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 February 28, 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, 12,360,268 shares outstanding as of
April 8, 1997.
1
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Item 1. - Financial Statements
Consolidated Balance Sheets - August 31, 1996
and February 28, 1997 3 - 4
Consolidated Statements of Income - For the Three
Months and Six Months Ended February 29, 1996 and
February 28, 1997 5
Consolidated Statements of Cash Flows - For the Six
Months Ended February 29, 1996 and
February 28, 1997 6 - 7
Notes to Consolidated Financial Statements 8 - 11
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 16
Part II - Other Information
Item 2. - Changes in Securities 17
Item 4. - Submission of Matters to a Vote of Security Holders 17 - 18
Item 5. - Other Information 18 - 19
Item 6. - Exhibits and Reports on Form 8-K 20 - 21
Signature Page 22
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, February 28,
1996 1997
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,967,342 $ 4,619,403
Accounts receivable 75,241,111 89,706,367
Receivables from unconsolidated entities 700,479 1,785,825
Inventories 68,878,231 75,537,107
Prepaid expenses 2,440,503 2,528,427
Deferred income taxes 1,634,817 1,634,817
----------- -----------
Total current assets 151,862,483 175,811,946
Investment in unconsolidated entities 1,920,880 4,385,116
Property and equipment:
Transportation equipment 4,685,200 5,397,898
Furniture and fixtures 6,155,724 7,679,001
Machinery and equipment 36,299,786 45,693,648
Buildings and improvements 18,268,904 20,830,440
Assets acquired under capital leases 896,677 255,888
Land 3,201,626 3,763,222
69,507,917 83,620,097
Less: Accumulated depreciation (including
amortization of assets acquired under capital leases) ( 12,065,574) (14,829,715)
------------ -----------
57,442,343 68,790,382
Notes receivable from related party 625,000 ---
Other assets, net 9,830,961 16,589,666
------------ ------------
$221,681,667 $265,577,110
============ ============
(Continued)
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(UNAUDITED) (UNAUDITED)
August 31, February 28,
1996 1997
---------- ------------
<S> <C> <C>
Current liabilities:
Outstanding checks in excess of bank balance $ 3,104,746 $ 2,573,665
Accounts payable 28,905,023 27,353,990
Accrued liabilities 9,412,963 9,164,051
Current maturities of long-term debt 4,865,038 4,408,601
Revolving line of credit 52,796,148 48,056,196
Current portion of obligations under capital leases 68,143 88,227
Deferred revenue - prebilled 1,839,689 3,405,219
Advance billings 2,990,631 1,979,224
------------ ----------
Total current liabilities 103,982,381 97,029,173
Long-term debt, less current
maturities 36,795,386 34,745,777
Obligations under capital leases,
less current portion 44,696 28,570
Deferred income taxes 4,813,925 4,959,725
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 19,019,599 shares
issued, respectively; 9,956,183 and
12,356,683 shares outstanding, respectively 56,849,127 103,183,279
Retained earnings 26,023,987 32,458,421
Treasury stock, 6,662,916 shares (6,827,835) (6,827,835)
--------- ------------ ------------
Total shareholders' equity 76,045,279 128,813,865
------------ ------------
$221,681,667 $265,577,110
============ ============
</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 Six Months Ended
February 29 and 28, February 29 and 28,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Sales $56,374,713 $85,515,993 $99,714,683 $161,234,995
Cost of sales 47,160,296 70,378,543 83,845,208 131,527,211
---------- ---------- ---------- -----------
Gross profit 9,214,417 15,137,450 15,869,475 29,707,784
General and administrative expenses 5,641,989 9,212,659 10,286,973 17,481,675
Operating income 3,572,428 5,924,791 5,582,502 12,226,109
Interest expense (847,276) (1,778,924) (1,589,023) (3,619,550)
Other income, net 2,621 114,060 42,582 148,166
--------- ---------- ---------- ----------
(844,655) (1,664,864) (1,546,441) (3,471,384)
Income before income taxes 2,727,773 4,259,927 4,036,061 8,754,725
Provision for income taxes 954,592 1,341,890 1,344,726 2,841,263
---------- --------- --------- ---------
Income before earnings from uncon-
solidated entities 1,773,181 2,918,037 2,691,335 5,913,462
Earnings from unconsolidated entities 28,192 670,370 123,163 820,388
---------- ---------- ---------- ----------
Net income $1,801,373 $3,588,407 $2,814,498 $6,733,850
========== ========== ========== ==========
Earnings per common share $ .20 $ .31 $ .31 $ .60
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(UNAUDITED)
Six Months Ended
February 29 and 28,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,814,498 $6,733,850
Net loss not included in reporting period (See
Note 5 to Notes to Consolidated Financial
Statements) --- (131,612)
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,805,031 3,329,262
Provision (benefit) for deferred income taxes (374,000) 163,000
(Earnings) from unconsolidated entities (123,163) (820,388)
Other (259,207) ---
Changes in assets and liabilities:
(Increase) in receivables (15,467,674) (8,692,101)
(Increase) in inventories (6,320,476) (6,009,916)
(Increase) decrease in prepaid expenses (1,227,530) 27,915
(Increase) in other assets (1,045,212) (418,307)
Increase (decrease) in accounts payable 9,599,145 (3,529,979)
Increase in deferred revenue - prebilled 255,633 1,565,530
Increase (decrease) in advanced billings 4,663,219 (2,288,319)
(Decrease) in accrued liabilities (1,919,204) (2,639,611)
---------- ----------
Net cash (used in) operating activities (7,598,940) (12,710,676)
Cash flows from investing activities:
Investment in unconsolidated entities --- (1,643,848)
Investment in subsidiaries, net of cash received (723,100) (10,244,852)
Purchase of property and equipment (5,197,845) (10,824,987)
Proceeds from notes receivable --- 86,770
---------- ----------
Net cash used in investing activities (5,920,945) (22,626,917)
</TABLE>
(Continued)
6
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
Six Months Ended
February 29 and 28,
1996 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in outstanding
checks in excess of bank balance 2,648,857 (531,081)
Net proceeds (repayment) on revolving
credit agreement 11,140,008 (4,739,952)
Proceeds from issuance of debt 4,037,597 4,279,000
Repayment of debt and leases (717,515) (8,184,662)
Distributions to members of
Freeport Properties, L.C. --- (167,804)
Purchase of treasury stock --- (661,311)
Issue common stock --- 46,995,464
---------- ----------
Net cash provided by financing activities 17,108,947 36,989,654
---------- ----------
Net increase in cash and cash equivalents 3,589,062 1,652,061
Cash and cash equivalents - beginning of period 788,748 2,967,342
----------- -----------
Cash and cash equivalents - end of period $ 4,377,810 $ 4,619,403
=========== ===========
Supplemental disclosures:
Cash payments for:
Interest $ 1,597,109 $ 3,601,240
=========== ===========
Income Taxes $ 4,213,451 $ 3,353,815
=========== ===========
Noncash investing and financing activities:
Purchase of property and equipment and
assumption of liabilities through the
issuance of common stock $ 3,821,900 $ ---
=========== ===========
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 six-month periods
ended February 29, 1996 and February 28, 1997 and as of August 31, 1996
and February 28, 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, February 28,
1996 1997
----------- -----------
Finished goods $23,138,238 $24,555,741
Raw materials 33,870,748 38,341,143
Work in process 11,869,245 12,640,223
----------- ----------
$68,878,231 $75,537,107
=========== ===========
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 February 29, 1996 and February 28,
1997 were 9,157,574 and 11,668,264, respectively. Outstanding stock
options were not considered in calculating earnings per share for the
quarters ended February 29, 1996 and February 28, 1997 because they were
not material in the calculation.
Note 5 - Acquisitions -
On January 29, 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 three-month and the
six-month periods ended February 28, 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 1996 fiscal year were recast
from the twelve months ended March 31, 1996 to the twelve months ended June
30, 1996. As a result, sales and losses of NAPTech for July and August
1996, which amounted to $5,194,000 and $132,000, respectively, have been
excluded from the statements of income in fiscal 1997.
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 February 29, 1996) for the six-month
period ended February 29, 1996:
Sales Net income (loss)
------------ -----------------
As previously reported $ 88,375,248 $ 3,508,345
NAPTech 11,339,435 (693,845)
------------ -----------
As restated $ 99,714,683 $ 2,814,498
============ ===========
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
9
<PAGE>
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 $1.5
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 significant 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 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
==========
The operating results of UCI have been included in the consolidated
statements
10
<PAGE>
of income from the effective date of the acquisition.
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)
Pro-Forma Results for the
Six Months Ended
February 29 and 28,
1996 1997
---- ----
Gross revenue $ 158,615,000 $176,270,000
============= ============
Net income $ 2,912,000 $ 6,924,000
============= ============
Earnings per common share $ .29 $ .62
============= ============
Note 6 - Investment in Unconsolidated Entities -
During the six months ended February 29, 1996 and February 28, 1997,
the Company recognized earnings of $123,163 and $820,388, respectively,
from Shaw-Nass Middle East, W.L.L., the Company's joint venture in
Bahrain.
As of August 31, 1996, and February 28, 1997, the Company had
outstanding receivables from the unconsolidated entity totaling $700,479
and $1,785,825 respectively. These receivables relate primarily to
inventory and equipment sold to the entity.
Note 7 - Subsequent Events -
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., 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 $450,000 of
debt.
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 February 28,
1997, and the results of its operations for the three-month and six-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
quarter and six months ended February 27, 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 by the Company or its suppliers, the strength or
weakness of the U.S. dollar relative to foreign currencies, and delivery or
installation of products.
Liquidity and Capital Resources:
Net cash used in operations was $12.7 million for the six months ended
February 28, 1997, compared to $7.6 million for the same period of the previous
year. The net cash used was a result primarily of increases of $8.7 million in
receivables and $6.0 million in inventories and decreases in accounts payable
and accrued liabilities of $6.2 million, partially offset by earnings adjusted
for non-cash activities totaling $9.4 million.
12
<PAGE>
The increase in receivables is primarily attributable to a higher volume
of sales activity for the three-month and six-month periods ended February 28,
1997, as well as minor collection delays. Inventories increased due to the
procurement of material for current and future sales activities which are
expected to exceed levels realized in fiscal 1996 based upon the Company's
current backlog. The decrease in accounts payable and accrued liabilities
resulted from the improved cash flow realized from the proceeds from the
issuance of the 2,398,000 shares of the Company's stock in December 1996 and
January 1997.
Net cash used in investing activities was $22.6 million for the six
months ended February 28, 1997, compared to $5.9 million for the same period in
fiscal 1996. During the first six 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 (see Note 5 to Notes to Consolidated Financial Statements).
Purchases of property and equipment included two pipe bending machines
aggregating $4.3 million, $3.2 million of property and equipment purchases and
improvements at the Company's subsidiary in Shreveport, Louisiana, and $3.3
million of other asset 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 $37.0 million for the
six-month period ended February 28, 1997, compared to $17.1 million for the six
months ended February 29, 1996. The primary source of cash for the six months
ended February 28, 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 $23.9 million from $151.9
million as of August 31, 1996 to $175.8 million as of February 28, 1997. The
increase resulted primarily from increases in accounts receivable of $14.5
million and inventories of $6.7 million. The increase in receivables is
primarily related to (i) the newly-acquired Pipe Shields and UCI subsidiaries,
which together at February 28, 1997 had receivables amounting to $7 million,
(ii) increased sales levels and (iii) minor collection delays. The change in
inventory is due to increased sales levels and the requirements to purchase
inventories for current and future production requirements.
Property and equipment increased by $14.1 million to $83.6 million as of
February 28, 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 $3.3 million acquired in the
acquisitions of Pipe Shields and UCI, $3.2 million of property and equipment
purchases and improvements at the Company's subsidiary in Shreveport, Louisiana,
and $3.3 million of other asset purchases.
The Company's current liabilities decreased $7.0 million from $104.0
million at August 31, 1996, to $97.0 million at February 28, 1997. The decrease
is due to reductions in the revolving line of credit of
13
<PAGE>
$4.7 million, reductions in accounts payable and other current liabilities of
$2.9 million and advance billings decreases of $1.0 million, partially offset by
$1.6 million of increases in deferred revenue - prebilled. The decreases in
amounts outstanding under the Company's revolving line of credit and accounts
payable and other current liabilities resulted from the improved cash flow
realized from the proceeds of the sale by the Company 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 Six-Months Ended
February 29 and 28, February 29 and 28,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.7 82.3 84.1 81.6
Gross profit 16.3 17.7 15.9 18.4
General and administrative expenses 10.0 10.8 10.3 10.8
Operating income 6.3 6.9 5.6 7.6
Interest expense (1.5) (2.0) (1.6) (2.2)
Other income, net --- 0.1 0.1 0.1
Income before income taxes 4.8 5.0 4.1 5.5
Provision for income taxes 1.7 1.6 1.4 1.8
Income before earnings from
unconsolidated entities 3.1 3.4 2.7 3.7
Earnings from unconsolidated
entities .1 0.8 0.1 0.5
Net income 3.2% 4.2% 2.8% 4.2%
</TABLE>
Sales increased 52% to $85.5 million for the three months ended
February 28, 1997, as compared to $56.4 million for the same period in the prior
year. For the six months ended February 28, 1997, sales were $161.2 million
compared to $99.7 million for the first six months of fiscal 1996, an increase
of 62%. These increases are due primarily to sales of subsidiaries that were
acquired since the first quarter of fiscal 1996, increases in international
power work and domestic chemical and other (primarily for the mining sector)
work, partially offset by decreases in domestic refinery sales.
14
<PAGE>
The Company's second quarter sales by geographic region were as
follows:
<TABLE>
<CAPTION>
Three-Months Ended February 29 and 28,
-------------------------------------------------------
1996 1997
--------------------- ---------------------
Geographic Region (in millions) % (in millions) %
----------------- ------------- ---- ------------- ----
<S> <C> <C> <C> <C>
U.S.A. $ 41.4 73% $ 63.7 75%
Far East/Pacific Rim 8.3 15 15.0 17
Middle East 4.8 9 3.2 4
Europe 1.2 2 1.0 1
Latin America 0.5 1 1.8 2
Other 0.2 --- . 8 1
------- --- ------- ---
$ 56.4 100% $ 85.5 100%
======= === ======= ===
</TABLE>
The Company's second quarter sales by industry sector were as follows:
<TABLE>
<CAPTION>
Three-Months Ended February 29 and 28,
--------------------------------------------------------
1996 1997
------------------------ --------------------------
Industry Sector (in millions) % (in millions) %
------------- --- -------------- ----
<S> <C> <C> <C> <C>
Refining $ 24.3 43% $ 10.8 13%
Power 17.8 32 25.7 30
Chemical 13.3 23 26.6 31
Other 1.0 2 22.4 26
-------- --- ------- ---
$ 56.4 100% $ 85.5 100%
======== === ======= ===
</TABLE>
The gross margin for the three-month period ended February 28, 1997
increased to 17.7% from 16.3% for the same period the prior year. For the
six-month period ended February 28, 1997, the gross margin increased to 18.4%
from 15.9% for the same period the prior year. These margin increases are
primarily the result of improved margins at several of the Company's fabrication
subsidiaries, as well as the higher margins of Alloy Piping Products, Inc.,
which was not acquired by the Company until the third quarter of fiscal 1996.
General and administrative expenses were $9.2 million for the second
quarter of fiscal 1997, compared to $5.6 million for the same period of the
prior year. General and administrative expenses of newly-acquired subsidiaries,
as well as the extra expenses of the Word Industries Fabricators, Inc.
subsidiary, which was acquired during the second quarter of fiscal 1996,
amounted to $3.3 million for the second quarter of fiscal 1997. 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 of the quarter and six months ended February
28, 1997. See Note 5 to Notes to Consolidated Financial Statements.
Interest expense for the second quarter ended February 28, 1997 was
$1.8 million, up $932,000 from the $847,000 incurred in the second quarter of
fiscal year 1996. The increase in interest expense is
15
<PAGE>
primarily related to the increases in long term debt and amounts outstanding
under the Company's revolving line of credit in the second quarter of fiscal
1997 compared to the second quarter of the previous year. The increase in debt
for the second quarter of fiscal 1997 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
February 28, 1997 was 31.5% as compared to 35.0% for the same period in the
previous fiscal year. The Company's effective tax rate for the six-month period
ended February 28, 1997 was 32.5% as compared to 33.3% for the same period in
the previous fiscal year. The lower tax rates for the three-month and six-month
periods ended February 28, 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.
Earnings from unconsolidated entities were $670,000 and $820,000 for
the three months and the six months, respectively, ended February 28, 1997 as
compared to $28,000 and $123,000 for the same periods, respectively, of the
previous fiscal year.
For the Company and its wholly-owned subsidiaries, total backlog
increased to $169 million at February 28, 1997, as compared to $115 million at
February 29, 1996 (as previously reported by the Company in its Quarterly Report
on Form 10-Q for the quarterly period then ended) and $161 million at November
30, 1996 (as previously reported by the Company in its Quarterly Report on Form
10-Q for the quarterly period then ended). Approximately $44 million of the
February 28, 1997 backlog relates to subsidiaries that were acquired subsequent
to February 29, 1996, and approximately $35 million of the February 28, 1997
backlog relates to NAPTech and UCI, which were acquired by the Company
subsequent to November 30, 1996. The 17% decrease in the February 29, 1997
backlog, excluding NAPTech and UCI, to $134 million as compared to the November
30, 1996 backlog of $161 million was due primarily to slowdowns in project
bookings in the international power and the domestic chemical and refining
segments.
The Company believes that international power project bookings
decreased as a result of the relative strengthening of the U.S. dollar in
international currency markets and unanticipated customer-initiated delays in
project awards, which may negatively impact the Company's sales and earnings
results for the fourth quarter of fiscal 1997. The Company believes that it can
utilize the strengthened U.S. dollar to procure materials, which generally
account for the majority of the costs of a critical piping project in the power
segment, from international sources and thereby attempt to offset to a large
extent the adverse effects of the strengthened U.S. dollar on international
power project bookings.
The Company believes that domestic chemical and refinery project
bookings decreased as a result of price increases instituted by the Company,
which may negatively impact the Company's sales and earnings results for the
third and fourth quarters of fiscal 1997. In light of the current and forecasted
demand for work in the domestic chemical and refinery segments, the Company
believes that intermediate and long term domestic chemical and refinery project
bookings will recover and enhanced profitability will ensue as a result of its
pricing strategy.
The Company's joint venture facility in Bahrain posted backlog at
February 28, 1997 of approximately $1.5 million, down from the approximately $8
million at February 29, 1996.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES
As set forth in detail below in Item 5 - Other Information, on January
27, 1997, the Company acquired all of the outstanding capital stock of NAPTech,
Inc. ("NAPTech") and its leased fabrication facility from a NAPTech-related
entity in exchange for 432,881 shares of the Company's common stock, no par
value per share (the "Common Stock"). The issuance of such shares was not
registered 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 offerings set forth in Section 4(2)
of the Act and Rule 506 promulgated by the Securities and Exchange Commission
thereunder. The NAPTech acquisition was a private, negotiated acquisition among
the sellers and the Company, and the persons or entities 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,
however, has agreed to file a registration statement under the Act 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
On January 29, 1997, the Company held its 1997 Annual Meeting of
Shareholders. The only matters submitted to a vote at the meeting were the
election of nine directors and a proposal to approve the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Plan").
The results of the vote for election of directors were as follows:
Name For Withheld
---- --- --------
J. M. Bernhard, Jr. 16,638,867 113,065
R. Dale Brown, Jr. 16,638,867 113,065
Frank Fronek 16,638,867 113,065
L. Lane Grigsby 16,638,867 113,065
David W. Hoyle 16,645,867 106,065
Albert McAlister 16,638,867 113,065
George R. Shepherd 16,638,867 113,065
John W. Sinders, Jr. 16,638,867 113,065
Bret M. Talbot 16,639,467 112,465
There were no broker non-votes with respect to the election of directors.
17
<PAGE>
The results of the vote taken on the proposal to approve the Director
Plan were as follows:
For 16,356,055
Against 268,825
Abstain 100,304
There were 26,748 broker non-votes with respect to the proposal to approve the
Director Plan.
ITEM 5. - OTHER INFORMATION
Acquisition of NAPTech, Inc.
On January 27, 1997, the Company acquired all of the outstanding
capital stock of NAPTech, Inc. ("NAPTech") from the shareholders of NAPTech in
exchange for a total of 349,548 shares of the Company's common stock, no par
value per share (the "Common Stock"). NAPTech is a fabricator of industrial
piping systems and engineered piping modules based in Clearfield, Utah. The
acquisition by Company of the NAPTech capital stock was made pursuant to a Plan
and Agreement of Merger dated as of August 5, 1996, among the Company, the
shareholders of NAPTech, NAPTech and SAON, Inc. (a wholly-owned subsidiary of
Shaw), as amended by the First Amendment to Plan and Agreement of Merger dated
as of January 27, 1997 (the "Merger Agreement"). By the terms of the Merger
Agreement, SAON, Inc. merged with and into NAPTech.
The Merger Agreement contains certain representations, warranties and
covenants by the shareholders of NAPTech, including, among other things,
representations regarding NAPTech and a covenant by the shareholders of NAPTech
not to compete for a period of two years. Ten percent of the shares of Common
Stock issued by the Company to the shareholders of NAPTech has been placed in
escrow to satisfy indemnification obligations pursuant to the Merger Agreement.
The Company also acquired, through its wholly-owned subsidiary SAON
Properties, Inc., the real estate and buildings in which NAPTech conducts its
operations from a NAPTech-related entity, Freeport Properties, L.C.
("Freeport"), pursuant to the Purchase and Sale Agreement (the "Purchase
Agreement") dated as of January 27, 1997, between the Company, Freeport, the
members of Freeport and SAON Properties, Inc. In consideration for the sale, the
Company delivered 83,333 shares of Common Stock to Freeport and assumed certain
indebtedness of Freeport totaling approximately $1.8 million. Ten percent of the
shares of Common Stock issued to Freeport has been placed in escrow to satisfy
indemnification obligations pursuant to the Purchase Agreement.
The shares of Shaw Common Stock received by the shareholders of NAPTech
and Freeport pursuant to the transactions described above are the subject of
Registration Rights Agreements, each dated as of January 27, 1997, among the
Company and the shareholders of NAPTech and the Company and Freeport,
respectively, whereby the Company has agreed to file shelf registration
statements with the Securities and Exchange Commission and to take such other
steps as are necessary to register such shares for transfer (including such
filings or qualifications as may be required under state blue sky or securities
laws). The Company has agreed to keep such registration statements effective for
a period of up to two years.
18
<PAGE>
Further, in connection with the foregoing transactions, NAPTech entered
into Employment Agreements dated as of January 27, 1997, with Bradford J.
Brower, Greg R. Cowley, Frank B. Corgiat and Blake Bennett, each an officer and
employee of NAPTech. Pursuant to the terms of each Employment Agreement, the
NAPTech officers will be entitled to (i) receive the base salary each received
prior to the Company's acquisition, and (ii) certain other benefits. Further,
each will be subject to non-competition and confidentiality covenants in favor
of NAPTech, the Company and their affiliates. In addition, in connection with
the acquisition, the Company issued stock options to purchase an aggregate of
27,429 shares of Common Stock under its 1993 Employee Stock Option Plan to
replace options to purchase NAPTech capital stock outstanding as of January 27,
1997.
NAPTech will operate as a wholly-owned subsidiary of the Company at its
Clearfield, Utah fabrication facility.
The acquisition of NAPTech was accounted for using the pooling of
interests method; accordingly, the Company's financial information for all
periods presented herein has been restated to include financial information of
NAPTech (see Note 5 to Notes to Consolidated Financial Statements).
Acquisitions of UCI and MERIT
Effective February 1, 1997, a newly-formed subsidiary of the Company
acquired 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. See Note 5 to Notes to Consolidated Financial Statements.
On March 20, 1997, a newly-formed subsidiary of the Company purchased
certain assets and assumed 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, as well as the assumption of $450,000 of debt. See Note 7 to
Notes to Consolidated Financial Statements.
UCI and MERIT specialize in industrial project erection and maintenance
and serve primarily the Southern Louisiana market for more than 50 customers,
many of which are international companies. UCI and MERIT had combined annual
revenues of approximately $52 million for their most recent fiscal year ends.
19
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit Number Description
-------------- -----------
2.1 Plan and Agreement of Merger, dated as
of August 5, 1996, among the
shareholders of NAPTech, Inc.
("NAPTech"), NAPTech, The Shaw Group
Inc. and SAON, Inc., as amended by the
First Amendment to Plan and Agreement of
Merger dated as of January 27, 1997.
(Incorporated by reference from the
Company's Current Report on Form 8-K
dated February 11, 1997, as amended by
Amendment No. 1 to Current Report on
Form 8-K/A-1 dated April 9, 1997.)
2.2 Purchase and Sale Agreement, dated as of
January 27, 1997, among the members of
Freeport Properties, L.C.("Freeport"),
Freeport, The Shaw Group Inc. and SAON
Properties, Inc. Filed herewith.
(Incorporated by reference from the
Company's Current Report on Form 8-K
dated February 11, 1997, as amended by
Amendment No. 1 to Current Report on
Form 8-K/A-1 dated April 9, 1997.)
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, as 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 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
20
<PAGE>
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.
21
<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: April 14, 1997 By: /s/ Bret M. Talbot
-------------- -------------------------
Vice President and Chief Financial Officer
(duly authorized officer and principal
financial officer)
22
<PAGE>
The Shaw Group Inc.
Exhibit Index
Form 10-Q Report for the Quarterly Period Ended February 28, 1997
Exhibit Number Description Page
-------------- ----------- -----
2.1 Plan and Agreement of Merger, dated as of
August 5, 1996, among the shareholders of
NAPTech, Inc. ("NAPTech"), NAPTech, The Shaw
Group Inc. and SAON, Inc., as amended by the
First Amendment to Plan and Agreement of
Merger dated as of January 27, 1997.
(Incorporated by reference from the
Company's Current Report on Form 8-K dated
February 11, 1997, as amended by Amendment
No. 1 to Current Report on Form 8-K/A-1
dated April 9, 1997.)
2.2 Purchase and Sale Agreement, dated as of
January 27, 1997, among the members of
Freeport Properties, L.C. ("Freeport"),
Freeport, The Shaw Group Inc. and SAON
Properties, Inc. Filed herewith.
(Incorporated by reference from the
Company's Current Report on Form 8-K dated
February 11, 1997, as amended by Amendment
No. 1 to Current Report on Form 8-K/A-1
dated April 9, 1997.)
11 Computation of Earnings Per Share
27 Financial Data Schedule
<PAGE>
<TABLE>
EXHIBIT 11
Computation of Earnings Per Share
<CAPTION>
Three Months Ended Six Months Ended
February 29 and 28, February 29 and 28,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY (1):
Weighted average shares outstanding 9,157,574 11,668,264 9,071,227 10,808,039
Net effect of dilutive stock options based
on the Treasury Stock method using
average market price * * * 336,069
--------- ---------- --------- ----------
9,157,574 11,668,264 9,071,227 11,144,108
========= ========== ========= ==========
Net income $ 1,801,373 $ 3,588,407 $ 2,814,498 $ 6,733,850
=========== =========== =========== ===========
Per share amounts $ .20 $ .31 $ .31 $ .60
=========== =========== =========== ===========
</TABLE>
* Outstanding stock options did not materially affect earnings per share
for the three months ended February 29, 1996 and February 28, 1997,
and for the six months ended February 29, 1996.
(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.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 4,619,403
<SECURITIES> 0
<RECEIVABLES> 89,706,367
<ALLOWANCES> 0
<INVENTORY> 75,537,107
<CURRENT-ASSETS> 175,811,946
<PP&E> 83,620,097
<DEPRECIATION> 14,829,715
<TOTAL-ASSETS> 265,577,110
<CURRENT-LIABILITIES> 97,029,173
<BONDS> 0
0
0
<COMMON> 103,183,279
<OTHER-SE> 25,630,586
<TOTAL-LIABILITY-AND-EQUITY> 265,577,110
<SALES> 161,234,995
<TOTAL-REVENUES> 161,234,995
<CGS> 131,527,211
<TOTAL-COSTS> 131,527,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,619,550
<INCOME-PRETAX> 8,754,725
<INCOME-TAX> 2,841,263
<INCOME-CONTINUING> 6,733,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,733,850
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
