370 -- -- --
-------- -------- -------- ------- --------
Net income........................... $ 4,213 $ 3,379 $ 4,266 $ 2,273 $ 5,953
======== ======== ======== ======= ========
Income per common share before
extraordinary item(1)............. $ 0.63 $ 0.39 $ 0.50 $ 0.27 $ 0.67
Extraordinary item per common
share............................. -- 0.05 -- -- --
-------- -------- -------- ------- --------
Net income per common share(1)....... $ 0.63 $ 0.44 $ 0.50 $ 0.27 $ 0.67
======== ======== ======== ======= ========
Weighted average number of common
shares outstanding................ 6,697 7,744 8,552 8,552 8,921
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT MAY 31, 1996
---------------
<S> <C>
Working capital............................................................. $ 44,898
Total assets................................................................ 198,665
Long-term debt and capital lease obligations, net of current maturities..... 28,135
Shareholders' equity........................................................ 70,285
</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 $0.49, $0.40 and $0.44 and
net income per common share would be $0.49, $0.44 and $0.44 for the years
ended August 31, 1993, 1994 and 1995, respectively, and $0.50 for the nine
months ended May 31, 1996. See "Pro Forma Condensed Consolidated Financial
Statements".
18
<PAGE> 20
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, included elsewhere in this
Prospectus.
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 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 Common Stock and make additional cash
payments up to $300,000 based on the future earnings 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 Common Stock valued at $3.4 million and cash
and other consideration of approximately $765,000.
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 Common Stock valued at
$6.7 million and paid cash of $11.3 million.
Shaw 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. For the fiscal years ended March 29, 1996 and March 31, 1995,
NAPTech 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
November 15, 1996.
19
<PAGE> 21
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>
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED MAY 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 82.0 85.3 81.8 82.3 81.1
----- ----- ----- ----- -----
Gross profit........................................... 18.0 14.7 18.2 17.7 18.9
General and administrative expenses.................... 10.9 10.3 11.1 11.6 11.6
----- ----- ----- ----- -----
Operating income....................................... 7.1 4.4 7.1 6.1 7.3
Interest expense....................................... (1.9) (1.5) (2.1) (2.5) (1.6)
Other income, net...................................... 0.1 0.3 0.2 -- --
----- ----- ----- ----- -----
Income before income taxes............................. 5.3 3.2 5.2 3.6 5.7
Provision for income taxes............................. 2.0 1.2 1.6 1.1 2.0
----- ----- ----- ----- -----
Income before earnings from unconsolidated entities.... 3.3 2.0 3.6 2.5 3.7
Earnings (losses) from unconsolidated entities......... 0.3 0.7 (0.4) -- 0.2
----- ----- ----- ----- -----
Income before extraordinary item....................... 3.6 2.7 3.2 2.5 3.9
Extraordinary item, less applicable income taxes....... -- 0.3 -- -- --
----- ----- ----- ----- -----
Net income............................................. 3.6% 3.0% 3.2% 2.5% 3.9%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended May 31, 1996 Compared to Nine Months Ended May 31, 1995
For the nine months ended May 31, 1996, sales were $152.2 million compared
to $90.1 million for the first nine months of fiscal 1995, an increase of 68.9%.
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 acquisition of Word and the acquisition of APP, which contributed
approximately $9.6 million and $13.3 million, respectively, in sales for the
nine months ended May 31, 1996.
The gross margin for the nine-month period ended May 31, 1996 increased to
18.9% from 17.7% for the same period during 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 the reworking of a project in the first quarter of fiscal 1995,
improvements in pricing in the domestic market and contributions from the APP
and Word subsidiaries. These improvements in gross margins were partially offset
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 first quarter of fiscal 1997.
General and administrative expenses were $17.6 million for the nine months
ended May 31, 1996, compared to $10.5 million for the same period of the prior
year. The $7.1 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 the nine-month period ended May 31, 1996 was $2.4
million, up 5.9% from the $2.3 million incurred in the nine-month period of the
previous year primarily due to increased borrowing resulting from the expansion
of business, the final months of billing delays, and the acquisition of APP and
acquisition of 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.
20
<PAGE> 22
The Company's effective tax rates for the nine-month periods ended May 31,
1996 and 1995 were 35.1% and 30.0%, 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 sales in the domestic market due in
part to the integration of APP 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.
Gross margins for fiscal 1995 increased to 18.3% 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 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.
Fiscal 1994 Compared to Fiscal 1993
Sales decreased by 6.2% for fiscal 1994 to $113.2 million from $120.7
million for fiscal 1993. Gross profit decreased 23.2% to $16.7 million for
fiscal 1994 from $21.7 million for fiscal 1993. Both sales and gross profits
were impacted by the Company's domestic market experiencing a reduction in the
level of fabrication work. This decrease resulted in increased competitive
bidding for domestic contracts. In the fourth quarter of fiscal 1994, the
Company had a number of projects, primarily domestic in nature, that were
adversely affected by competitive pricing, quick delivery requirements or
productivity difficulties, including some reworking on projects. The short
delivery time and reworking adversely impacted the profitability and
productivity on these projects as well as others.
In addition, international sales decreased from 31% of sales in fiscal 1993
to 28% of sales in fiscal 1994. Sales by the Company's joint ventures, which
included the Venezuelan subsidiary in fiscal 1994, were accounted for under the
equity method and not included in the Company's consolidated sales figures.
The adverse effect of the competitive domestic market on gross profit
percentages was partially offset by the mix of fabrication work in fiscal 1994,
which shifted from refinery projects to electric power generation projects.
Electric power generation contracts have historically yielded a higher profit
margin than other industry segments. Electric power projects represented 51% of
the Company's sales for fiscal 1994, compared to 30% for fiscal 1993. See
"Business -- Markets".
General and administrative expenses for fiscal 1994 were $11.6 million
compared to $13.2 million for fiscal 1993. Expressed as a percentage of sales,
excluding bonuses, general and administrative expenses were 10.3% for fiscal
1994, as compared to 10.9% for fiscal 1993. The increase as a percentage of
sales was due to
21
<PAGE> 23
the reduction in sales between 1994 and 1993, the Company's international
expansion activities and the acquisitions of the Company's engineering and pipe
support fabrication subsidiaries in April 1994.
The Company's effective tax rate for each of fiscal 1994 and fiscal 1993
was 38.2% and 38.5%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $9.4 million for the nine months ended May
31, 1996, compared to net cash provided by operations of $7.7 million for the
same period of the previous year. For the nine months ended May 31, 1996, net
cash used in operations was a result primarily of increases of $21.2 million in
receivables and $14.2 million in inventories, partially offset by increases of
$12.3 million in accounts payable and $8.7 million in advanced billings.
The increase in receivables was primarily attributable to a higher volume
of sales activity for the nine-month period ended May 31, 1996. In addition,
part of the increase in receivables was due to billing delays resulting from an
increased number of contracts with intricate and time consuming billing
provisions, as well as increased administrative burdens associated with higher
sales levels. The Company estimates that its billings are approximately three to
four weeks in arrears as a result of these factors. After reviewing the
Company's current backlog, the Company anticipates these delays will continue at
least through the first quarter of fiscal 1997. The increase in receivables was
offset in part by the receipt of advanced billings negotiated on certain
contracts.
Based upon an analysis of average receivables for the nine-month periods
ended May 31, 1996 and 1995 compared to sales for the respective periods, the
Company estimates that approximately $9.0 million of the $76.0 million of
accounts receivable at May 31, 1996 were attributable to billing delays. The
Company has attempted to resolve such delays by hiring additional billing
personnel and installing improved systems. Since the Company utilizes its
revolving line of credit to fund increased accounts receivable, the Company
estimates the effect of this billing delay upon its operations for the
nine-month period ended May 31, 1996 was approximately $470,000 in additional
interest expense.
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 $154.0 million.
The increase in inventories was primarily financed by the increase in accounts
payable.
Net cash used in investing activities was $22.0 million for the nine months
ended May 31, 1996, compared to $2.6 million for the same period in fiscal 1995.
During the nine months ended May 31, 1996, property and equipment was purchased
for $765,000 in cash in connection with the acquisition of Word. In addition,
$8.7 million of cash was used in connection with the acquisition of APP. Other
major property and equipment purchases for the nine months ended May 31, 1996
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 $1.6 million of facility expansion for the Company's subsidiary in
Walker, Louisiana; and $1.5 million of assets at the Company's Venezuelan
subsidiary.
Net cash provided by financing activities was $33.9 million for the
nine-month period ended May 31, 1996, compared to $4.7 million used for the nine
months ended May 31, 1995. For the nine months ended May 31, 1996, $23.6 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 the nine months
ended May 31, 1996, the Company borrowed $19.9 million in term debt. The
borrowings were used primarily to refinance $10.6 million of APP's debt, pay
down $3.8 million of revolving debt and purchase two induction bending machines
aggregating $4.9 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
22
<PAGE> 24
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 addition, since February 29, 1996, the Company has obtained an aggregate
of $9.9 million in term loans from a commercial lender and an insurance company.
The loans, which are secured by equipment, 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 basis points. 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 $61.8 million from $80.6 million
at August 31, 1995 to $142.4 million at May 31, 1996. The increase resulted
primarily from increases in inventories of $30.1 million and accounts receivable
of $27.6 million. Receivables increased primarily due to increased sales levels
and billing delays, and inventories increased primarily due to current and
future production requirements. At May 31, 1996, approximately $19.1 million of
the inventories and $15.6 million of the receivables were attributable to the
newly acquired Word and APP subsidiaries.
Property and equipment, net of accumulated depreciation, increased by $26.6
million to $46.7 million at May 31, 1996 from $20.1 million at August 31, 1995.
This increase resulted primarily from the $11.2 million of property and
equipment acquired in the acquisition of APP, the $5.2 million of property and
equipment acquired in the acquisition of Word, the purchase of two induction
bending machines aggregating $4.9 million, and $3.1 million in fixed asset
additions relating to the expansion of the facilities for the Company's
subsidiaries in Walker, Louisiana and Venezuela.
The Company's current liabilities increased $56.9 million from $40.6
million at August 31, 1995 to $97.5 million at May 31, 1996. The increase is due
primarily to increases of $23.6 million in the revolving line of credit, $15.4
million in accounts payable and $8.7 million in advanced billings. 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. Advanced billings increased due to negotiated, up-front
collections on certain contracts.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In December 1990, Statements 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.
23
<PAGE> 25
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.
24
<PAGE> 26
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
$135.3 million in fiscal 1995, 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 $4.2 million in
fiscal 1991 to $49.1 million in fiscal 1995. 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.
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<PAGE> 27
- 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
26
<PAGE> 28
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.
27
<PAGE> 29
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(1) 16 inches 2.5 inches
Cojafex PB Special 16 Portable(2) 16 inches 2.5 inches
Cojafex PB-1200 Walker, Louisiana 48 inches 4.0 inches
</TABLE>
- ---------------
(1) Currently being installed and expected to be operational by November 1,
1996.
(2) 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 November 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.
28
<PAGE> 30
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 and the nine months ended May 31, 1996 (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
------------------- NINE MONTHS ENDED
INDUSTRY SECTOR 1994 1995 MAY 31, 1996
------------------------------------------- ------ ------ -----------------
<S> <C> <C> <C>
Electric Power............................. $ 57.7 $ 59.2 $ 55.0
Refining................................... 31.7 39.2 52.5
Chemical................................... 20.4 33.5 38.8
Other...................................... 3.4 3.4 5.9
------ ------ ------
$113.2 $135.3 $ 152.2
====== ====== ======
</TABLE>
The Company's sales for fiscal 1995 and for the nine months ended May 31,
1996 by geographic region (sales by geographic location are not available for
fiscal 1994) were (in millions):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
GEOGRAPHIC REGION AUGUST 31, 1995 MAY 31, 1996
----------------------------------------------- ------------------ -----------------
<S> <C> <C>
United States.................................. $ 86.2 $ 102.9
Far East/Pacific Rim........................... 24.3 25.2
Middle East.................................... 4.2 14.6
Latin America.................................. 20.5 --
Europe......................................... -- 5.2
Other.......................................... 0.1 4.3
------ ------
$135.3 $ 152.2
====== ======
</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.
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<PAGE> 31
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 1995, the joint venture had sales of $1.2 million and the
Company's share of the joint venture's net loss was approximately $200,000.
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
30
<PAGE> 32
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 $154.0 million at August
31, 1996, not including approximately $5.0 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 1995, ABB Asea Brown Boveri Ltd. affiliates accounted for 14.1% of the
Company's sales. No other customers represented more than 10% of the Company's
sales for fiscal 1995.
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
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<PAGE> 33
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
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<PAGE> 34
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.
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<PAGE> 35
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
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<PAGE> 36
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.
35
<PAGE> 37
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock at September 30, 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.................... 528 * -- 528 *
All executive officers and directors
as a group (13 persons)(6).......... 3,039,031 31.8 394,118 2,644,913 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.
36
<PAGE> 38
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
As of August 31, 1996, there were 9,523,302 shares of Common Stock
outstanding. In addition, 803,625 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 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;
37
<PAGE> 39
(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;
38
<PAGE> 40
(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.
39
<PAGE> 41
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").
40
<PAGE> 42
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.
41
<PAGE> 43
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.
42
<PAGE> 44
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.
43
<PAGE> 45
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, 1994 and 1995............................ F-3
Consolidated Statements of Income for each of the three years in the period ended
August 31, 1995..................................................................... F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the
period ended August 31, 1995........................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
August 31, 1995..................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
Unaudited Consolidated Balance Sheets at May 31, 1996 and August 31, 1995............. F-17
Unaudited Consolidated Statements of Income for the three month and nine month periods
ended May 31, 1996 and 1995......................................................... F-18
Unaudited Consolidated Statements of Cash Flows for the nine month periods ended May
31, 1996 and 1995................................................................... F-19
Notes to Unaudited Consolidated Financial Statements.................................. F-20
NAPTECH, INC. AND SUBSIDIARY:
Unaudited Consolidated Balance Sheets as of June 30, 1996, March 29, 1996 and March
31, 1995............................................................................ F-23
Unaudited 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-24
Unaudited 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-25
Unaudited 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-26
Notes to Unaudited Consolidated Financial Statements.................................. F-27
</TABLE>
F-1
<PAGE> 46
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), formerly named Shaw Industries, Inc., and
subsidiaries as of August 31, 1994 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended August 31, 1995. 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, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1995, 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, 1995
F-2
<PAGE> 47
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
------------------------------
1994 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash......................................................... $ 555,049 $ 766,319
Cash in escrow............................................... 1,295,000 --
Investment in marketable securities.......................... 1,424,719 --
Accounts receivable -- Note 7................................ 37,355,042 48,238,346
Receivables from unconsolidated entities -- Note 5........... 5,512,517 1,630,862
Inventories -- Notes 4 and 7................................. 25,081,783 28,456,393
Prepaid expenses............................................. 558,139 644,300
Deferred income taxes -- Note 8.............................. 763,600 857,400
------------ -------------
Total current assets................................. 72,545,849 80,593,620
Investment in unconsolidated entities -- Note 5................ 2,084,624 1,824,448
Property and equipment -- Notes 6 and 10:
Transportation equipment..................................... 961,975 939,616
Furniture and fixtures....................................... 2,699,315 3,837,829
Machinery and equipment...................................... 7,425,369 10,210,324
Buildings and improvements................................... 5,863,503 7,302,977
Assets acquired under capital leases......................... 2,606,863 2,693,616
Land......................................................... 535,948 1,411,030
------------ -------------
20,092,973 26,395,392
Less: Accumulated depreciation (including amortization of
assets acquired under capital leases)........................ (4,515,130) (6,338,976)
------------ -------------
15,577,843 20,056,416
Other assets, net -- Note 3.................................... 2,058,803 3,893,022
------------ -------------
$92,267,119 $106,367,506
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance................. $ 400,451 $ 781,185
Accounts payable............................................. 8,261,420 15,059,300
Accrued liabilities.......................................... 3,492,901 5,561,045
Current maturities of long-term debt -- Note 6............... 1,603,988 1,676,890
Revolving line of credit -- Note 7........................... 24,931,958 14,001,285
Current portion of obligations under capital leases -- Note
10........................................................ 436,328 481,411
Deferred revenue -- prebilled................................ 467,598 902,004
Advanced billings............................................ -- 2,135,820
------------ -------------
Total current liabilities............................ 39,594,644 40,598,940
Long-term debt, less current maturities -- Note 6.............. 584,013 8,896,537
Obligations under capital leases, less current portion -- Note
10........................................................... 1,095,725 709,547
Deferred income taxes -- Note 8................................ 1,121,100 2,024,800
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 shares issued in 1994 and 1995; 8,552,001
shares outstanding in 1994 and 1995....................... 39,711,434 39,711,434
Retained earnings............................................ 16,988,038 21,254,083
Treasury stock, 6,662,916 shares in 1994 and 1995............ (6,827,835) (6,827,835)
------------ -------------
Total shareholders' equity........................... 49,871,637 54,137,682
------------ -------------
$92,267,119 $106,367,506
============ =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 48
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Sales.......................................... $120,664,595 $113,176,824 $135,264,643
Cost of sales.................................. 98,977,254 96,522,760 110,578,027
------------- ------------- -------------
Gross profit................................... 21,687,341 16,654,064 24,686,616
General and administrative expenses.............. 13,186,869 11,631,175 15,022,595
------------- ------------- -------------
Operating income....................... 8,500,472 5,022,889 9,664,021
Interest expense................................. (2,234,247) (1,731,456) (2,828,968)
Other income, net................................ 91,104 292,990 235,619
------------- ------------- -------------
(2,143,143) (1,438,466) (2,593,349)
------------- ------------- -------------
Income before income taxes....................... 6,357,329 3,584,423 7,070,672
Provision for income taxes -- Note 8............. 2,445,476 1,368,188 2,217,058
------------- ------------- -------------
Income before earnings (losses) from
unconsolidated entities........................ 3,911,853 2,216,235 4,853,614
Earnings (losses) from unconsolidated entities... 301,416 792,144 (587,569)
------------- ------------- -------------
Income before extraordinary item................. $ 4,213,269 $ 3,008,379 $ 4,266,045
Extraordinary item, less applicable income taxes
of $204,000 -- Note 2.......................... -- 370,455 --
------------- ------------- -------------
Net income....................................... $ 4,213,269 $ 3,378,834 $ 4,266,045
============= ============= =============
Earnings per common share -- Note 12:
Income before extraordinary item................. $.63 $.39 $.50
Extraordinary item............................... -- .05 --
------------- ------------- -------------
Net income....................................... $.63 $.44 $.50
============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 49
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
------------------------ ----------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
---------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1992... 12,264,917 $ 713,370 5,396,563 $(1,511,221) $ 9,395,935 $ 8,598,084
Net income................. -- -- -- -- 4,213,269 4,213,269
Share purchase............. -- -- 1,226,492 (1,130,000) -- (1,130,000)
Share sale................. -- 29,339 (778,822) 612,536 -- 641,875
Share exchange to FVF
minority shareholders.... -- 6,004 (55,192) 50,850 -- 56,854
---------- ----------- ---------- ------------ ----------- ------------
Balance, August 31, 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
========== =========== ========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 50
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $4,213,269 $ 3,378,834 $ 4,266,045
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization................................... 1,065,083 1,494,588 2,234,187
Provision (benefit) for deferred income taxes................... (145,000 ) 90,500 809,900
(Earnings) losses from unconsolidated entities over dividends
received...................................................... (301,416 ) (442,145) 663,569
Other........................................................... (4,100 ) (314,981) 55,692
Changes in assets and liabilities:
(Increase) in receivables....................................... (8,185,445 ) (12,208,847) (8,265,755)
(Increase) in inventories....................................... (8,659,034 ) (641,726) (2,830,372)
(Increase) decrease in other current assets..................... (875,670 ) 8,853 (67,571)
(Increase) in other assets...................................... -- (200,713) (1,004,108)
Increase (decrease) in accounts payable......................... 4,479,694 (2,822,608) 6,650,126
Increase (decrease) in deferred revenue -- prebilled............ (2,627,432 ) (288,563) 156,014
Increase (decrease) in accrued liabilities...................... 3,951,045 (2,812,737) 665,216
Increase (decrease) in advanced billings........................ -- -- 2,135,820
----------- ------------ ------------
Net cash provided by (used in) operating activities............... (7,089,006 ) (14,759,545) 5,468,763
Cash flows from investing activities:
Investment in unconsolidated entities........................... (266,325 ) (1,316,408) (381,678)
Investment in subsidiaries...................................... -- (2,101,909) (482,243)
Proceeds from sale of property and equipment.................... 26,622 9,537 70,275
Purchase of property and equipment.............................. (1,301,516 ) (4,708,509) (4,591,595)
Purchase of marketable securities............................... (504,308 ) (920,411) (269,351)
Cash transferred to escrow fund................................. (493,000 ) (802,000) 1,295,000
Sale of marketable securities................................... -- -- 1,694,070
----------- ------------ ------------
Net cash used in investing activities............................. (2,538,527 ) (9,839,700) (2,665,522)
Cash flows from financing activities:
Net proceeds (repayments) from revolving credit agreement....... 10,910,850 (2,173,750) (10,930,673)
Proceeds from issuance of debt.................................. 265,018 1,245,884 10,208,218
Repayment of debt and leases.................................... (904,341 ) (11,115,124) (2,250,250)
Increase (decrease) in outstanding checks in excess of bank
balance....................................................... 210,742 (380,255) 380,734
Purchase of treasury stock...................................... (1,130,000 ) (1,000,000) --
Issue common stock.............................................. -- 37,619,309 --
Issue treasury stock............................................ 641,875 -- --
----------- ------------ ------------
Net cash provided by (used in) financing activities............... 9,994,144 24,196,064 (2,591,971)
----------- ------------ ------------
Net increase (decrease) in cash................................... 366,611 (403,181) 211,270
Cash -- beginning of year......................................... 591,619 958,230 555,049
----------- ------------ ------------
Cash -- end of year............................................... $ 958,230 $ 555,049 $ 766,319
=========== ============ ============
Supplemental disclosures:
Cash payments for:
Interest...................................................... $2,240,978 $ 1,823,509 $ 2,842,980
=========== ============ ============
Income taxes.................................................. $3,092,443 $ 3,151,457 $ 1,248,166
=========== ============ ============
Noncash investing and financing activities:
Property and equipment acquired through issuance of debt........ $5,104,163 $ 366,852 $ 86,363
=========== ============ ============
Investment in subsidiaries acquired through issuance of common
stock......................................................... $ -- $ 1,350,000 $ --
=========== ============ ============
Treasury stock acquired through issuance of debt................ $ -- $ 3,850,000 $ --
=========== ============ ============
Investment in unconsolidated entities through reduction in
receivables................................................... $ -- $ -- $ 1,015,000
=========== ============ ============
Property and equipment acquired through recovery of investment in
unconsolidated subsidiary....................................... $ -- $ -- $ 1,075,300
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 51
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., formerly named Shaw Industries, Inc. (the Company), and its
wholly-owned subsidiaries National Fabricators, Inc., B. F. Shaw, Inc., Lone
Star Fabricators, Inc., Secorp, Inc., Shaw International, Inc. and FVF, Inc.
During 1993, the Company acquired the remaining outstanding shares of FVF, Inc.
and formed Sunland Fabricators, Inc. to acquire an existing fabrication facility
and related inventory. During 1994, the Company acquired Fronek Company, Inc.
and F.C.I. Pipe Support Sales, Inc. During 1995, the Company acquired the 50%
interest of the other participant in the Shaw-Formiconi joint venture in
Venezuela to form a wholly-owned subsidiary, Manufacturas Shaw South America,
C.A. In addition, during 1995 the Company formed Shaw Group International, Inc.
All material intercompany accounts and transactions have been eliminated in
these financial statements.
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.
Uncollectible accounts receivable are charged directly against earnings
when they are determined to be uncollectible. Charge-offs have not been
material. Use of this method does 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 average cost method.
Work in Process
The Company's primary business is fabricating piping systems. Work in
process includes the costs accumulated in the fabrication process for units
(spools) 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 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................................ 5-10 Years
Furniture and Fixtures.................................. 5-7 Years
Machinery and Equipment................................. 3-18 Years
Buildings and Improvements.............................. 8-40 Years
</TABLE>
F-7
<PAGE> 52
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Excess costs and excess billings
are not material.
Profit related to prebilled materials is deferred until the fabrication of
the spools is completed.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current reporting practices.
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 FCI and PSSI through
1997.
F-8
<PAGE> 53
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 estimated fair values of assets and
liabilities acquired are as follows:
<TABLE>
<S> <C>
Cash..................................................... $ 35,203
Accounts receivable...................................... 1,195,502
Inventory................................................ 925,923
Property and equipment................................... 798,371
Other assets............................................. 29,786
Goodwill................................................. 1,565,912
Accounts payable......................................... (470,755)
Accrued liabilities...................................... (177,226)
Notes payable............................................ (18,110)
Line of credit........................................... (404,082)
----------
$3,480,524
==========
</TABLE>
The pro forma effect of this acquisition, as though it had occurred at the
beginning of each of the two years in the period 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 $755,675 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. The estimated fair
values of assets and liabilities acquired are as follows:
<TABLE>
<S> <C>
Inventories.............................................. $ 272,119
Property and equipment................................... 421,702
Goodwill................................................. 755,675
Other assets............................................. 71,837
Accounts payable......................................... (198,430)
Deferred revenue......................................... (139,196)
Accrued liabilities...................................... (701,464)
----------
$ 482,243
Cash acquired............................................ 1,104,673
Land and building concurrently acquired.................. 1,313,084
----------
Cost of acquisition...................................... $2,900,000
==========
</TABLE>
F-9
<PAGE> 54
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized income statement data reflects the impact the
acquisition of the other participant's interest in the joint venture would have
had on the Company's results of operations if the transaction had taken place on
September 1, 1993:
<TABLE>
<CAPTION>
(UNAUDITED)
PRO FORMA RESULTS
FOR THE YEAR ENDED
AUGUST 31,
-----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Gross revenue........................................... $120,512,408 $137,205,431
============ ============
Net income.............................................. $ 4,170,978 $ 4,294,644
============ ============
Earnings per common share............................... $ .54 $ .50
============ ============
</TABLE>
NOTE 4 -- INVENTORIES
The major components of inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Finished Goods............................................ $ 1,177,680 $ 2,023,748
Raw Materials............................................. 17,844,091 21,596,205
Work In Process........................................... 6,060,012 4,836,440
----------- -----------
$25,081,783 $28,456,393
=========== ===========
</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 and 1995, the Company recognized losses of $-0- and
$205,968, respectively from Shaw-Nass. No distributions have been received
through August 31, 1995 from 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.
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.
In addition, as of August 31, 1994 and 1995, the Company had outstanding
receivables from its unconsolidated entities totaling $5,512,517 and $1,630,862
respectively. These receivables relate primarily to inventory and equipment sold
to the entities.
F-10
<PAGE> 55
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Installment note payable; 11.5% interest rate; $300
monthly payments secured by mortgage on equipment with
an approximate net book value of $8,500 as of August 31,
1995.................................................... $ 7,103 $ 3,990
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, 1995 was 7.625%; 60
monthly principal payments of $50,000 through May 31,
2000; secured by equipment with an approximate net book
value of $2,825,000 as of August 31, 1995............... -- 2,900,000
Notes payable to insurance companies; variable interest
rates based on 30 day commercial paper rates plus 190 to
235 basis points ranging from 7.9% to 8.4% as of August
31, 1995; payable in monthly installments based on a
ten-year amortization; loans expire in five years;
secured by property and equipment with an approximate
net book value of $7,975,000 as of August 31, 1995 and
guaranties by the Company and certain subsidiaries of
the Company............................................. -- 7,089,437
Note payable to a corporation; interest payable quarterly
at 60% of prime rate which was 7.875% as of August 31,
1995; principal repayable in annual installments through
December 15, 1995, unsecured............................ 1,110,000 580,000
Notes payable to a bank; interest payable monthly at 2.0%
above prime rate; 6 monthly principal payments of
$60,000, 7 monthly principal payments of $24,000 with
remaining balance due on November 24, 1994.............. 1,070,898 --
----------- -----------
Total debt................................................ 2,188,001 10,573,427
Less: current maturities.................................. (1,603,988) (1,676,890)
----------- -----------
Total long-term debt $ 584,013 $ 8,896,537
=========== ===========
</TABLE>
Annual maturities of long-term debt during each year ending August 31, are
as follows:
<TABLE>
<S> <C>
1996.................................................................... $ 1,676,890
1997.................................................................... 1,135,638
1998.................................................................... 1,180,335
1999.................................................................... 1,229,378
2000 and thereafter..................................................... 5,351,186
-----------
$10,573,427
===========
</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, 1995, the Company was in compliance with the covenants
or had obtained the required waivers.
F-11
<PAGE> 56
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of long-term debt, based on borrowing rates
currently available to the Company for notes with similar terms and average
maturities, was approximately $2,188,000 as of August 31, 1994. As of August 31,
1995, the fair value of long-term debt approximated its carrying value.
NOTE 7 -- REVOLVING LINE OF CREDIT
In 1995, the Company entered into a new loan and security agreement with
its commercial lenders which allows the Company to borrow up to $30,000,000
under a revolving line of credit at an interest rate based upon the London
Interbank Offering Rate (LIBOR) plus 85 to 200 basis points depending upon
certain financial ratios. This replaced the prior year revolving line of credit
which allowed the Company to borrow up to $35,000,000 at an interest rate of
1.25% above prime. During 1994 and 1995, the maximum amount outstanding was
approximately $28,058,000 and $29,318,000, respectively, and the average amount
outstanding was $16,687,931 and $24,441,463, respectively, at weighted average
interest rates of 8.73% and 9.79%, respectively. The new agreement expires
December 31, 1997.
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, 1995, the Company was in
compliance with these covenants or had obtained the required waivers.
NOTE 8 -- INCOME TAXES
A summary of net deferred taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets....................................... $ 763,600 $ 857,400
Deferred tax liabilities.................................. (1,121,100) (2,024,800)
----------- -----------
Net deferred taxes........................................ $ (357,500) $(1,167,400)
=========== ===========
</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............ $ 195,800 $ 184,200
Expenses not currently deductible......................... 567,800 673,200
---------- ----------
$ 763,600 $ 857,400
========= =========
Liabilities:
Excess tax over financial reporting asset basis........... $ 940,900 $1,751,300
Income not currently taxable.............................. 180,100 273,500
---------- ----------
$1,121,000 $2,024,800
========= =========
</TABLE>
Income before provision for income taxes for the years ended August 31 was
as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Domestic....................................... $6,357,329 $3,584,423 $1,803,426
Foreign........................................ -- -- 5,267,246
---------- ---------- ----------
Total.......................................... $6,357,329 $3,584,423 $7,070,672
========== ========== ==========
</TABLE>
F-12
<PAGE> 57
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for the years ended August 31 was as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current........................................ $2,299,083 $1,271,888 $1,423,158
Deferred....................................... (145,000) (113,500) 809,900
State.......................................... 291,393 209,800 (16,000)
---------- ---------- ----------
Total.......................................... $2,445,476 $1,368,188 $2,217,058
========== ========== ==========
</TABLE>
A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate.......................................... 34% 34% 34%
State taxes provided.................................... 4 5 --
Other................................................... -- (1) (3)
-- -- --
Total................................................... 38% 38% 31%
== == ==
</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 1993, the Company acquired from one of its shareholders 1,226,492
shares of common stock for a total cost of $1,130,000. The Company, acting as
agent, immediately resold 778,822 shares to certain members of management for
approximately the acquisition price per share.
Also during 1993, 55,192 shares of common stock held as treasury stock were
issued in exchange for the remaining 199 outstanding shares of FVF, Inc. which
were not owned by the Company. The Company now owns 100% of the stock of FVF,
Inc. The stock issued by the Company was recorded at the book value of the pro
rata share of the assets and liabilities acquired which was not materially
different than the market value at the date of exchange.
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.
F-13
<PAGE> 58
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- LEASES
Capital leases -- The Company leases an aircraft, 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,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Transportation equipment.................................... $1,710,270 $1,710,270
Furniture and fixtures...................................... 812,599 899,352
Machinery and equipment..................................... 83,994 83,994
---------- ----------
$2,606,863 $2,693,616
Less: accumulated amortization.............................. (377,486) (595,520)
---------- ----------
$2,229,377 $2,098,096
========== ==========
</TABLE>
The following is a summary of future obligations under capital leases
(present value of future minimum rentals):
<TABLE>
<S> <C>
Minimum lease payments:
1996............................................................. $ 574,047
1997............................................................. 726,731
1998............................................................. 29,386
1999............................................................. 18,591
----------
Total minimum lease payments..................................... $1,348,755
Less: amount representing interest............................... (157,797)
----------
$1,190,958
Less: current portion............................................ (481,411)
----------
Long-term obligations under capital leases....................... $ 709,547
==========
</TABLE>
Operating leases -- The Company leases certain offices, fabrication shops,
warehouse facilities, office equipment and machinery under non-cancelable
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, 1995, require the Company to make the following future
minimum lease payments:
For the year ending August 31:
<TABLE>
<S> <C>
1996............................................................. $ 773,336
1997............................................................. 779,626
1998............................................................. 676,278
1999............................................................. 503,197
2000 and thereafter.............................................. 314,795
----------
Total minimum lease payments..................................... $3,047,232
==========
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company entered into a commitment to purchase materials from a
supplier, which is owned by a former stockholder of the Company. In return for
access to the supplier's network of manufacturers and
F-14
<PAGE> 59
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
suppliers and for anticipated cost benefits related to quantity purchase
discounts, the Company agreed to purchase quantities from this supplier
sufficient to guaranty the supplier approximately $1,700,000 of gross profit (as
defined in such agreement). The agreement requires the Company to pay liquidated
damages of up to $246,000 per year, through the year 1997, if purchases are not
sufficient to amortize the total commitment over seven years. Because of the
Company's growth and the availability of alternative suppliers at attractive
prices, the Company has paid liquidated damages of $240,751, $244,991 and
$244,272 for the years ended August 31, 1993, 1994 and 1995, respectively.
As of August 31, 1995, the Company has committed to purchase approximately
$6.9 million of additional pipe bending machines for its domestic facilities.
The Company has posted letters of credit aggregating approximately $7.6
million as of August 31, 1995 to secure its performance under certain contracts
and insurance arrangements, as well as its purchase of three pipe bending
machines for its domestic facilities.
Venezuela, where the Company's subsidiary Manufacturas Shaw South America,
C.A. operates, has been experiencing a monetary and economic crisis. In
response, the Venezuelan government has imposed among other things, foreign
exchange controls that could affect the subsidiary's ability to distribute
profits to the Company or otherwise convert local currency into United States
dollars.
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 during the periods, adjusted
for the effect of the stock split and for the stock sales made during fiscal
1993 as if such sales were made at the beginning of each period: 6,697,000 in
1993; 7,744,209 in 1994 and 8,552,001 in 1995. The stock options discussed in
Note 14 are not considered in calculating earnings per share because they are
not significant.
NOTE 13 -- MAJOR CUSTOMERS AND EXPORT SALES
For the year ended August 31, 1993, sales to customers accounting for more
than 10% of sales totaled $16,500,000 and $13,400,000 for two customers and
comprised 24% of 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 customers accounting for more than 10% of sales totaled $23,700,000 and
$19,100,000 for two customers and comprised 32% of sales. Because of the nature
of the Company's business, the significant customers vary between years.
For the years ended August 31, 1993, 1994 and 1995, the Company has
included as part of its international sales approximately $38,000,000,
$32,000,000, and $40,000,000, 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. 850,000 shares of common stock are reserved for issuance under the
Plan, 445,000 of which are subject to the approval of the Company's shareholders
at the next annual meeting. 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.
F-15
<PAGE> 60
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended August 31, 1994, the Company issued 210,500 options
with exercise prices of $15.00 to $16.25 per share and expiration dates through
2004. In September 1994, the Company issued an additional 10,000 options at
$11.50 per share. In November 1994, the Company repriced the exercise prices of
all outstanding options to date to $5.875 per share and established a uniform
vesting schedule. In May 1995, the Company issued an additional 210,000 options
with an exercise price of $6.25 per share and expiration dates through 2005
subject to a vesting schedule similar to the previously issued options.
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 PS SI 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 respective fiscal year. The minimum threshold for the fiscal year
ended August 31, 1995 was not met, and therefore, no options will be issued for
that year.
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 and 1995 was approximately $102,000 and
$220,000, respectively.
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 was $231,900.
NOTE 16 -- FOREIGN CURRENCY TRANSACTIONS
The Company's wholly-owned subsidiary in Venezuela has assets and
liabilities 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 year-end exchange rates except for
inventory and property, which are consolidated using the rates in effect when
those assets were acquired. 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 has
been recognized in income by this translation. The net monetary asset position
of the Company as of August 31, 1995, was $2.6 million. 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-16
<PAGE> 61
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
------------ ------------
<S> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents..................................... $ 3,340,881 $ 766,319
Accounts receivable........................................... 75,804,969 48,238,346
Receivables from unconsolidated entities...................... 1,895,704 1,630,862
Inventories................................................... 58,511,763 28,456,393
Prepaid expenses.............................................. 1,984,652 644,300
Deferred income taxes......................................... 857,400 857,400
------------ ------------
Total current assets.................................. 142,395,369 80,593,620
Investment in unconsolidated entities........................... 2,199,590 1,824,448
Property and equipment:
Transportation equipment...................................... 1,163,493 939,616
Furniture and fixtures........................................ 4,770,004 3,837,829
Machinery and equipment....................................... 27,796,226 10,210,324
Buildings and improvements.................................... 14,728,746 7,302,977
Assets acquired under capital leases.......................... 3,693,515 2,693,616
Land.......................................................... 3,116,640 1,411,030
------------ ------------
55,268,624 26,395,392
Less: Accumulated depreciation (including amortization of
assets acquired under capital leases)...................... (8,586,515) (6,338,976)
------------ ------------
46,682,109 20,056,416
Other assets, net............................................... 7,387,601 3,893,022
------------ ------------
$198,664,669 $106,367,506
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance.................. $ 3,782,025 $ 781,185
Accounts payable.............................................. 30,501,921 15,059,300
Accrued liabilities........................................... 6,677,880 5,561,045
Current maturities of long-term debt.......................... 5,582,941 1,676,890
Revolving line of credit...................................... 37,587,432 14,001,285
Current portion of obligations under capital leases........... 385,138 481,411
Deferred revenue -- prebilled................................. 2,172,826 902,004
Advance billings.............................................. 10,807,411 2,135,820
------------ ------------
Total current liabilities............................. 97,497,574 40,598,940
Long-term debt, less current maturities......................... 26,458,250 8,896,537
Obligations under capital leases, less current portion.......... 1,676,813 709,547
Deferred income taxes........................................... 2,747,195 2,024,800
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;
16,152,468 and 15,214,917 shares issued; 9,489,552 and
8,552,000 shares outstanding, respectively................. 49,904,875 39,711,434
Retained earnings............................................... 27,207,797 21,254,083
Treasury stock, 6,662,916 shares................................ (6,827,835) (6,827,835)
------------ ------------
Total shareholders' equity............................ 70,284,837 54,137,682
------------ ------------
$198,664,669 $106,367,506
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-17
<PAGE> 62
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Income:
Sales............................... $63,780,409 $31,833,239 $152,155,657 $90,096,117
Cost of sales....................... 50,943,249 25,037,483 123,411,516 74,118,847
----------- ----------- ------------ -----------
Gross profit..................... 12,837,160 6,795,756 28,744,141 15,977,270
General and administrative expenses... 7,985,001 3,657,307 17,613,995 10,453,990
----------- ----------- ------------ -----------
Operating income................. 4,852,159 3,138,449 11,130,146 5,523,280
Interest expense...................... (1,229,755) (771,725) (2,403,834) (2,270,887)
----------- ----------- ------------ -----------
Income before income taxes............ 3,622,404 2,366,724 8,726,312 3,252,393
Provision for income taxes............ 1,340,000 708,149 3,058,726 975,294
----------- ----------- ------------ -----------
Income before earnings from
unconsolidated entities............. 2,282,404 1,658,575 5,667,586 2,277,099
Earnings (losses) from unconsolidated
entities............................ 162,965 (66,661) 286,128 (4,497)
----------- ----------- ------------ -----------
Net income.................. $ 2,445,369 $ 1,591,914 $ 5,953,714 $ 2,272,602
=========== =========== ============ ===========
Earnings per common share............. $ .26 $ .19 $ .67 $ .27
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE> 63
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
-------------------------------
1996 1995
--------------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 5,953,714 $ 2,272,602
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................... 2,546,381 1,599,896
Provision for deferred income taxes................................. (386,571) 160,000
Loss on sale of fixed assets........................................ -- 59,292
(Earnings) loss from unconsolidated entities........................ (286,128) 4,497
Changes in assets and liabilities, net of effects of acquisitions:
(Increase) decrease in receivables.................................... (21,169,857) (2,822,847)
(Increase) decrease in inventories.................................... (14,232,007) (6,840,306)
(Increase) decrease in prepaid expenses............................... (1,072,600) (243,309)
(Increase) decrease in other assets................................... 787,993 (51,854)
Increase (decrease) in accounts payable............................... 12,326,961 9,112,879
Increase (decrease) in deferred revenue -- prebilled.................. 1,270,822 4,315,356
Increase (decrease) in advanced billings.............................. 8,671,591 --
Increase (decrease) in accrued liabilities............................ (3,778,234) 135,239
------------- -------------
Net cash provided by (used in) operating activities................. (9,367,935) 7,701,445
Cash flows from investing activities:
Investment in unconsolidated entities................................. -- 338,393
Acquisition of 50% interest of Venezuelan joint venture partner....... -- (482,243)
Word acquisition...................................................... (765,473) --
APP acquisition....................................................... (8,671,400) --
Purchase of property and equipment.................................... (12,528,077) (3,926,078)
Proceeds from sale of property and equipment.......................... -- 67,172
Purchase of marketable securities..................................... -- (269,351)
Sale of marketable securities......................................... -- 1,694,070
Cash transferred to escrow fund....................................... -- (54,336)
------------- -------------
Net cash used in investing activities............................... (21,964,950) (2,632,373)
Cash flows from financing activities:
Net increase in outstanding checks in excess of bank balance.......... 3,000,840 833,360
Net proceeds (repayments) on revolving credit agreement............... 23,586,147 (13,894,929)
Proceeds from issuance of debt........................................ 19,885,892 10,185,041
Repayment of debt and leases.......................................... (12,632,260) (1,839,435)
Proceeds from issuance of common stock................................ 66,828 --
------------- -------------
Net cash provided by (used in) financing activities............ 33,907,447 (4,715,963)
------------- -------------
Net increase in cash.................................................... 2,574,562 353,109
Cash -- beginning of period............................................. 766,319 555,049
------------- -------------
Cash -- end of period................................................... $ 3,340,881 $ 908,158
============= =============
Supplemental disclosures:
Cash payments for:
Interest............................................................ $ 2,411,920 $ 2,290,840
============= =============
Income Taxes........................................................ $ 5,543,976 $ --
============= =============
Noncash investing and financing activities:
Investment in unconsolidated entities through reduction in
receivables....................................................... $ 89,014 $ 1,015,000
============= =============
Purchase of assets and assumption of liabilities through the
issuance of common stock.......................................... $ 10,126,613 $ --
============= =============
Purchase of other asset through issuance of debt.................... $ 2,104,000 $ --
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE> 64
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- UNAUDITED FINANCIAL INFORMATION
The financial information as of May 31, 1996 and 1995 included herein is
unaudited; however, such information reflects, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) that are
necessary to present fairly the results of operations for such periods. Results
of operations for the interim period are not necessarily indicative of results
of operations that will be realized for the fiscal year ending August 31, 1996.
NOTE 2 -- INVENTORIES
The major components of inventory consist of the following:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1996 1995
----------- -----------
<S> <C> <C>
(UNAUDITED)
Finished goods............................................ $19,574,674 $ 2,023,748
Raw materials............................................. 32,226,640 21,596,205
Work in process........................................... 6,710,449 4,836,440
----------- -----------
$58,511,763 $28,456,393
=========== ===========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
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 $1.7 million is held in short-term marketable
securities until used for other capital improvements at such facility. The loan
has a ten-year term, is to be repaid based upon the ten-year amortization of the
underlying project bonds 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 June 30, 1996
being 3.8%.
Concurrent with the APP acquisition (see Note 5), the Company amended its
loan and security agreement with its commercial lenders to provide for a
revolving line of credit of up to $70 million, depending upon the Company's
collateral base (which consists primarily of eligible amounts of receivables and
inventory), and up to $10 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 0 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 June 30, 1996 for the line of
credit and the term loans was 6.8%.
In addition, since February 29, 1996, the Company has obtained an aggregate
of $9.9 million in term loans that are secured by equipment from a commercial
lender and an insurance company. The loans 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 basis points. The effective rates at June
30, 1996 ranged from 7.1 to 7.4%.
NOTE 4 -- EARNINGS PER COMMON SHARE
Earnings per common share is calculated based on the weighted average
number of shares outstanding during the periods. The weighted average number of
shares outstanding for the quarters ended May 31, 1996 and 1995 were 9,480,047
and 8,552,000, respectively. Outstanding stock options did not materially affect
earnings per share at such dates.
F-20
<PAGE> 65
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- ACQUISITIONS
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 $755,675 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 total purchase
price related to this acquisition was approximately $4,167,000. The acquisition
was completed through the issuance of 385,000 shares of the Company's Common
Stock valued at $3,402,000 and cash and other consideration of approximately
$765,000. The purchase method was used to account for the acquisition. The
excess of cost over the estimated fair value of the assets acquired was
$222,000, which is included in other assets and is being amortized on a
straight-line basis over 20 years. The estimated fair value of assets and
liabilities are as follows:
<TABLE>
<S> <C>
Property and Equipment................................... $5,159,000
Other Assets............................................. 222,000
Notes Payable............................................ (294,000)
Accrued Liabilities...................................... (306,000)
Deferred Income Taxes.................................... (614,000)
----------
Cost of Acquisition.................................... $4,167,000
==========
</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 May 31, 1996.
F-21
<PAGE> 66
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $6,725,000 and cash of
$11,265,000. The purchase method was used to account for the acquisitions. The
estimated fair value of assets and liabilities are as follows:
<TABLE>
<S> <C>
Cash................................................... $ 2,594,000
Accounts Receivable.................................... 6,751,000
Inventory.............................................. 15,823,000
Other Current Assets................................... 268,000
Property and Equipment................................. 11,176,000
Other Assets........................................... 222,000
Notes Payable.......................................... (10,644,000)
Accounts Payable and Accrued Liabilities............... (7,705,000)
Deferred Income Taxes.................................. (495,000)
------------
Cost of Acquisition.......................... $ 17,990,000
============
</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.
The following summarized income statement data reflects the impact that the
Shaw-Formiconi, WIPF, TS&M Corporation, T. N. Word, APP and Speedline
acquisitions would have had on the Company's results of operations had the
transactions taken place on September 1, 1994:
<TABLE>
<CAPTION>
PROFORMA RESULTS FOR THE
NINE MONTHS ENDED
MAY 31,
-----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Gross revenue........................................... $195,423,558 $146,532,642
============ ============
Net income.............................................. $ 6,187,183 $ 3,477,482
============ ============
Earnings per common share............................... $ .65 $ .37
============ ============
</TABLE>
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED ENTITIES
During the nine months ended May 31, 1996, the Company recognized earnings
of $286,128 from Shaw-Nass Middle East, W.L.L., the Company's Bahrain joint
venture.
As of May 31, 1996, and August 31, 1995, the Company had outstanding
receivables from the unconsolidated entity totaling $1,895,704 and $1,630,862
respectively. These receivables relate primarily to inventory and equipment sold
to the entity.
F-22
<PAGE> 67
NAPTECH, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 29, MARCH 31,
1996 1996 1995
<S> <C> <C> <C>
CURRENT ASSETS:
Cash (Note 1)..................................... $ 8,624 $ 381,755 $ 6,324
Trade accounts receivable -- (less allowance for
doubtful accounts and allowance 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)................... 3,474,037 2,850,000 2,500,000
Current portion of long-term debt (Notes 1 and
4)............................................. 4,041,522 2,966,409 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)........ 11,667,848 13,020,458 8,966,948
LONG-TERM DEBT (Notes 1 and 4)...................... 200,683 221,403 284,255
------------ ------------ ------------
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-23
<PAGE> 68
NAPTECH, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED ---------------------------
JUNE 30, MARCH 29, MARCH 31,
1996 1996 1995
<S> <C> <C> <C>
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-24
<PAGE> 69
NAPTECH, INC. AND SUBSIDIARY
UNAUDITED 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....................... -- -- -- (1,394,841) (1,394,841)
--------- ------- ---------- ----------- -----------
BALANCE, JUNE 30, 1996........... 5,124,058 $51,241 $4,713,542 $(4,778,136) $ (13,353)
========= ======= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 70
NAPTECH, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 30, MARCH 29 MARCH 31,
1996 1996 1995
<S> <C> <C> <C>
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-26
<PAGE> 71
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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-27
<PAGE> 72
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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-28
<PAGE> 73
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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 October 18, 1996, the Company was in
violation of certain loan covenants of the Refinanced Debt. Therefore, in
October 1996 the Company requested and obtained a forbearance of all existing
covenant violations through November 15, 1996. Due to the uncertainty of
obtaining forbearance of existing covenant violations
F-29
<PAGE> 74
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsequent to November 15, 1996, the Company has shown the March 29, 1996 and
June 30, 1996 line of credit and note payable to a bank as short-term 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. 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
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....................................................... 3,187,812 3,461,082
Less current portion........................................ 2,966,409 3,176,827
---------- ----------
Long-term portion........................................... $ 221,403 $ 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 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.
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-30
<PAGE> 75
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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...................... $ 225,458 -- -- --
Allowance for contract adjustments......... 38,346 -- -- --
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............ -- $ 1,916,856 -- $ 796,382
--------- ----------- --------- ---------
Total.............................. 338,668 1,916,856 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........................ 338,668 1,451,303 (26,591) 552,432
Valuation allowance.......................... (338,668) (1,451,303) -- (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-31
<PAGE> 76
NAPTECH, INC. AND SUBSIDIARY
NOTES TO UNAUDITED 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-32
<PAGE> 77
------------------------------------------------------
------------------------------------------------------
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................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 25
Management............................ 34
Principal and Selling Shareholders.... 36
Description of Capital Stock.......... 37
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
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> 78
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> 79
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>
<C> <S>
+1.1 -- Form of Underwriting Agreement.
+2.1 -- Plan and Agreement of Merger dated as of August 5, 1996, 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 (contained on page II-4).
</TABLE>
- ---------------
* Filed herewith.
+ 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.
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
II-2
<PAGE> 80
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> 81
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 October 23, 1996.
THE SHAW GROUP INC.
By: /s/ J.M. BERNHARD, JR.
--------------------------------
J.M. Bernhard, Jr.
President, Chief Executive
Officer and Director
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints J. M. Bernhard, Jr. and Bret M. Talbot,
or any of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign (i) any and all amendments (including
post-effective amendments) to this Registration Statement, and (ii) any
additional registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) of the Securities Act of 1933 and to file
the same and all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting said attorney-in-fact and
agent, and any of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
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
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ J. M. BERNHARD, JR. President, Chief Executive October 23, 1996
- --------------------------------------------- Officer and Director
J. M. Bernhard, Jr. (Principal Executive
Officer)
/s/ BRET M. TALBOT Vice President, Chief October 23, 1996
- --------------------------------------------- Financial Officer,
Bret M. Talbot Treasurer and Director
(Principal Financial and
Accounting Officer)
/s/ GEORGE R. SHEPHERD Vice President, Chief October 23, 1996
- --------------------------------------------- Operating Officer and
George R. Shepherd Director
/s/ R. DALE BROWN, SR. Chairman of Alloy Piping October 23, 1996
- --------------------------------------------- Products, Inc. and
R. Dale Brown, Sr. Director
</TABLE>
II-4
<PAGE> 82
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
/s/ FRANK FRONEK President of Fronek Company October 23, 1996
- --------------------------------------------- Inc. and F.C.I. Pipe
Frank Fronek Support Sales and Director
/s/ L. LANE GRIGSBY Director October 23, 1996
- ---------------------------------------------
L. Lane Grigsby
/s/ DAVID W. HOYLE Director October 23, 1996
- ---------------------------------------------
David W. Hoyle
/s/ ALBERT McALISTER Director October 23, 1996
- ---------------------------------------------
Albert McAlister
/s/ JOHN W. SINDERS, JR. Director October 23, 1996
- ---------------------------------------------
John W. Sinders, Jr.
</TABLE>
II-5
<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
October 23, 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
October 23, 1996
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of The Shaw Group Inc. on Form S-3 of our report dated April 25, 1995 on the
consolidated financial statements of Word Industries, Inc. and subsidiaries as
of December 31, 1994 and 1993 and for the years then ended and the supplemental
consolidating schedules, appearing in Form 8-K/A-1 dated January 30, 1996 as
amended on March 29, 1996 of The Shaw Group Inc. and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
October 16, 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
October 15, 1996
