<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-22992
The Shaw Group Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-1106167
(State of Incorporation) (I.R.S. Employer Identification Number)
11100 Mead Road, 2nd Floor, Baton Rouge, Louisiana 70816
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(504) 296-1140
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date, is as follows:
o Common stock, no par value, 12,456,143 shares outstanding as of
July 10, 1997.
1
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheets - 3 - 4
August 31, 1996 and May 31, 1997
Consolidated Statements of Income - 5
For the Three Months and Nine Months
Ended May 31, 1996 and 1997
Consolidated Statements of Cash Flows - 6 - 7
For the Nine Months Ended May 31, 1996 and 1997
Notes to Consolidated Financial Statements 8 - 11
Item 2. - Management's Discussion and Analysis of 12 - 16
Financial Condition and Results of Operations
Part II - Other Information
Item 4. - Submission of Matters to a Vote of Security Holders 17
Item 6. - Exhibits and Reports on Form 8-K 17 - 18
Signature Page 19
Exhibit Index
2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
(UNAUDITED) (UNAUDITED)
August 31, May 31,
1996 1997
----------------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,967,342 $10,758,932
Accounts receivable, net 75,241,111 93,710,831
Receivables from unconsolidated entities 700,479 2,374,078
Inventories 68,878,231 70,842,291
Prepaid expenses 2,440,503 4,491,610
Deferred income taxes 1,634,817 1,634,817
----------------- -------------
Total current assets 151,862,483 183,812,559
Investment in unconsolidated entities 1,920,880 4,135,116
Property and equipment:
Transportation equipment 4,685,200 5,603,617
Furniture and fixtures 6,155,724 8,414,550
Machinery and equipment 36,299,786 46,603,248
Buildings and improvements 18,268,904 21,897,568
Assets acquired under capital leases 896,677 179,867
Land 3,201,626 3,657,369
------------- -------------
69,507,917 86,356,219
Less: Accumulated depreciation (including
amortization of assets acquired under capital leases) ( 12,065,574) (16,335,918)
------------- -------------
57,442,343 70,020,301
Notes receivable from related party 625,000 ---
Other assets, net 6,652,738 13,956,608
---------- --------------
$218,503,444 $271,924,584
============ ============
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(UNAUDITED) (UNAUDITED)
August 31, May 31,
1996 1997
---------------- -------------
<S> <C> <C>
Current liabilities:
Outstanding checks in excess of bank balance $ 3,104,746 $ 2,178,879
Accounts payable 28,905,023 24,799,317
Accrued liabilities 9,412,963 11,837,086
Current maturities of long-term debt 4,865,038 7,307,046
Revolving line of credit 52,796,148 39,036,494
Current portion of obligations under capital leases 68,143 52,307
Deferred revenue - prebilled 1,839,689 3,994,817
Advance billings 2,990,631 7,624,253
------------- ------------
Total current liabilities 103,982,381 96,830,199
Long-term debt, less current
maturities 36,795,386 40,541,940
Obligations under capital leases,
less current portion 44,696 ---
Deferred income taxes 1,635,702 2,005,566
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;
16,619,099 and 19,051,934 shares
issued, respectively; 9,956,183 and
12,389,018 shares outstanding, respectively 56,849,127 103,361,780
Retained earnings 26,023,987 36,012,934
Treasury stock, 6,662,916 shares (6,827,835) (6,827,835)
------------- -------------
Total shareholders' equity 76,045,279 132,546,879
----------- ------------
$218,503,444 $271,924,584
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(UNAUDITED) (UNAUDITED)
Three Months Ended Nine Months Ended
May 31, May 31,
1996 1997 1996 1997
-------------- ------------- --------------- ----------
<S> <C> <C> <C> <C>
Income:
Sales $73,483,296 $88,883,982 $173,197,979 $250,118,977
Cost of sales 60,902,458 71,541,310 144,747,666 203,068,521
---------- ---------- ----------- -------------
Gross profit 12,580,838 17,342,672 28,450,313 47,050,456
General and administrative expenses 8,381,278 10,144,131 18,668,251 27,625,806
--------- ---------- ---------- -------------
Operating income 4,199,560 7,198,541 9,782,062 19,424,650
Interest expense (1,443,799) (1,736,002) (3,032,822) (5,355,552)
Other income, net --- 92,306 42,582 240,472
---------------- -------------- ----------- ------------
(1,443,799) (1,643,696) (2,990,240) (5,115,080)
---------- ---------- ---------- ----------
Income before income taxes 2,755,761 5,554,845 6,791,822 14,309,570
Provision for income taxes 1,037,000 1,750,332 2,381,726 4,591,595
----------- ----------- --------- -----------
Income before earnings from uncon-
solidated entities 1,718,761 3,804,513 4,410,096 9,717,975
Earnings from unconsolidated entities 162,965 (250,000) 286,128 570,388
----------- ----------- ---------- ----------
Net income $1,881,726 $3,554,513 $4,696,224 $10,288,363
========== ========== ========== ===========
Earnings per common share $ .19 $ .29 $ .50 $ .91
=============== ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of of these statements.
5
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(UNAUDITED)
Nine Months Ended
May 31,
1996 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $4,696,224 $10,288,363
Net losses not included in reporting period (See
Note 5 to Notes to Consolidated Financial
Statements) (906,546) (131,612)
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 3,290,978 4,809,529
(Benefit) for deferred income taxes (1,253,571) ---
(Earnings) from unconsolidated entities (286,128) (570,388)
Changes in assets and liabilities:
(Increase) in receivables (22,680,030) (13,284,818)
(Increase) in inventories (13,882,042) (1,315,100)
(Increase) in prepaid expenses (1,073,446) (1,935,268)
(Increase) decrease in other assets 777,174 (107,094)
Increase (decrease) in accounts payable 16,030,633 (6,084,652)
Increase in deferred revenue - prebilled 1,270,822 2,155,128
Increase in advanced billings 8,671,591 3,356,710
Increase (decrease) in accrued liabilities (3,943,320) 257,486
----------- -------------
Net cash (used in) operating activities (9,287,661) (2,561,716)
Cash flows from investing activities:
Investment in unconsolidated entities --- (1,643,848)
Investment in subsidiaries, net of cash received (9,436,873) (11,292,769)
Purchase of property and equipment (12,836,345) (12,837,539)
Proceeds from notes receivable --- 86,770
------------------- -------------
Net cash (used in) investing activities (22,273,218) (25,687,386)
</TABLE>
(Continued)
The accompanying notes are an integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
Nine Months Ended
May 31,
1996 1997
---------------- ----------------
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in outstanding
checks in excess of bank balance 3,000,840 (925,867)
Net proceeds (repayment) on revolving
credit agreement 23,936,147 (13,759,654)
Proceeds from issuance of debt 19,945,532 11,879,740
Repayment of debt and leases (12,972,982) (7,498,379)
Distributions to members of
Freeport Properties, L.C. --- (167,804)
Purchase of treasury stock --- (661,311)
Issuance of common stock 636,828 47,173,967
---------------- ------------
Net cash provided by financing activities 34,546,365 36,040,692
---------- ------------
Net increase in cash and cash equivalents 2,985,486 7,791,590
Cash and cash equivalents - beginning of period 783,783 2,967,342
----------- ------------
Cash and cash equivalents - end of period $3,769,269 $10,758,932
========== ===========
Supplemental disclosures:
Cash payments for:
Interest $3,040,908 $5,233,045
========== ==========
Income Taxes $5,543,976 $5,508,366
========== ==========
Noncash investing and financing activities:
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 $ ---
=========== ===========
Investment in unconsolidated entities through
reduction in receivables $ 89,014 $ ---
=========== ===========
Purchase of inventory and payment of liabilities
through the cancellation of notes receivable $ --- $ 538,230
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Financial Information -
The financial information of The Shaw Group Inc. and its subsidiaries
(collectively, the Company) for the three-month and nine-month periods
ended May 31, 1996 and 1997 and as of August 31, 1996 and May 31, 1997
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, 1997.
Note 2 - Inventories -
The major components of inventory consist of the following:
(UNAUDITED) (UNAUDITED)
August 31, May 31,
1996 1997
------------------ -------------
Finished goods $ 23,138,238 $ 25,638,499
Raw materials 33,870,748 35,073,535
Work in process 11,869,245 10,130,257
------------ ------------
$68,878,231 $70,842,291
=========== ===========
Note 3 - Public Offering of Common Stock -
On December 23, 1996, the Company closed the sale of 2,000,000 shares
of its common stock, no par value (the "Common Stock"), in an
underwritten public offering at a price of $21.00 per share less
underwriting discounts and commissions. On January 10, 1997, the
underwriters for such offering exercised an option to purchase an
additional 398,000 shares of Common Stock from the Company pursuant to
such terms to cover over-allotments. The net proceeds to the Company,
less underwriting discounts and other expenses of the offering, totaled
approximately $47 million and were used to pay down amounts outstanding
under the Company's revolving line of credit. The Company's revolving
line of credit has been used to provide working capital, as well as to
fund fixed asset and subsidiary acquisitions.
8
<PAGE>
Note 4 - Earnings Per Common Share -
Earnings per common share is calculated based on the weighted average
number of shares outstanding, including dilutive common stock equivalents
when material, during the periods. The weighted average number of shares
outstanding for the quarters ended May 31, 1996 and 1997 were 9,912,928
and 12,367,157, respectively. Outstanding stock options were not
considered in calculating earnings per share for the quarters ended May
31, 1996 and 1997 because they were not material in the calculation.
Note 5 - Acquisitions -
On January 27, 1997, the Company completed the acquisition of
NAPTech, Inc. (NAPTech), a fabricator of industrial piping systems and
engineered piping modules located in Clearfield, Utah. The Company issued
432,881 shares of its Common Stock in exchange for NAPTech and the
335,000 square foot facility that NAPTech had leased from a related
entity. The acquisition was accounted for using the pooling-of-interests
method; accordingly, the Company's financial information for all prior
periods presented herein has been restated to include financial
information of NAPTech. Summarized results of operations of the separate
companies for the period from September 1, 1996 through January 27, 1997,
the date of acquisition, are as follows:
Shaw NAPTech
---- -------
Sales $106,555,000 $24,482,000
============ ===========
Net income $ 2,505,000 $ 584,000
============ ===========
Net income of the combined companies for the nine-month period ended
May 31, 1997 has been reduced by approximately $600,000 of merger and
business combination costs of the NAPTech acquisition.
Because the fiscal periods of the Company and NAPTech were not the
same, NAPTech financial statements for the 1995 fiscal year consisted of
the twelve months ended March 31, 1995 and the 1996 fiscal year financial
statements were recast from the twelve months ended March 31, 1996 to the
twelve months ended June 30, 1996. As a result, the following sales and
losses of NAPTech have been excluded from the respective statements of
income:
Fiscal Period Months excluded Sales Net losses
------------- ------------------------- ---------- ----------
1996 April, May and June, 1995 $3,811,000 $907,000
========== ========
1997 July and August, 1996 $5,194,000 $132,000
========== ========
The following is a reconciliation of the amounts of sales and net
income previously reported (in the Company's Quarterly Report on Form
10-Q for the quarterly period ended May 31, 1996) for the nine-month
period ended May 31, 1996:
Sales Net income (loss)
----- -----------------
As previously reported $152,155,657 $ 5,953,714
NAPTech 21,042,322 (1,257,490)
------------ -----------
As restated $173,197,979 $ 4,696,224
============= ===========
9
<PAGE>
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 (T.N. Word). The acquisition was completed through the
issuance of 385,000 shares of the Company's Common Stock valued at
$3,442,000 and cash of $503,000. Acquisition costs of $246,000 were
incurred by the Company. The purchase method was used to account for the
acquisition. The operating results of Word have been included in the
consolidated statements of income of the Company from the date of
acquisition.
Effective March 1, 1996, the Company purchased all of the outstanding
capital stock of Alloy Piping Products, Inc. (APP), a leading U.S.
manufacturer of specialty stainless and carbon steel pipe fittings and
other stainless pipe products, and the assets of an APP-related entity,
Speedline, a Louisiana partnership (Speedline). The acquisition was
completed through the issuance of 541,177 shares of the Company's Common
Stock valued at $6,765,000 and cash of $11,280,000. Acquisition costs of
$366,000 were incurred by the Company. The purchase method was used to
account for the acquisition. The operating results of APP have been
included in the consolidated statements of income from the effective date
of acquisition.
Effective October 1, 1996, the Company acquired all of the
outstanding capital stock of Pipe Shields Incorporated (Pipe Shields), an
industrial pipe insulation company located in Vacaville, California, for
approximately $2.5 million in cash, net of cash received. The purchase
method was used to account for the acquisition. The excess of cost over
the estimated fair value of the assets acquired was approximately $1.8
million, which is included in other assets and is being amortized on a
straight-line basis over 20 years. The operating results of Pipe Shields
have been included in the consolidated statements of income of the
Company from the effective date of the acquisition. The pro-forma effect
of the acquisition of Pipe Shields, had it occurred on September 1, 1995,
is not material to the operations of the Company.
Effective February 1, 1997, the Company purchased all of the
outstanding capital stock of United Crafts, Inc. (UCI), an industrial
construction and maintenance company based in Baton Rouge, Louisiana, for
cash of $7,646,000, net of cash received. Acquisition costs of
approximately $105,000 were incurred by the Company. The purchase method
was used to account for the acquisition. The excess of cost over the
estimated fair value of the assets acquired was $5,197,000, which is
included in other assets and is being amortized on a straight-line basis
over 20 years. The estimated fair value of the assets and liabilities of
UCI as of February 1, 1997 are as follows:
Accounts Receivable $6,040,000
Property and Equipment 2,992,000
Other Assets 5,245,000
Accounts Payable & Accrued Liabilities (4,002,000)
Advance Billings (1,277,000)
Notes Payable (1,101,000)
Deferred Income Taxes (146,000)
------------
Cost of Acquisition $7,751,000
10
<PAGE>
The operating results of UCI have been included in the consolidated
statements of income from the effective date of the acquisition.
On March 20, 1997, the Company, through a newly-formed, wholly-owned
subsidiary, completed the purchase of certain assets and the assumption
of certain liabilities of MERIT Industrial Constructors, Inc. (MERIT), an
industrial construction and maintenance firm based in Baton Rouge,
Louisiana, and certain of its affiliates. Total consideration paid by the
Company was approximately $1 million in cash and 62,500 shares of Shaw
Common Stock, as well as the assumption of approximately $340,000 of
debt. The purchase method was used to account for the acquisition. The
operating results related to the acquired MERIT assets have been included
in the consolidated statements of income from the date of the
acquisition. The proforma effect of the acquisition of the MERIT assets,
had it occurred on September 1, 1995, is not material to the operations
of the Company.
The following summarized income statement data reflects the impact
that the WIPF, TS&M Corporation, T. N. Word, APP, Speedline, and UCI
acquisitions would have had on the Company's results of operations had
the transactions taken place on September 1, 1995:
(UNAUDITED)
ProForma Results for the
Nine Months Ended
May 31,
1996 1997
---- ----
Gross revenue $238,523,000 $265,154,000
============ ============
Net income $ 4,927,000 $ 10,479,000
============ ============
Earnings per common share $ .50 $ .92
============ ============
Note 6 - Investment in Unconsolidated Entities -
During the nine months ended May 31, 1996 and 1997, the Company recognized
earnings of $286,128 and $570,388, respectively, from Shaw-Nass Middle East,
W.L.L., the Company's joint venture in Bahrain. As of August 31, 1996, and May
31, 1997, the Company had outstanding receivables from such unconsolidated
entity totaling $700,479 and $2,374,078 respectively. These receivables relate
primarily to inventory and equipment sold to such entity.
11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The following discussion summarizes the financial position of The Shaw
Group Inc. and its subsidiaries (hereinafter referred to collectively, unless
the context otherwise requires, as the "Company" or "Shaw") at May 31, 1997, and
the results of its operations for the three-month and nine-month periods then
ended, and should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Quarterly Report on Form 10-Q.
On January 27, 1997, the Company completed the acquisition of NAPTech,
Inc. (NAPTech), a fabricator of industrial piping systems and engineered piping
modules located in Clearfield, Utah. The Company issued 432,881 shares of its
Common Stock in exchange for NAPTech and the 335,000 square foot facility that
NAPTech had leased from a related entity. The acquisition was accounted for
using the pooling-of-interests method; accordingly, the Company's financial
information for all prior periods presented herein has been restated to include
financial information of NAPTech. Approximately $600,000 of merger and business
combination costs of the NAPTech acquisition have been expensed during the nine
months ended May 31, 1997. See Note 5 to Notes to Consolidated Financial
Statements.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements in this quarterly report that are not historical facts
may be forward looking statements. The forward looking statements are subject to
certain risks and uncertainties, including without limitation those identified
below, which could cause actual results to differ materially from historical
results or those anticipated. Readers are cautioned not to place undue reliance
on these forward looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any forward
looking statements, whether as a result of new information, future events or
otherwise. The following factors could cause actual results to differ materially
from historical results or those anticipated: adverse economic conditions, the
impact of competitive products and pricing, product demand and acceptance risks,
the presence of competitors with greater financial resources, costs and
financing difficulties, the results of financing efforts, delays or difficulties
in the production, delivery or installation of products by the Company or its
suppliers, the strength or weakness of the U.S. dollar relative to foreign
currencies, and other risks detailed from time to time in the Company's
Securities and Exchange Commission filings.
Liquidity and Capital Resources:
- --------------------------------
Net cash used in operations was $2.6 million for the nine months ended
May 31, 1997, compared to $9.3 million for the same period of the previous year.
The net cash used was a result primarily of an increase of $13.3 million in
receivables and a decrease in accounts payable of $6.1 million, partially offset
12
<PAGE>
by earnings adjusted for non-cash activities totaling $14.4 million.
The increase in receivables is primarily attributable to a higher volume of
sales activity for the three-month and nine-month periods ended May 31, 1997, as
well as minor collection delays. The decrease in accounts payable resulted from
the improved cash flow realized from the proceeds of the issuance of the
2,398,000 shares of the Company's Common Stock in December 1996 and January 1997
(see Note 3 to Notes to Consolidated Financial Statements) and increased
advanced billings and prebillings.
Net cash used in investing activities was $25.7 million for the nine months
ended May 31, 1997, compared to $22.3 million for the same period in fiscal
1996. During the first nine months of fiscal 1997, the Company purchased all of
the capital stock of Pipe Shields Incorporated ("Pipe Shields") and United
Crafts, Inc. ("UCI") for an aggregate of approximately $10.2 million, net of
cash received. Additionally, the Company completed the purchase of certain
assets and the assumption of certain liabilities of MERIT Industrial
Constructors, Inc. ("MERIT") and certain of its affiliates for approximately
$1.1 million. See Note 5 to Notes to Consolidated Financial Statements.
Purchases of property and equipment included two pipe bending machines
aggregating $4.3 million, $4.1 million of property and equipment purchases and
improvements at the Company's subsidiary in Shreveport, Louisiana, and $4.4
million of other property and equipment purchases. In addition, the Company
increased its investment in its unconsolidated subsidiary, Shaw-Nass Middle
East, W.L.L., by $1.6 million in connection with the joint venture's purchase of
the building it had previously been leasing.
Net cash provided by financing activities was $36.0 million for the
nine-month period ended May 31, 1997, compared to $34.5 million for the nine
months ended May 31, 1996. The primary source of cash for the nine months ended
May 31, 1997 was from the Company's sale of 2,398,000 shares of its Common
Stock, which netted approximately $47.0 million (see Note 3 to Notes to
Consolidated Financial Statements). The proceeds were used to pay down amounts
outstanding under the Company's revolving line of credit, which has been used to
provide working capital as well as to fund fixed asset and subsidiary
acquisitions.
Material Changes in Financial Condition:
- ----------------------------------------
The Company's current assets increased by $31.9 million from $151.9 million
as of August 31, 1996 to $183.8 million as of May 31, 1997. The increase
resulted primarily from increases in accounts receivable of $18.5 million and
cash of $7.8 million. The increase in receivables is primarily related to (i)
the newly-acquired Pipe Shields and UCI subsidiaries, which together at May 31,
1997 had receivables amounting to $10.7 million, (ii) increased sales levels and
(iii) minor collection delays. The increase in cash is primarily related to
temporary cash balances maintained in connection with a project in the United
Kingdom.
Property and equipment increased by $16.9 million to $86.4 million as of
May 31, 1997 from $69.5 million as of August 31, 1996. This increase resulted
primarily from the purchase of two pipe bending machines aggregating $4.3
million, property and equipment of $4.1 million acquired in the acquisitions of
Pipe Shields, UCI and MERIT, $4.1 million of property and equipment purchases
and improvements at the Company's subsidiary in Shreveport, Louisiana, and $4.4
million of other purchases.
13
<PAGE>
Other assets increased from $6.7 million at August 31, 1996 to $14.0
million at May 31, 1997. The increase of $7.3 million resulted primarily from
goodwill relating to acquisitions during fiscal 1997.
The Company's current liabilities decreased $7.2 million from $104.0
million at August 31, 1996, to $96.8 million at May 31, 1997. The decrease is
primarily due to reductions in the revolving line of credit of $13.8 million,
partially offset by increases in advance billings of $4.6 million and deferred
revenue prebilled of $2.2 million. The decreases in amounts outstanding under
the Company's revolving line of credit resulted from the improved cash flow
realized from the proceeds of the sale by the Company of an aggregate of
2,398,000 shares of its Common Stock in December 1996 and January 1997 (see Note
3 to Notes to Consolidated Financial Statements). The changes in advance
billings and deferred revenues - prebilled relate to contractual billing terms
of certain contracts.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentages
of the Company's net sales that certain income and expense items represent:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three-Months Ended Nine-Months Ended
May 31, May 31,
1996 1997 1996 1997
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.9 80.5 83.6 81.2
----- ------ ----- ----
Gross profit 17.1 19.5 16.4 18.8
General and administrative expenses 11.4 11.4 10.8 11.0
------ ------ ------ -----
Operating income 5.7 8.1 5.6 7.8
Interest expense (1.9) (1.9) (1.7) (2.2)
Other income, net --- 0.1 --- 0.1
------- ------- ------ ------
Income before income taxes 3.8 6.3 3.9 5.7
Provision for income taxes 1.4 2.0 1.4 1.8
----- ----- -------- ----
Income before earnings from
unconsolidated entities 2.4 4.3 2.5 3.9
Earnings from unconsolidated
entities .2 (.3) 0.2 0.2
------ ------ ------ -----
Net income 2.6% 4.0% 2.7% 4.1%
====== ====== ====== =====
</TABLE>
Sales increased 21% to $88.9 million for the three months ended May 31,
1997, as compared to $73.5 million for the same period in the prior year. For
the nine months ended May 31, 1997, sales were $250.1 million compared to $173.2
million for the first nine months of fiscal 1996, an increase of 44 %. These
increases are due primarily to sales by subsidiaries that were acquired since
the first quarter of fiscal 1996 and increases in international projects.
14
<PAGE>
The Company's third quarter sales by geographic region were as follows:
<TABLE>
<CAPTION>
Three-Months Ended May 31,
1996 1997
Geographic Region (in millions) % (in millions) %
----------------- -------------------- ------------- ---
<S> <C> <C> <C> <C>
U.S.A. $ 51.6 70% $ 60.9 68%
Far East/Pacific Rim 9.5 13 13.4 15
Middle East 7.1 10 4.2 5
Europe 4.0 5 .7 1
Latin America 0.3 1 7.7 9
Other 1.0 1 2.0 2
------- ------- ------- -----
$ 73.5 100% $ 88.9 100%
======= ======= ======= =====
The Company's third quarter sales by industry sector were as follows:
Three Months Ended May 31,
1996 1997
Industry Sector (in millions) % (in millions) %
----------------- ------------- --------- ------------- ---
Refining $ 16.9 26% $ 7.0 8%
Power 22.7 36 26.5 30
Chemical 19.7 31 42.3 47
Other 4.5 7 13.1 15
--------- ---------- ------- -----
63.8 100% $ 88.9 100%
===== ======= ======= =====
Pooled Sales * 9.7
---
$ 73.5
=======
</TABLE>
* Sales by industry sector for the pooled entity, NAPTech, are not available.
The gross margin for the three-month period ended May 31, 1997 increased to
19.5% from 17.1% for the same period the prior year. For the nine-month period
ended May 31, 1997, the gross margin increased to 18.8% from 16.4% for the same
period the prior year. These margin increases are primarily the result of higher
margins of Alloy Piping Products, Inc., which was not acquired by the Company
until the third quarter of fiscal 1996, an increase in sales for value-added
products and services, such as engineering and design, specifically for power
projects, as well as improved profitability on domestic process work.
General and administrative expenses were $10.1 million and $27.6 million
for the three-month and nine-month periods ended May 31, 1997, respectively,
compared to $8.4 million and $18.7 million for the respective periods of the
prior year. Pipe Shields Incorporated and UCI, which were acquired in fiscal
15
<PAGE>
1997, were responsible for $1.6 million of the increase comparing the
three-month periods. Pipe Shields, UCI and Word Industries Fabricators, Inc.
(acquired in the second quarter of fiscal 1996) were responsible for $6.5
million of the increase comparing the nine-month periods. Additionally, the
Company incurred merger and business combination costs of approximately $600,000
related to the NAPTech acquisition, which was accounted for using the
pooling-of-interests method. These acquisition-related costs are included in
general and administrative expenses for the nine months ended May 31, 1997. See
Note 5 to Notes to Consolidated Financial Statements. The remaining increase in
these expenses relate to variable costs associated with increased sales.
Interest expense for the third quarter ended May 31, 1997 was $1.7 million,
up $0.3 million from the $1.4 million incurred in the third quarter of fiscal
year 1996. For the nine-month period ended May 31, 1997, interest expense
amounted to $5.4 million, compared to $3.0 million for the same period the prior
year. The increases in interest expense are primarily related to the increases
in long term debt and amounts outstanding under the Company's revolving line of
credit prior to its paydown with the proceeds from the sale of Common Stock
discussed in Note 3 to the Notes to Consolidated Financial Statements. The
increases in debt resulted from acquisitions of subsidiaries and property and
equipment additions, as well as increased working capital needs due to higher
sales levels.
The Company's effective tax rate for the three-month period ended May
31, 1997 was 31.5% as compared to 37.6% for the same period in the previous
fiscal year. The Company's effective tax rate for the nine-month period ended
May 31, 1997 was 32.1% as compared to 35.1% for the same period in the previous
fiscal year. The lower tax rates for the three-month and nine-month periods
ended May 31, 1997, as compared to the same periods of the previous fiscal year,
were primarily due to tax benefits derived from export sales and lower state
income taxes.
During the three months ended May 31, 1997 the Company's unconsolidated
subsidiary lost $250,000 compared to income of $163,000 for the same period of
the prior year. Earnings from the unconsolidated entity for the nine-month
period ended May 31, 1997 amounted to $570,000 compared to $286,000 for the nine
months ended May 31, 1996. The earnings and losses of this entity are not
considered material to the overall operations of the Company.
Total backlog increased to $197 million at May 31, 1997 as compared to
$151 million at May 31, 1996 and $169 million at February 28, 1997. The growth
in backlog during the third quarter ended May 31, 1997 reflects an increase in
international and domestic process awards, as well as stronger international
power project bookings.
Financial Accounting Standards Board Statements
In February, 1997, Statement of Financial Accounting Standards No. 128 --
"Earnings Per Share" ("SFAS 128") was issued which establishes standards for
computing and presenting earnings per share ("eps"). Under SFAS 128, primary eps
is replaced with basic eps. Basic eps is computed by dividing income applicable
to common shares by the weighted average shares outstanding; no dilution for any
potentially convertible shares is included in the calculation. Fully diluted
eps, now called diluted eps, is still required; however, when applying the
treasury stock method, the average stock price is used rather than the greater
of the average or closing stock price for the period. Under SFAS 128, basic eps
and diluted eps for the periods ended May 31, 1996 and 1997 were not materially
different from the eps reported by the Company. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES
On March 20, 1997, the Company, through a newly-formed, wholly-owned
subsidiary, completed the purchase of certain assets and the assumption of
certain liabilities of MERIT Industrial Constructors, Inc. (MERIT), an
industrial construction and maintenance firm based in Baton Rouge, Louisiana,
and certain of its affiliates. Total consideration paid by the Company was
approximately $1 million in cash and 62,500 shares of the Company's common
stock, no par value per share (the "Common Stock"), as well as the assumption of
approximately $340,000 of debt. The issuance of the 62,500 shares of Common
Stock was not registered by the Company under the Securities Act of 1933, as
amended (the "Act").
The Company did not register the issuance of the shares of Common Stock
in reliance upon the exemption of non-public offering set forth in Section 4(2)
of the Act and Rule 506 promulgated by the Securities and Exchange Commission
thereunder. The MERIT asset acquisition was a private, negotiated acquisition
among the sellers and the Company and the persons or entity to which shares of
Common Stock were issued represented to the Company that they qualified as
"accredited investors" as defined in Rule 501(a) under the Act. The Company has
not agreed to file a registration statement with the Securities and Exchange
Commission to cover resales of the shares of Common Stock by the holders
thereof.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended May 31, 1997, there were no matters
submitted to a vote of security holders by the Company.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Number Description
-------------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
B. Forms 8-K and 8-K/A-1
During the quarter ended February 28, 1997, the Company filed a
Current Report on Form 8-K dated February 11, 1997, which was amended
by Amendment No. 1 to Current Report on Form 8-K/A-1 dated April 9,
1997, reporting the details and financial statements associated with
its acquisition of all of the outstanding capital stock of NAPTech,
Inc. ("NAPTech") and the real estate and buildings in which NAPTech
conducts its operations from a NAPTech-related entity, Freeport
Properties, L.C. ("Freeport"). The following financial statements were
filed with such Amendment No. 1 to Current
17
<PAGE>
Report on Form 8-K/A-1:
a. Unaudited Condensed Consolidated Balance Sheets as of September
30, 1996 and 1995 of NAPTech and Unaudited Condensed
Consolidated Statements of Operations and Statements of Cash
Flows for the six months ended September 30, 1996 and 1995 of
NAPTech.
b. Audited Consolidated Financial Statements for the fiscal years
ended March 29, 1996 and March 31, 1995 of NAPTech.
c. Unaudited Balance Sheets of Freeport as of September 30, 1996
and 1995 and Unaudited Statements of Operations and Statements
of Cash Flows of Freeport for the six months ended September
30, 1996 and 1995.
d. Audited Financial Statements for the year ended December 31,
1995 for Freeport Properties, L.C.
e. Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
November 30, 1996 for The Shaw Group Inc. and Subsidiaries.
f. Unaudited Pro Forma Condensed Consolidated Statement of Income
for the three months ended November 30, 1996 for The Shaw Group
Inc. and Subsidiaries.
g. Unaudited Pro Forma Condensed Consolidated Statements of Income
for the twelve-month periods ended August 31, 1996, 1995 and
1994 for The Shaw Group Inc. and Subsidiaries.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
THE SHAW GROUP INC.
Date: July 15, 1997 By: /s/ Edward L. Pagano
-------------- --------------------
Edward L. Pagano, Vice President
and Chief Financial Officer
(duly authorized officer and
principal financial officer)
19
<PAGE>
The Shaw Group Inc.
Exhibit Index
Form 10-Q Report for the Quarterly Period Ended May 31, 1997
Exhibit Number Description Page
-------------- ----------- ----
11 Computation of Earnings Per Share
27 Financial Data Schedule
20
<PAGE>
<TABLE>
EXHIBIT 11
Computation of Earnings Per Share
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1996 1997 1996 1997
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY (1):
Weighted average shares outstanding 9,912,928 12,367,157 9,353,843 11,333,456
Net effect of dilutive stock options based
on the Treasury Stock method using
average market price * * * *
9,912,928 12,367,157 9,353,843 11,333,456
Net income $1,881,726 $3,554,513 $4,696,224 $10,288,363
========== ========== ========== ===========
Per share amounts $ .19 $ .29 $ .50 $ .91
========== ========== ========== ===========
</TABLE>
* Outstanding stock options did not materially affect earnings per share
for the periods ended May 31, 1996 and 1997.
(1) Fully diluted earnings per share amounts are not presented in this
exhibit since they are not materially different from the primary
earnings per share amounts.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000914024
<NAME> THE SHAW GROUP INC.
<MULTIPLIER> 1
<CURRENCY> U S DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,758,932
<SECURITIES> 0
<RECEIVABLES> 93,710,831
<ALLOWANCES> 0
<INVENTORY> 70,842,291
<CURRENT-ASSETS> 183,812,559
<PP&E> 86,356,219
<DEPRECIATION> 16,335,918
<TOTAL-ASSETS> 271,924,584
<CURRENT-LIABILITIES> 96,830,199
<BONDS> 0
0
0
<COMMON> 103,361,780
<OTHER-SE> 29,185,099
<TOTAL-LIABILITY-AND-EQUITY> 271,924,584
<SALES> 250,118,977
<TOTAL-REVENUES> 250,118,977
<CGS> 203,068,521
<TOTAL-COSTS> 203,068,521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,355,552
<INCOME-PRETAX> 14,309,570
<INCOME-TAX> 4,591,595
<INCOME-CONTINUING> 10,288,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,288,363
<EPS-PRIMARY> .910
<EPS-DILUTED> .910
</TABLE>
