UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
June 17, 1997
THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)
Louisiana 0-22992 72-1106167
State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
11100 Mead Road, 2nd Floor, Baton Rouge, Louisiana 70816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 296-1140
Not Applicable
(Former name or former address, if changed since last report)
ITEM 5. Other Events.
As previously reported in a Current Report on Form 8-K dated February 11,
1997, as amended by a Current Report on Form 8-K/A-1 dated April 9, 1997, on
January 27, 1997, The Shaw Group Inc. ("Shaw") acquired (i) all of the
outstanding stock of NAPTech, Inc. ("NAPTech") and (ii) the 335,000 square foot
facility NAPTech leased from a related entity, Freeport Properties, L.C. Such
acquisition (the "NAPTech Acquisition") is being accounted for as a pooling of
interest, and will, therefore, result in a restatement of Shaw's financial
statements for all periods presented. At its election, Shaw has chosen to set
forth in this Current Report on Form 8-K certain restated financial statements
and other related information that reflects the NAPTech Acquisition as a pooling
of intersts. Such financial statements and other information, all attached
hereto as Attachment A, are restated "Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations" and restated "Item 8.
Financial Statements and Supplementary Data" from Shaw's Annual Report on Form
10-K for the fiscal year ended August 31, 1996.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hannis T. Bourgeois & Co., L.L.P.
27.1 Financial Data Schedule
2
SIGNATURES
----------
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 hereunto duly authorized.
THE SHAW GROUP INC.
(Registrant)
Date: June 17, 1997 By: /s/ Edward L. Pagano
------------------------
Edward L. Pagano
Vice President
and Chief Financial Officer
3
THE SHAW GROUP INC.
EXHIBIT INDEX
Form 8-K
June 17, 1997
Exhibit Number Description Page No.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hannis T. Bourgeois & Co., L.L.P.
27.1 Financial Data Schedule
4
ATTACHMENT A
------------
ITEM 7. 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.
Recent Acquisitions
On April 29, 1994, the Company acquired the business of Fronek Company, Inc.
("FCI"), an engineering firm with offices located in Englewood, New Jersey and
Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. ("PSSI"), a pipe support
fabrication facility located in Longview, Texas. These acquisitions were
completed through the issuance of 75,000 shares of the Company's Common Stock
valued at $1.4 million and cash of $2.1 million. In addition, the Company agreed
to issue options to acquire up to 57,000 shares of the Company's Common Stock
and make additional cash payments up to $300,000 based on the future earnings of
the Company's subsidiaries managed by the former owner of FCI and PSSI through
1997. See Note 3 to the Company's Consolidated Financial Statements.
On December 15, 1994, the Company acquired the 50% interest of the other
participant in the Shaw-Formiconi joint venture located in Venezuela, together
with the concurrent acquisition of certain land, buildings and other assets used
by the venture. The total amount of the purchase price related to this
acquisition, including the selling participant's share of joint venture profits,
was approximately $2.9 million. The Company had previously accounted for its
investment in the joint venture as an unconsolidated subsidiary under the equity
method. Since December 15, 1994, the Venezuelan operation has operated as a
wholly owned subsidiary and is included as a consolidated subsidiary in the
Company's consolidated statements since that date. See Notes 3 and 5 to the
Company's Consolidated Financial Statements.
On January 16, 1996, the Company purchased certain assets and assumed certain
liabilities of Word, TS&M Corporation and T.N. Word and certain of Mr. Word's
family members. The acquisition of Word increased the Company's production
capacity and added a facility in Tulsa, Oklahoma. The total purchase price
related to the acquisition was approximately $4.2 million, consisting of the
issuance of 385,000 shares of the Company's Common Stock valued at $3.4 million
and cash of approximately $750,000. See Note 3 of the Notes to Consolidated
Financial Statements.
Effective March 1, 1996, the Company acquired all of the outstanding capital
stock of APP, a leading United States manufacturer of specialty stainless and
carbon steel pipe fittings and other stainless pipe products, and the assets of
an APP-related entity, Speedline. In connection with the acquisition of APP, the
Company issued 541,177 shares of the Company's Common Stock valued at $6.8
million and paid cash of $11.6 million. See Note 3 of the Notes to Consolidated
Financial Statements.
On January 27, 1997, the Company acquired (i) all of the outstanding stock of
NAPTech, Inc., a fabricator of industrial piping systems and engineered piping
modules located in Clearfield, Utah, and (ii) the 335,000 square foot facility
that NAPTech, Inc. leased from a related entity (collectively "NAPTech"). In
connection with the acquisition, the Company issued 432,881 shares of the
Company's common stock. The transaction was accounted for using the
pooling-of-interests method, and accordingly the financial information for all
periods presented has been restated to include the financial information of
NAPTech.
5
Results of Operations
General
The following table sets forth, for the periods indicated, the percentages of
the Company's sales that certain income and expense items represent.
Year Ended August 31,
1994 1995 1996
Sales 100.0% 100.0% 100.0%
Cost of sales 85.8 83.3 83.9
---- ---- ----
Gross profit 14.2 16.7 16.1
General and administrative expenses 9.6 10.5 10.7
--- ---- ----
Operating income 4.6 6.2 5.4
Interest expense (1.8) (2.2) (1.9)
Other income, net 0.2 0.2 0.3
--- --- ---
Income before income taxes 3.0 4.2 3.8
Provision for income taxes 1.1 1.3 1.2
--- --- ---
Income before earnings (losses) from
unconsolidated entities 1.9 2.9 2.6
Earnings (losses) from unconsolidated entities 0.6 (0.4) 0.1
--- ---- ---
Income before extraordinary item 2.5 2.5 2.7
Extraordinary item, less applicable income taxes 0.3 .3 --
--- --- ---
Net income 2.8% 2.8% 2.7%
=== === ===
Fiscal 1996 Compared to Fiscal 1995
Sales increased $92.5 million, or 58.9%, for fiscal 1996 to $249.4
million from $156.9 million for fiscal 1995. This increase was due primarily to
increased sales for projects in the domestic chemical and refinery sectors and
the international power sector, as well as to the acquisitions of Word and APP,
which contributed approximately $15.6 million and $24.9 million, respectively,
in sales from their respective dates of acquisition.
The Company's sales by geographic region were as follows:
Fiscal 1995 Fiscal 1996
(in millions) % (in millions) %
------------- ------ ------------- -------
Geographic Region:
U.S.A. $ 107.8 68.7% $173.7 69.7%
Far East/Pacific Rim 24.3 15.5 39.6 15.9
Middle East 4.2 2.7 21.4 8.6
Latin America 20.5 13.1 2.6 1.0
Europe -- -- 9.0 3.6
Other 0.1 0.0 3.1 1.2
------ ----- ------ -----
$156.9 100.0% $249.4 100.0%
====== ===== ====== =====
6
The Company's sales by industry sector were as follows:
Fiscal 1995 Fiscal 1996
(in millions) % (in millions) %
----------- -------- ------------- -------
Industry Sector:
Power $ 59.2 43.8% $ 86.7 39.0%
Refining 39.2 29.0 62.4 28.1
Chemical 33.5 24.7 62.1 28.0
Other 3.4 2.5 10.8 4.9
----- ----- ----- -----
135.3 100.0% 222.0 100.0%
===== =====
Pooled Sales * 21.6 27.4
---- ----
$156.9 $249.4
====== ======
* Sales by industry sector for the pooled entity, NAPTech, are not available.
The gross margin for fiscal 1996 decreased to 16.1% from 16.7% for
fiscal 1995. The decrease is attributable primarily to the decreased margins
generated by NAPTech for fiscal 1996 compared to fiscal 1995. In addition,
during fiscal 1996, the Company had a substantial decrease in sales and gross
profits from the Company's Venezuelan facility, which historically has achieved
higher gross margin percentages than the Company's domestic subsidiaries. The
Company does not expect significant contributions in sales or profits, if any,
from its Venezuelan subsidiary until at least the second quarter of fiscal 1997.
These factors contributing to the decline in gross margins were partially offset
by an increase in international projects with their generally higher profit
margins, improvement in pricing in the domestic market and contributions from
the APP and Word subsidiaries.
General and administrative expenses were $26.7 million for fiscal
1996, compared to $16.5 million for the prior year. The $10.2 million increase
was due primarily to the integration of Word and APP into Shaw's business and to
the variable costs associated with the increased sales.
Interest expense for fiscal 1996 was $4.8 million, up 39.2% from the
$3.5 million incurred in fiscal 1995, primarily due to increased borrowing
resulting from the expansion of business, billing delays, and the acquisitions
of APP and Word in 1996. Beginning in the fourth quarter of fiscal 1995, the
Company has benefitted from new loan and security agreements with commercial
lenders and insurance companies, as well as an industrial revenue bond
financing, that reduced overall interest rates applicable to the Company and
helped reduce the impact of the aforementioned increased borrowings.
The Company's effective tax rates for fiscal 1996 and 1995 were 31.9%
and 31.1%, respectively. The increase in the fiscal 1996 tax rates, as compared
to the same period the prior year, was primarily due to an increased proportion
of the Company's net profit in the domestic market due in part to the
integration of APP and Word into the Company's operations.
Fiscal 1995 Compared to Fiscal 1994
Sales increased by 19.7% for fiscal 1995 to $156.9 million from $131.1
million for fiscal 1994. Gross profit increased 40.7% to $26.2 million for
fiscal 1995 from $18.6 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.
7
The Company's sales by geographic region were as follows:
Fiscal 1995
(in millions) %
------------ -----
Geographic Region:
U.S.A. $ 107.8 68.7%
Far East/Pacific Rim 24.3 15.5
Middle East 4.2 2.7
Latin America 20.5 13.1
Other 0.1 0.0
------ -----
$156.9 100.0%
====== =====
International sales by geographic region are not available for fiscal
1994.
The Company's sales by industry sector were as follows:
Fiscal 1994 Fiscal 1995
(in millions) % (in millions) %
------------ ----- ----------- -----
Industry Sector:
Power $ 57.7 51.0% $ 59.2 43.8%
Refining 31.7 28.0 39.2 29.0
Chemical 20.4 18.0 33.5 24.7
Other 3.4 3.0 3.4 2.5
--- --- --- ---
113.2 100.0% 135.3 100.0%
===== =====
Pooled Sales * 17.9 21.6
$131.1 $156.9
====== ======
* Sales by industry sector for the pooled entity, NAPTech, are not available.
Gross margins for fiscal 1995 increased to 16.7% from 14.2% for fiscal
1994. This increase was due to higher margins on international projects,
primarily attributable to work performed by the Company's Venezuelan subsidiary,
as well as improvement in the domestic market in the third and fourth quarters
of fiscal 1995. Fiscal 1994 gross margins were down due to a number of domestic
projects that were adversely affected by competitive pricing, quick delivery
requirements and/or productivity difficulties. These factors also impacted gross
margins for the first and second quarters of fiscal 1995.
General and administrative expenses for fiscal 1995 increased by $3.9
million to $16.5 million as compared to $12.6 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 $1.2 million 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
31.1% and 38.0%, respectively. The decrease in fiscal 1995 from fiscal 1994 was
primarily due to tax benefits derived from export sales and lower state income
taxes.
Liquidity and Capital Resources
Net cash used in operations was $22.0 million for fiscal 1996,
compared to net cash provided by operations of $3.9 million for fiscal 1995. For
fiscal 1996, net cash used in operations was a result primarily of increases of
$16.7 million in receivables and $19.3 million in inventories, partially offset
by an increase of $9.3 million in accounts payable.
8
The increase in receivables was primarily attributable to a higher
volume of sales activity for fiscal 1996. During the year, the Company
experienced some billing delays due to an increased number of contracts with
intricate and time consuming billing provisions. At the end of fiscal 1996,
there has been a shift in the contract mix, and the Company has substantially
eliminated these billing delays.
Inventories increased due to the procurement of material for current
and future sales activities, which are expected to exceed historical levels
based upon the Company's backlog at August 31, 1996 of approximately $193.0
million. The increase in inventories was primarily financed by the increase in
accounts payable and increases in the Company's revolving credit agreement.
Net cash used in investing activities was $26.0 million for fiscal
1996, compared to $3.9 million for fiscal 1995. During fiscal 1996, the Company
invested $0.8 million in cash in connection with the acquisition of Word and a
net $8.7 million of cash in connection with the acquisition of APP. In addition,
the Company purchased $18.5 million of property and equipment in fiscal 1996.
Major property and equipment purchases include $2.3 million for an induction
bending machine for the Company's subsidiary in Laurens, South Carolina; $2.6
million for an induction bending machine and $2.8 million of facility expansion
for the Company's subsidiary in Walker, Louisiana; $2.0 million of assets at the
Company's Venezuelan subsidiary; and $3.7 million of transportation equipment.
Net cash provided by financing activities was $51.1 million for fiscal
1996, compared to $80,000 provided in fiscal 1995. For fiscal 1996, $31.4
million of cash was provided from the Company's revolving line of credit
facility under the Company's loan and security agreement with its commercial
lenders. The revolving line of credit facility has been used generally to
provide working capital and fund fixed asset purchases and acquisitions. During
fiscal 1996, the Company borrowed $22.2 million in term debt. The borrowings
were used primarily to refinance $5.8 million of APP's debt, pay down $3.8
million of revolving debt and purchase two induction bending machines
aggregating $4.9 million and transportation equipment totaling $2.8 million.
Concurrent with the acquisition of APP, the Company amended its loan
and security agreement with its commercial lenders to provide for a revolving
line of credit of up to $70.0 million, depending upon the Company's collateral
base (which consists primarily of certain eligible amounts of receivables and
inventory) and up to $10.0 million in term loans at an interest rate based upon,
at the Company's option, either the London Interbank Offering Rate ("LIBOR")
plus 85 to 200 basis points or prime rate plus zero to 75 basis points,
depending on certain financial ratios. Pursuant to the amended loan and security
agreement, the Company makes daily draws against the line of credit to fund its
cash disbursements. Repayments to the line of credit are made through a lockbox
arrangement as the Company's customers remit payments on outstanding accounts
receivable. The line of credit facility expires on March 31, 1999, and the term
loans expire on March 31, 2001. The effective interest rate at August 31, 1996
for the line of credit and the term loans was 7.0%.
In September 1995, the Company obtained industrial development bond
financing of $4.0 million. Approximately $2.3 million of the bond proceeds were
used to purchase a bending machine for the Laurens, South Carolina facility in
November 1995. The remaining balance is held in short-term marketable securities
until used for other capital improvements at such facility. The loan is due
September 1, 2005 and is secured by a letter of credit issued under the loan and
security agreement with the Company's commercial lenders. The loan has a
variable interest rate, with the effective interest rate at August 31, 1996
being 3.95%.
In addition, since February 29, 1996, the Company has obtained an
aggregate of $16.9 million in term loans from a commercial lender and an
insurance company. The loans, which are secured by equipment and real estate,
have terms ranging from five to seven years and variable interest rates based
upon LIBOR plus 160 basis points and 30-day commercial paper rates plus 190 and
235 basis points for the equipment and real estate loans, respectively. The
effective rates at November 25, 1996 ranged from 7.10% to 7.74%.
9
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 commissions and other expenses of the
offering, from the issuances of the 2,398,000 shares of Common Stock totaled
approximately $47.0 million and will be used to repay outstanding amounts on the
Company's line of credit, which has been used generally to provide working
capital and fund fixed asset purchases and subsidiary acquisitions.
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 from the Offering, such funds will be invested in short-term,
interest-bearing, investment-grade securities.
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 $63.8 million from $88.1
million at August 31, 1995 to $151.9 million at August 31, 1996. The increase
resulted primarily from increases in inventories of $36.2 million and accounts
receivable of $23.8 million. Receivables increased primarily due to increased
sales levels and acquisitions, and inventories increased primarily due to
current and future production requirements and acquisitions. At August 31, 1996,
approximately $23.4 million of the inventories and $9.5 million of the
receivables were attributable to the newly acquired Word and APP subsidiaries.
Property and equipment increased by $34.0 million to $69.5 million at
August 31, 1996 from $35.5 million at August 31, 1995. This increase resulted
primarily from the $12.3 million of property and equipment acquired in the
acquisition of APP, the $5.4 million of property and equipment acquired in the
acquisition of Word, the purchase of two induction bending machines aggregating
$4.9 million, $4.8 million in fixed asset additions relating to the expansion of
the facilities for the Company's subsidiaries in Walker, Louisiana and
Venezuela, and transportation equipment of $3.7 million.
The Company's current liabilities increased $54.8 million from $49.2
million at August 31, 1995 to $104.0 million at August 31, 1996. The increase is
due primarily to increases of $36.3 million in the revolving line of credit and
$11.8 million in accounts payable. The increases in accounts payable and the
revolving line of credit were used to finance the Company's increase in accounts
receivable, inventories, fixed asset purchases and acquisitions.
Financial Accounting Standards Board Statements
In December 1990, Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Post-Retirement Benefits Other Than Pensions" ("SFAS
106"), was issued and required to be adopted by the Company no later than fiscal
1994. The Company presently offers no post-retirement benefits which would be
required to be reflected in its financial statements by SFAS 106.
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Post-Employment Benefits" ("SFAS 112"), was issued
and required to be adopted by the Company no later than fiscal 1995. The Company
presently offers no post-employment benefits which would be required to be
reflected in its financial statements by SFAS 112.
10
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", was issued and required to be adopted by the Company no later
than the fiscal year ending August 31, 1997. The adoption of this new standard
will not have a material impact on the Company's financial position or results
of operations.
In December 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued which
establishes, among other things, financial accounting and reporting standards
for stock-based employee compensation plans. Entities may either adopt a "fair
value based method" of accounting for an employee stock option as defined by
SFAS 123 or may continue to use accounting methods as prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees". Entities electing to remain
with the accounting in APB Opinion No. 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS 123 had been applied. The Company expects
to continue following APB Opinion No. 25 and make appropriate disclosures in the
future in accordance with SFAS 123.
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 years audited August 31, 1994 and 1995 were not
materially different from the eps reported by the Company. For the year ended
August 31, 1996, basic eps and diluted eps was $.70 and $.68, respectively. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997.
11
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 13
Consolidated Balance Sheets as of August 31, 1995 and 1996 14 - 15
Consolidated Statements of Income for the years ended
August 31, 1994, 1995 and 1996 16
Consolidated Statements of Shareholders' Equity for the years
ended August 31, 1994, 1995 and 1996 17
Consolidated Statements of Cash Flows for the years
ended August 31, 1994, 1995 and 1996 18 - 19
Notes to Consolidated Financial Statements 20 - 33
12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of The Shaw Group Inc.:
We have audited the accompanying consolidated balance sheets
of The Shaw Group Inc. (a Louisiana corporation) and subsidiaries as of August
31, 1995 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended August 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of The Shaw
Group Inc. and subsidiaries as of August 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended August 31, 1996, in conformity with generally accepted accounting
principles.
/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
May 16, 1997
13
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of August 31, 1995 and 1996
1995 1996
------ ------
ASSETS
Current assets:
Cash and cash equivalents $ 783,783 $ 2,967,342
Accounts receivable, net--Note 7 51,459,471 75,241,111
Receivables from unconsolidated entities--Note 5 1,630,862 700,479
Inventories--Notes 4 and 7 32,638,253 68,878,231
Prepaid expenses 693,318 2,440,503
Deferred income taxes--Note 8 857,400 1,634,817
- ---------- -----------
Total current assets 88,063,087 151,862,483
Investment in unconsolidated entities--Note 5 1,824,448 1,920,880
Property and equipment--Notes 6 and 10:
Transportation equipment 1,031,567 4,685,200
Furniture and fixtures 4,145,536 6,155,724
Machinery and equipment 16,649,456 36,299,786
Buildings and improvements 9,355,723 18,268,904
Assets acquired under capital leases 2,693,616 896,677
Land 1,611,030 3,201,626
---------- -----------
35,486,928 69,507,917
Less: Accumulated depreciation (including amortization
of assets acquired under capital leases) (8,258,030) (12,065,574)
---------- -----------
27,228,898 57,442,343
Note receivable from related party--Notes 3 and 15 -- 625,000
Other assets, net--Notes 3 and 15 3,968,005 6,652,738
------------ ------------
$121,084,438 $218,503,444
============ ============
(Continued)
The accompanying notes are an integral part of these statements.
14
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of August 31, 1995 and 1996
1995 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Outstanding checks in excess of bank balance $ 781,185 $ 3,104,746
Accounts payable--Note 15 17,152,567 28,905,023
Accrued liabilities 6,311,626 9,412,963
Current maturities of long-term debt--Note 6 4,902,281 4,865,038
Revolving line of credit--Note 7 16,501,285 52,796,148
Current portion of obligations under capital
leases--Note 10 481,411 68,143
Deferred revenue--prebilled 902,004 1,839,689
Advanced billings 2,135,820 2,990,631
---------- ---------
Total current liabilities 49,168,179 103,982,381
Long-term debt, less current maturities--Note 6 11,008,644 36,795,386
Obligations under capital leases, less current
portion--Note 10 709,547 44,696
Deferred income taxes--Note 8 842,174 1,635,702
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; 15,606,924 and 16,619,099 shares
issued in 1995 and 1996; 8,944,008 and 9,956,183
shares outstanding in 1995 and 1996 45,871,001 56,849,127
Retained earnings 20,312,728 26,023,987
Treasury stock, 6,662,916 shares (6,827,835) (6,827,835)
--------- ---------- ----------
Total shareholders' equity 59,355,894 76,045,279
---------- ----------
$121,084,438 $218,503,444
============ ============
The accompanying notes are an integral part of these statements.
15
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME For
the Years Ended August 31, 1994, 1995 and 1996
1994 1995 1996
----- ----- ------
Income:
Sales $131,145,311 $156,921,769 $249,358,437
Cost of sales 112,515,393 130,714,344 209,210,668
----------- ----------- -----------
Gross profit 18,629,918 26,207,425 40,147,769
General and administrative expenses 12,630,056 16,459,916 26,679,302
---------- ---------- ----------
Operating income 5,999,862 9,747,509 13,468,467
Interest expense (2,364,999) (3,465,454) (4,823,336)
Other income, net 303,828 244,315 922,839
---------- --------- ---------
(2,061,171) (3,221,139) (3,900,497)
---------- ---------- ----------
Income before income taxes 3,938,691 6,526,370 9,567,970
Provision for income taxes--Note 8 1,494,873 2,026,552 3,053,703
- --------- --------- ---------
Income before earnings (losses) from
unconsolidated entities 2,443,818 4,499,818 6,514,267
Earnings (losses) from unconsolidated
entities--Note 5 792,144 (587,569) 102,931
- --------- -------- -------
Income before extraordinary item 3,235,962 3,912,249 6,617,198
Extraordinary item, less applicable
income taxes of $204,000 in 1994 and
$-0- in 1995 -- Note 2 and 6 370,455 490,625 --
--------- --------- ---------
Net income $ 3,606,417 $ 4,402,874 $ 6,617,198
============ ============ ============
Earnings per common share--Note 12:
Income before extraordinary item $ .40 $ .44 $ .68
Extraordinary item .05 05 --
------------ ------------ ------------
Net income $ .45 $ .49 $ .68
============ ============ ============
The accompanying notes are an integral part of these statements.
16
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended August 31, 1994, 1995 and 1996
Common Stock Treasury Stock Total
------------- -------------- Retained Shareholders'
Shares Amount Shares Amount Earnings Equity
------ ------ ------ ------ -------- ------
Balance, September 1, 1993 12,264,916 $ 748,713 5,789,041 ($1,977,835) $13,609,204 $12,380,082
Pooling of interest 90,320 1,952,285 -- -- (1,056,491) 895,794
-----------------------------------------------------------------------------------
Balance, September 1, 1993 (Restated) 12,355,236 2,700,998 5,789,041 (1,977,835) 12,552,713 13,275,876
Net income -- -- -- -- 3,606,417 3,606,417
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
Pooled entity:
Share sale 14,341 200,000 -- -- -- 200,000
Dividend -- -- -- -- (124,276) (124,276)
-----------------------------------------------------------------------------------
Balance, August 31, 1994 15,319,577 41,863,719 6,662,916 ($6,827,835) 16,034,854 51,070,738
Net income -- -- -- -- 4,402,874 4,402,874
Pooled entity:
Share sale 193,555 2,699,283 -- -- -- 2,699,283
Dividend -- -- -- -- (125,000) (125,000)
Conversion of note payable, redeemable
preferred stock and cumulative redeemable
preferred stock dividends to common stock 93,792 1,307,999 -- -- -- 1,307,999
-----------------------------------------------------------------------------------
Balance, August 31, 1995 15,606,924 45,871,001 6,662,916 (6,827,835) 20,312,728 59,355,894
Net income -- -- -- -- 6,617,198 6,617,198
Shares issued to acquire
Word - Note 3 385,000 3,401,900 -- -- -- 3,401,900
Shares issued to acquire
APP--Note 3 541,177 6,724,712 -- -- -- 6,724,712
Exercise of options 45,125 281,514 -- -- -- 281,514
Pooled entity:
Net loss not included in reporting
period - Note 3 -- -- -- -- (905,939) (905,939)
Share sale 40,873 570,000 -- -- -- 570,000
-----------------------------------------------------------------------------------
Balance, August 31, 1996 16,619,099 $56,849,127 6,662,916 $(6,827,835) $26,023,987 $76,045,279
========== =========== ========= ============ =========== ==========
The accompanying notes are an integral part of these statements.
17
THE SHAW GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For
the Years Ended August 31, 1994, 1995 and 1996
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 3,606,417 $ 4,402,874 $ 6,617,198
Net loss not included in reporting period - Note 3 -- -- ( 905,939)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,094,399 2,982,056 4,992,087
Provision (benefit) for deferred
income taxes (211,200) 871,559 (2,802,430)
(Earnings) losses from unconsolidated
entities (792,144) 663,569 (102,931)
Translation loss -- -- 863,822
Gain on sale of marketable securities -- -- (855,047)
Other (303,750) (301,781) (251,170)
Changes in assets and liabilities, net of effects of acquisitions:
(Increase) in receivables (13,563,089) (9,016,718) (16,658,477)
(Increase) in inventories (2,632,420) (4,206,489) (19,337,381)
(Increase) decrease in other current
assets 74,337 (76,666) (1,479,433)
(Increase) in other assets (200,713) (1,004,108) (851,173)
Increase (decrease) in accounts payable (1,672,987) 6,597,886 9,305,533
Increase (decrease) in deferred
revenue--prebilled (288,563) 156,014 937,685
Increase (decrease) in accrued
liabilities (2,314,563) 663,406 (2,295,054)
Increase in advanced billings -- 2,135,820 854,811
----------- --------- -------
Net cash provided by (used in)
operating activities (16,204,276) 3,867,422 (21,967,899)
Cash flows from investing activities:
Investment in unconsolidated entities (1,316,408) (381,678) 95,513
Dividends received from unconsolidated
entities 350,000 -- --
Investment in subsidiaries, net of
cash received (2,101,909) (482,243) (9,516,276)
Proceeds from sale of property and
equipment 9,536 70,285 1,702,573
Purchase of property and equipment (5,880,222) (5,810,465) (18,478,171)
Purchase of marketable securities (920,411) (269,351) (1,433,143)
Cash transferred (to) from escrow fund (802,000) 1,295,000 --
Purchase of other assets (64,274) ( 7,596) --
Proceeds from sale of marketable
securities -- 1,694,070 2,288,190
Issuance of note receivable to a
related party -- -- (625,000)
----------- ----------- -----------
Net cash used in investing activities (10,725,688) (3,891,978) (25,966,314)
(Continued)
The accompanying notes are an integral part of these statements.
18
1994 1995 1996
---- ---- ----
Cash flows from financing activities:
Net proceeds (repayments) from
revolving credit agreement (1,435,831) (9,534,617) 31,440,326
Proceeds from issuance of debt 3,401,808 13,786,912 22,244,181
Repayment of debt and leases (11,876,187) (5,779,974) (5,787,667)
Dividend from pooled entity -- (105,000) --
Increase (decrease) in outstanding
checks in excess of bank balance (380,255) 380,734 2,323,561
Purchase of treasury stock (1,000,000) -- --
Issue common stock 37,819,309 1,330,883 851,514
---------- --------- -----------
Net cash provided by financing activities 26,528,844 78,938 51,071,915
Effects of exchange rate changes
on cash -- -- (954,143)
---------- ---------- -----------
Net increase (decrease) in cash (401,120) 54,382 2,183,559
Cash and cash equivalents--beginning
of year 1,130,521 729,401 783,783
----------- ----------- -----------
Cash and cash equivalents--end of year $ 729,401 $ 783,783 $ 2,967,342
=========== =========== ===========
Supplemental disclosures:
Cash payments for:
Interest $ 2,439,661 $ 3,467,508 $ 4,865,283
=========== =========== ===========
Income taxes (refund) $ 3,154,148 ($ 2,370,260) $ 7,712,620
=========== ============ ===========
Noncash investing and financing activities:
Property and equipment acquired through
issuance of debt $ 384,852 $ 104,963 $ 15,300
=========== ============= ============
Investment in subsidiaries acquired
through issuance of common stock $ 1,350,000 $ -- $ 10,126,613
=========== ============= ============
Treasury stock acquired through issuance
of debt $ 3,850,000 $ -- $ --
=========== ============= ============
Investment in unconsolidated entities
through reduction in receivables $ -- $ 1,015,000 $ 89,014
=========== ============= ============
Property and equipment acquired through
recovery of investment in
unconsolidated subsidiary $ -- $ 1,075,300 $ --
=========== ============= ============
Other assets acquired through issuance
of debt $ -- $ -- $ 2,131,515
=========== ============= ============
Acquisition of assets and assumption of
liabilities in exchange for a contract payable $ 900,000 $ -- $ --
=========== ============= ============
Conversion of note payable, contract payable,
redeemable preferred stock and
cumulative preferred stock dividends
to common stock $ -- $ 2,676,399 $ --
=========== ============= ============
The accompanying notes are an integral part of these statements.
19
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries (the
Company). All material intercompany accounts and transactions have been
eliminated in these financial statements. The financial statements have been
restated to include the accounts of the acquisition of an entity (See Note 3)
which was accounted for using the pooling-of-interests method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Nature of Operations
The Company is a supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for customers
in the electric power, refining and chemical industries. The Company offers
comprehensive design and engineering services, piping system fabrication,
manufacturing and sale of speciality pipe fittings and design and fabrication of
pipe support systems. The Company's operations are conducted through nine
fabrication facilities, two engineering offices and one manufacturing facility.
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid investments
with a maturity of three months or less when purchased are cash equivalents.
Accounts Receivable and Credit Risk
The Company's customers include major multi-national construction and
engineering firms and industrial corporations. Work is performed under contract
and the Company believes that its credit risk is minimal. The Company grants
short-term credit to its customers.
During 1996, the Company established an allowance for doubtful accounts
and contract adjustments. The reserve balance as of August 31, 1996 is $920,000.
Charges to this allowance were not material during fiscal 1996. Prior to 1996,
uncollectible accounts receivable and contract adjustments were charged directly
against earnings when they were determined to be uncollectible. Charge-offs have
not been material. The use of this method did not result in a material
difference from the valuation method required by generally accepted accounting
principles.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) cost method in 1996 and the
average cost method in 1995 and 1994. The effect of changing from the average to
the FIFO cost method during 1996 was not material.
20
Work in Process
Work in process includes primarily the costs accumulated in the
fabrication process for units only partially completed.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements
are capitalized. Maintenance and repair expenses are charged to income as
incurred. The cost of property sold or otherwise disposed of and 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:
Transportation Equipment 5-15 Years
Furniture and Fixtures 3-7 Years
Machinery and Equipment 3-18 Years
Buildings and Improvements 8-40 Years
Income Taxes
The Company provides for deferred taxes in accordance with FASB
Statement 109, which requires an asset and liability approach for measuring
deferred tax assets and liabilities due to temporary differences existing at
year end using currently enacted tax rates.
Revenues
Revenue on fabrication contracts is generally recognized upon the
completion of an individual spool of production. A spool consists of piping
materials and associated shop labor to form a pre-fabricated unit according to
contract specifications. During the fabrication process, all direct and indirect
costs related to the fabrication process are capitalized as work in process
inventory. Capitalized costs are charged to earnings upon completion of the
fabrication process for each spool. Spools are generally shipped to job site
locations when complete.
The Company also contracts with certain customers on a fixed price
basis. Revenue is recognized as spools are completed. Costs and estimated
earnings in excess of billings included in accounts receivable totaled
$1,943,128 and $5,597,175 for the years ended August 31, 1995 and 1996,
respectively. Billings in excess of costs and estimated earnings for both years
are not material.
Profit related to prebilled materials is deferred until the fabrication
of the spools is completed.
Intangible Assets
Intangible assets represent the excess of the purchase price of
acquisitions over the fair value of the net assets acquired. Such excess costs
are being amortized on a straight-line basis over a twenty year period. The
Company periodically assesses the recoverability of the unamortized balance
based on expected future profitability and undiscounted future cash flows of the
acquisitions and their contribution to the overall operation of the Company.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements in order to conform to current reporting practices.
21
New Accounting Standards
In 1995, Statement of Financial Accounting Standards No.
121--"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" was issued and required to be adopted by the Company no later
than the fiscal year ending August 31, 1997. Management believes that such
adoption will not have a material effect on the Company's financial statements
taken as a whole.
Also in 1995, Statement of Financial Accounting Standards No.
123--"Accounting for Stock-Based Compensation" (the "Statement") was issued
which establishes, among other things, financial accounting and reporting
standards for stock-based employee compensation plans. Entities may either adopt
a "fair value based method" of accounting for an employee stock option as
defined by the Statement or may continue to use accounting methods as prescribed
by APB Opinion No. 25--"Accounting for Stock issued to Employees." Entities
electing to remain with the accounting in APB Opinion No. 25 are required to
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in the Statement had been applied. The
Company expects to continue following APB Opinion No. 25 and make appropriate
disclosures in the future in accordance with the Statement.
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 years audited August 31, 1994 and 1995 were not
materially different from the eps reported by the Company. For the year ended
August 31, 1996, basic eps and diluted eps was $.70 and $.68, respectively. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997.
Note 2--Initial Public Offering
In December 1993, the Company completed the initial public offering
(the "IPO") of its common stock. The Company issued 2,875,000 shares at $14.50
per share. Net proceeds to the Company, after underwriting discounts and
commissions and other expenses of the offering, were approximately $38 million.
The net proceeds from the offering were used primarily to repay the Company's
outstanding indebtedness. As a result of its early retirement of certain debt
instruments, the Company recognized an extraordinary gain of approximately
$370,000 (net of income tax).
Note 3--Acquisitions
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. (FCI), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. (PSSI), a pipe support
fabrication facility in Longview, Texas. These acquisitions were completed
through the issuance of 75,000 shares of the Company's common stock valued at
$1,350,000 and cash of $2,130,524. In addition, the Company agreed to issue
options to acquire up to 57,000 shares of common stock and additional cash
payments up to $300,000 based on the future earnings of the Company's
subsidiaries managed by the former owner through 1997. These acquisitions were
accounted for using the purchase method of accounting. The excess of cost over
the estimated fair value of the net assets acquired of $1,565,912, included in
other assets, is being amortized over twenty years using the straight-line
method. The pro forma effect of this acquisition, as though it had occurred at
the beginning of year ended August 31, 1994, is not material to the operating
results of the Company.
On December 15, 1994, the Company acquired the 50% interest of the
other participant in the Shaw-Formiconi joint venture located in Venezuela,
together with the concurrent acquisition of certain land, buildings and other
assets used by the venture. The total amount of the purchase price related to
this acquisition, including the selling participant's share of joint venture
profits, was approximately $2,900,000. The purchase method was used to account
for the acquisition. The
22
$926,825 of excess cost over the estimated fair value of the assets acquired,
which is included in other assets, is being amortized over twenty years using
the straight-line method. The name of the wholly-owned continuing entity is
Manufacturas Shaw South America, C.A.
On January 16, 1996, the Company's newly formed, wholly-owned
subsidiary, Word Industries Fabricators, Inc. (Word), purchased certain assets
and assumed certain liabilities from Word Industries Pipe Fabricating, Inc.
(WIPF), TS&M Corporation and T.N. Word and certain of his family members. The
acquisition was completed through the issuance of 385,000 shares of the
Company's common stock valued at $3,442,000 and cash of $503,000. Acquisition
costs of $246,000 were incurred by the Company. The purchase method was used to
account for the acquisition. The purchase price has been allocated to the
estimated fair value of assets acquired and liabilities assumed at the date of
acquisition as follows:
Property and Equipment $5,405,000
Notes Payable (294,000)
Accrued Liabilities (306,000)
Deferred Income Taxes (614,000)
--------
Purchase Price $4,191,000
==========
The operating results of Word have been included in the consolidated
statements of income from the date of acquisition.
In addition to the transactions described above, the Company agreed to
loan WIPF an aggregate of $1,725,000 pursuant to two separate loan agreements,
each dated as of January 15, 1996, one in the amount of $625,000 and the other
in the amount of $1,100,000. The $625,000 loan has been funded and is secured by
a pledge of 115,000 shares of the Company's common stock received by WIPF in
connection with the acquisition. The $1,100,000 loan will be secured by (i) a
mortgage covering an approximately 6-acre tract of land in Tulsa, Oklahoma and
(ii) a mortgage covering an approximately 12-acre tract of land in Tulsa,
Oklahoma. This $1,100,000 loan had not been funded as of August 31, 1996.
Effective March 1, 1996, the Company purchased all of the outstanding
capital stock of Alloy Piping Products, Inc. (APP), a leading U.S. manufacturer
of specialty stainless and carbon steel pipe fittings and other stainless pipe
products, and the assets of an APP-related entity, Speedline, a Louisiana
partnership (Speedline). The acquisition was completed through the issuance of
541,177 shares of the Company's common stock valued at $6,765,000 and cash of
$11,280,000. Acquisition costs of $366,000 were incurred by the Company. The
purchase method was used to account for the acquisitions. The purchase price has
been allocated to the estimated fair value of assets purchased and liabilities
assumed at the date of acquisition as follows:
Accounts Receivable $ 6,751,000
Inventory 16,923,000
Other Current Assets 268,000
Property and Equipment 12,253,000
Other Assets 222,000
Revolving Line of Credit (4,855,000)
Notes Payable (5,789,000)
Accounts Payable and Accrued Liabilities (8,117,000)
Deferred Income Taxes (2,205,000)
----------
Purchase price (net of cash received of $2,960,000) $15,451,000
===========
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.
23
On January 27, 1997, the Company completed the acquisition of NAPTech,
Inc., 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, Inc. and the 335,000 square foot facility that
NAPTech , Inc. had leased from a related entity (collectively, "NAPTech"). The
transaction was accounted for using the pooling-of-interests method; and
accordingly, the financial information for all prior periods presented herein
have been restated to include financial information of NAPTech.
Because the fiscal periods of the Company and NAPTech were not the
same, NAPTech's financial statements for its 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 April, May, and June 1995, which
amounted to $3,811,400 and $905,939 respectively, have been excluded from the
restated statements of income for fiscal 1996.
The financial statements of the Company for the years ended August 31,
1994 and 1995 have been restated to reflect NAPTech's combined financial
statements for the years ended April 1, 1994 and March 31, 1995, respectively.
The following is a reconciliation of the amounts of sales and net
income previously reported (in the Company's Annual Report on Form 10-K for the
year ended August 31, 1996) to the restated financial information for all prior
periods presented herein:
Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1995 August 31, 1996
--------------- --------------- ---------------
Sales
- -----
As previously reported $113,176,824 $135,264,643 $222,017,437
NAPTech 17,968,487 21,657,126 27,341,000
---------- ---------- ----------
As restated $131,145,311 $156,921,769 $249,358,437
============ ============ ============
Net Income
- ----------
As previously reported $ 3,378,834 $ 4,266,045 $ 8,776,498
NAPTech 227,583 136,829 ( 2,159,300)
------------ ------------ ------------
As restated $ 3,606,417 $ 4,402,874 $ 6,617,198
============ ============ ============
The following summarized unaudited income statement data reflects the
impact the above acquisitions accounted for as a purchase would have had on the
Company's results of operations if the Shaw-Formiconi transaction had taken
place on September 1, 1993 and the Word and APP acquisitions had taken place on
September 1, 1994:
Unaudited Pro-forma Results for the Year Ended August 31,
---------------------------------------------------------
1994 1995 1996
---- ---- ----
Gross revenue $138,480,895 $237,401,682 $292,626,338
============ ============ ============
Net income $ 4,398,561 $ 7,721,968 $ 6,850,667
============ ============ ============
Earnings per common share $ 0 .55 $ 0.78 $ 0.67
============ ============ ============
24
Note 4--Inventories
The major components of inventories consist of the following:
August 31,
------------------------
1995 1996
---- ----
Finished Goods $ 2,023,748 $23,138,238
Raw Materials 22,720,952 34,241,467
Work In Process 7,893,553 11,498,526
----------- ----------
$32,638,253 $68,878,231
=========== ===========
Note 5--Investment in Unconsolidated Entities
During the years ended August 31, 1994 and 1995, the Company invested
$250,000 and $1,880,000, respectively in Shaw-Nass Middle East, W.L.L., the
Company's Bahrain joint venture ("Shaw-Nass"). The Company owns 49% of Shaw-Nass
and accounts for this investment on the equity basis. As such, during the years
ended August 31, 1994, 1995, and 1996 the Company recognized earnings (losses)
of $-0-, ($205,968) and $102,931 respectively from Shaw-Nass. No distributions
have been received through August 31, 1996 from Shaw-Nass. In addition, as of
August 31, 1995 and 1996, the Company had outstanding receivables from Shaw-Nass
totaling $1,630,862 and $700,479 respectively. These receivables relate
primarily to inventory and equipment sold to Shaw-Nass.
As discussed in Note 3, the Company purchased the 50% interest of the
other participant in its Venezuelan joint venture, together with the concurrent
acquisition of certain land, buildings and other assets used by the venture. The
Company had previously accounted for its investment in the joint venture as an
unconsolidated subsidiary under the equity method and had recognized net income
of approximately $792,000 during the year ended August 31, 1994 and $29,000
during the period from September 1 to December 15, 1994.
In February 1994, the Company entered into a joint venture agreement
with Sino-Thai Engineering and Construction Co., Ltd. and PAE (Thailand) Company
Limited for the formation of Shaw Asia Company, Ltd. (Shaw Asia) to construct
and operate a pipe fabrication facility in Thailand. During the year ended
August 31, 1994, the Company recognized no income from Shaw Asia as its
operations were not significant. During the year ended August 31, 1995, the
venture did not achieve the desired level of activity, and the Company withdrew
from the joint venture. In conjunction with the withdrawal, the Company
recovered approximately $1.1 million in equipment from the joint venture which
reduced its net investment to approximately $400,000. The remaining balance was
charged off.
Note 6--Long-Term Debt
Long-term debt consisted of:
August 31,
------------------------
1995 1996
---- ----
Notes payable to insurance companies; variable interest rates based on 30-day
commercial paper rates plus 190 to 235 basis points ranging from 7.26% to
7.74% as of August 31, 1996; payable in monthly installments based on
amortization over the respective note lives; maturing from 2001 to 2005;
secured by property and equipment with an approximate net book value of
$20,253,000 as of August 31, 1996 and guaranties by the Company and
certain subsidiaries of the Company $7,089,437 $15,971,239
25
Note payable to a bank; variable interest rate based upon London Interbank
Offering Rate (LIBOR) plus 85 to 200 basis points depending upon certain
financial ratios. Interest rate as of August 31, 1996 was 7.0%; 60 monthly
principal payments of $50,000 through May 31, 2000; secured by equipment with
an approximate net book value of $2,832,000 as of
August 31, 1996 2,900,000 2,300,000
Note payable to a bank, interest at 9.36%, payable in monthly installments of
$39,559 through May 10, 2001,
collateralized by accounts receivable and equipment. 2,917,182 2,853,078
Note with interest at 8.5%, payable in monthly installments of $17,183 through
1999 with the remaining principal balance due
on January 1, 2000, secured by land and a building 1,827,852 1,856,680
Note payable to a corporation; interest payable
quarterly at 60% of prime rate; repayable in annual
installments through December 15, 1995, unsecured 580,000 --
Note payable to a bank; interest payable annually at LIBOR plus 1.6%; payable in
28 annual installments of $264,286 with remaining balance due in 2003; secured
by equipment with an approximate net
book value of $8,757,000 -- 7,400,000
Mortgages payable to a bank; interest payable monthly at 8.375%; 95 monthly
payments of $9,850 and $26,935 with remaining balance due on June 1, 2002;
secured by real property with an approximate net book value of $2,074,000 and
deposits at financial institutions
with an approximate value of $2,010,000 -- 3,432,531
South Carolina Revenue Bonds payable; principal due in 2005; interest paid
monthly accruing at a variable rate of 3.95% as of August 31, 1996;
secured by $4,000,000 letter of credit -- 4,000,000
Notes payable to employees relating to non-competition agreements; interest
payable monthly at 7%; monthly payments of $42,000, and $5,000 until April
2001 and August 2000 respectively; unsecured--see Note 15 -- 2,131,515
Note payable to a leasing company, interest at 8.59%, payable in monthly
installments of $7,606 through September 1999,
collateralized by equipment. 339,708 258,058
Note payable to an individual who is related to the Company,
interest at 10%, payable on demand, uncollateralized. 100,000 1,075,000
Other notes payable; variable interest rates ranging from 6% to 13.8%; payable
in monthly installments based on amortization over the
respective note lives; maturing from 1996 to 1998 156,746 382,323
------- ---------
Total debt 15,910,925 41,660,424
Less: current maturities (4,902,281) (4,865,038)
---------- ----------
Total long-term debt $ 11,008,644 $36,795,386
============ ===========
26
Annual maturities of long-term debt during each year ending August 31,
are as follows:
1997 $ 4,865,038
1998 3,838,955
1999 4,012,912
2000 4,105,293
2001 and thereafter 24,838,226
---- ----------
$41,660,424
===========
In connection with the acquisition of certain assets and the assumption of
certain liabilities of Vinson Supply Company ("Vinson") in 1992, NAPTech
delivered a note payable of $3,800,000 to Vinson, redeemable preferred stock of
$1,062,690 and $200,000 cash. NAPTech thereafter entered into a settlement
agreement with Vinson dated June 13, 1994, in which NAPTech agreed to pay Vinson
$3,000,000 cash 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 deferred dividend
liability. NAPTech 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 ($3,539,000 note payable) and wrote-off the book value
relating to 106,269 shares of NAPTech's redeemable preferred stock and
redeemable cumulative preferred stock dividend of $1,062,690 and $245,309,
respectively, as a credit to the NAPTech's common stock.
Certain of the debt agreements contain restrictive covenants which the
Company is required to meet including financial ratios and minimum capital
levels. As of August 31, 1996, the Company was in compliance with the covenants
or had obtained the required waivers.
The estimated fair value of long-term debt approximated its carrying
value, based on borrowing rates currently available to the Company for notes
with similar terms and average maturities, as of August 31, 1995 and 1996.
Note 7--Revolving Line Of Credit
In 1996, the Company entered into a new loan and security agreement
with its commercial lenders which allows the Company to borrow up to
$70,000,000, depending upon the Company's collateral base (which consists
primarily of certain eligible amounts of receivables and inventory), under a
revolving line of credit at an interest rate not to exceed 2% over the London
Interbank Offering Rate (LIBOR) or .75% over the Prime rate. The index used to
determine the interest rate is selected by the Company and the spread over the
index is dependent upon certain financial ratios of the Company. The interest
rate adjusts quarterly. This replaced the prior year revolving line of credit
which allowed the Company to borrow up to $30,000,000 at an interest rate based
upon the LIBOR plus 85 to 200 basis points depending upon certain financial
ratios of the Company. During 1995 and 1996, the maximum amount outstanding was
approximately $29,318,000 and $55,512,000, respectively, and the average amount
outstanding was $24,441,000 and $31,752,000, respectively, at weighted average
interest rates of 9.79% and 7.04%, respectively. The new agreement expires March
31, 1999. The line of credit is secured by the Company's accounts receivable and
inventories.
In 1996, the Company had a line of credit with a bank for $3,400,000.
The line of credit is collateralized by accounts receivable, inventory, and
equipment and accrues interest at 2% above the bank's prime rate and expires
July 31, 1997. In 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
rate. On January 27, 1997, the Company terminated this line of credit agreement.
The lines of credit are also subject to certain restrictive covenants
similar to those of the long-term debt. As of August 31, 1996, the Company was
in compliance with these covenants or had obtained the required waivers.
27
Note 8--Income Taxes
A summary of net deferred taxes is as follows:
August 31,
------------------------
1995 1996
---- ----
Deferred tax assets $1,689,755 $4,156,255
Deferred tax liabilities (Net of deferred
tax liabilities assumed in Word and APP
acquisitions totaling -0- in 1995 and
$2,818,541 in 1996) (1,674,529) (1,338,599)
---------- ----------
Net deferred taxes $ 15,226 $2,817,656
========== ==========
The significant components of net deferred taxes are as follows:
August 31,
-------------------
1995 1996
---- ----
Assets:
Tax basis of inventory in excess of book basis $ 184,200 $ 244,800
Expenses not currently deductible 709,173 1,763,073
Net operating loss carry forward 796,382 2,148,382
---------- ---------
$1,689,755 $4,156,255
========== ==========
Liabilities:
Excess of financial reporting over tax basis of assets $1,338,465 $3,596,438
Income not currently taxable 336,064 560,702
---------- ----------
$1,674,529 $4,157,140
Less: Deferred tax liabilities assumed in Word and APP
acquisitions -- (2,818,541)
---------- ----------
$1,674,529 $1,338,599
========== ==========
Income before provision for income taxes for the years ended August 31
was as follows:
1994 1995 1996
---- ---- ----
Domestic $3,938,691 $1,259,124 $9,526,236
Foreign -- 5,267,246 41,734
---------- ----------- ----------
Total $3,938,691 $ 6,526,370 $9,567,970
========== =========== ==========
The provision for income taxes for the years ended August 31 was as
follows:
1994 1995 1996
---- ---- ----
Current $1,496,273 $1,170,993 $5,736,133
Deferred (211,200) 871,559 (2,802,430)
State 209,800 (16,000) 120,000
--------- ------- -------
Total $1,494,873 $2,026,552 $3,053,703
========== ========== ==========
28
A reconciliation of Federal statutory and effective income tax rates for
the years ended August 31 was as follows:
1994 1995 1996
---- ---- ----
Statutory rate 34% 34% 34%
State taxes provided 5 -- 1
Other (1) (3) (3)
-- -- --
38% 31% 32%
== == ==
As of August 31, 1996, for Federal income tax return purposes, the
Company had approximately $6,100,000 of net operating loss carryforwards
available to offset future taxable income of its NAPTech subsidiary, subject to
an annual limitation of approximately $500,000. The carryforwards expire
beginning in 2008 through 2010.
Note 9--Treasury Stock
The Company previously had two classes of common stock. The classes had
identical rights, preferences and powers except that Class A common stock had
certain voting preferences. In connection with the Company's initial public
offering, the Company's charter was amended to provide for only one class of
common stock; however, holders for at least four consecutive years generally
have voting preferences. Also, the amended charter authorizes the Board of
Directors to approve the issuance of preferred stock.
During fiscal 1994, prior to its initial public offering, the Company
repurchased 873,875 shares of common stock from one of its stockholders for
$4,850,000.
Note 10--Leases
Capital leases -- The Company leases computers, office equipment and
machinery under various non-cancelable lease agreements. Minimum lease rentals
have been capitalized and the related assets and obligations recorded utilizing
various interest rates. The assets are amortized on the straight-line method
over the lease terms and interest expense is accrued on the basis of the
outstanding lease obligations.
Assets acquired under capital leases -- net of accumulated amortization
are as follows:
August 31,
------------------------
1995 1996
---- ----
Transportation equipment $1,710,270 $ --
Furniture and fixtures 899,352 878,236
Machinery and equipment 83,994 18,441
--------- ------
2,693,616 896,677
Less: accumulated amortization (595,520) (245,385)
---------- --------
$2,098,096 $ 651,292
========== =========
29
The following is a summary of future obligations under capital leases
(present value of future minimum rentals):
Minimum lease payments:
1997 $ 75,986
1998 29,839
1999 18,591
---- --------
Total minimum lease payments 124,416
Less: amount representing interest (11,577)
-------
112,839
Less: current portion (68,143)
---------
Long-term obligations under capital leases $ 44,696
=========
Operating leases -- The Company leases certain offices, fabrication
shops, warehouse facilities, office equipment and machinery under noncancelable
operating lease agreements which expire at various times and which require
various minimum rentals. The non-cancelable operating leases which were in
effect as of August 31, 1996 require the Company to make the following future
minimum lease payments:
For the year ending August 31:
1997 $1,187,869
1998 927,145
1999 517,493
2000 371,856
---- ----------
Total minimum lease payments $3,004,363
==========
Note 11--Commitments and Contingencies
As of August 31, 1996, the Company has committed to purchase approximately
$4.3 million of additional pipe bending machines for its domestic facilities.
The Company has posted letters of credit aggregating approximately $4
million as of August 31, 1996 to secure its performance under certain contracts
and insurance arrangements, as well as its purchase of a pipe bending machine
for one of its domestic facilities.
For the year ended August 31, 1996, 60% of the Company's labor force
was covered by collective bargaining agreements. Of this amount, 93% are covered
by collective bargaining agreements which will expire during the Company's next
fiscal year. The Company does not expect that the renewal of the agreements will
have an adverse impact on the Company's results of operations or financial
position.
Note 12--Earnings Per Common Share
In connection with the initial public offering of 2,500,000 shares of
its common stock, the Company's shareholders approved a stock split and
recapitalization on December 6, 1993 which caused the number of outstanding
shares to increase from 4,567.5 to 5,602,000. For all periods, the share amounts
and per share data throughout the financial statements have been adjusted to
give effect to the stock split. Earnings per common share is calculated based on
the weighted average number of shares outstanding, including dilutive common
stock equivalents when material, during the periods adjusted for the effect of
the stock split. The weighted average number of shares outstanding for 1994,
1995, and 1996 were 8,053,996, 8,915,977, and 9,757,610 respectively.
30
Note 13--Major Customers and Export Sales
For the year ended August 31, 1994, sales to the Company's largest
customer totaled $13,100,000, or 10% of sales. For the year ended August 31,
1995, sales to a customer accounting for more than 10% of sales totaled
$19,100,000 and comprised 12% of sales. For the year ended August 31, 1996,
sales to a customer accounting for more than 10% of sales totaled $27,200,000
and comprised 11% of sales. Because of the nature of the Company's business, the
significant customers vary between years.
For the years ended August 31, 1994, 1995 and 1996, the Company has
included as part of its international sales approximately $32,000,000,
$40,000,000, and $74,000,000 respectively, of exports from its domestic
facilities.
Note 14--Employee Benefit Plans
Effective with its initial public offering, the Company adopted a Stock
Option Plan (the Plan) under which both qualified and non-qualified options may
be granted. In addition, 804,875 shares of common stock are reserved for
issuance under the Plan. The Plan is administered by a committee of the Board,
which selects persons eligible to receive options and determines the number of
shares subject to each option, the vesting schedule, the option price, and the
duration of the option. The exercise price of any option granted under the Plan
cannot be less than 100% of the fair market value on date of grant and its
duration cannot exceed 10 years. Only qualified options have been granted under
the Plan.
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, which was the fair market value
of the common stock at the date of such amendment. In addition, in 1994 the
Company granted options contingent upon the ability of FCI and PSSI to generate
consolidated net income in excess of certain thresholds during the fiscal years
ending August 31, 1995, 1996 and 1997. The maximum number of options issuable
under this plan is 19,000 per year or 57,000. These options expire in 2004 and
have an exercise price equal to the closing price quoted on the last business
day of the immediately preceding fiscal year to which the grant of options
relate. The minimum threshold for the year ended August 31, 1995 was not met,
and therefore, no options were issued for that year. For the year ended August
31, 1996, 9,000 options with an exercise price of $9.59 per share were earned
and will be issued in fiscal 1997.
The following table summarizes the activity in the outstanding stock
options of the Company:
Shares
Plan Acquisitions Option Price
Outstanding at September 1, 1993 3,585 -- $0.14
Granted 213,727 5,000 $5.875 - $13.95
Exercised -- -- --
------- ------
Outstanding at August 31, 1994 217,312 5,000 $0.14 - $13.95
Granted 245,635 -- $5.875 - $27.89
Exercised -- -- --
------- ------
Outstanding at August 31, 1995 462,947 5,000 $0.14 - $6.75
Granted 21,793 85,000 $17.375 - $27.89
Exercised (45,125) -- $5.875 - $6.75
------- ------
Outstanding at August 31, 1996 439,615 90,000 $0.14 - $27.89
======= ======
Exercisable at August 31, 1996 92,365 5,000 $0.14 - $27.89
======= ======
31
During 1994, the Company, excluding NAPTech, adopted a voluntary 401(k)
profit sharing plan for substantially all employees who are not subject to
collective bargaining agreements. The plan provides for the eligible employee to
contribute from 1% to 10% of annual compensation, subject to an annual limit,
with the Company matching 50% of the employee's eligible contribution up to 6%.
The Company's contribution to this plan during 1994, 1995 and 1996 was
approximately $102,000, $220,000, and $285,000 respectively.
The Company has a qualified, contributory 401(k) savings plan covering
all employees of NAPTech 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 $16,100, $9,000 and $23,900 for the
years ended August 31, 1994, 1995 and 1996, respectively.
The Company has a separate qualified, contributory 401(k) savings plan
covering all non-union employees of NAPTech. The Company may, at its discretion,
make a matching contribution in an amount determinable by the board of
directors. The Company did not make a contribution to the plan in fiscal 1994
and 1995; in fiscal 1996 the Company made a contribution to the plan of
approximately $6,600.
The Company has a defined contribution profit sharing plan covering
substantially all employees of APP. The plan allows the Company to make a
discretionary contribution to the plan of up to 15% of eligible employee
compensation. For the period from the effective date of acquisition through
August 31, 1996, the Company accrued $175,000 in contributions to the plan.
Note 15--Related Party Transactions
During 1994, the Company entered into an employment agreement with the
President and Chief Executive Officer (CEO) of the Company. Under terms of the
agreement, the President and CEO has agreed to serve in that capacity until
December 31, 1996 (subject to an automatic three-year extension) and will
receive, among other things, an annual base salary of $500,000, participation in
the Company's annual bonus plan as determined by the Compensation Committee of
the Board of Directors, and other benefits such as health and life insurance. In
the event the President and CEO's employment is terminated due to events as
defined in the agreement, the President and CEO will receive a lump-sum payment
equal to the full amount payable under the agreement.
During 1995, the Company entered into several loan agreements with key
management some of which were non-interest bearing. The impact of discounting
such loans to record interest income was not significant. The balance of these
employee loan receivables as of August 31, 1995 and 1996 was $231,900 and
$220,191, respectively. These balances are included in other assets.
As discussed in Note 3, in connection with the Word acquisition, the
Company entered into a $625,000 loan agreement with Word Industries Pipe
Fabricating, Inc. ("WIPF"). WIPF is owned primarily by certain stockholders of
the Company. The loan is due on January 15, 2001 and bears interest at a rate
equal to that charged on the Company's revolving line of credit.
32
In addition, as of August 31, 1996 the Company has included in its accounts
payable approximately $280,000 to WIPF.
During 1996, in connection with an acquisition, the Company has entered
into non-competition agreements with certain employees. Related assets totaling
approximately $2.3 million, included in other assets, are being amortized over
five years using the straight-line method. The corresponding liabilities are
included in long-term debt as further discussed in Note 6.
Note 16--Foreign Currency Transactions
The Company's wholly-owned subsidiary in Venezuela has net assets of
approximately $7,000,000 denominated in Venezuelan Bolivars. In accordance with
SFAS 52, the U.S. dollar is used as the functional reporting currency since the
Venezuelan economy is defined as highly inflationary. Therefore, the assets and
liabilities must be translated into U.S. dollars using a combination of current
and historical exchange rates. During 1995, the Venezuelan government fixed the
exchange rate for Bolivars, thus there was no change in the exchange rate used
to translate these assets and liabilities, and accordingly no gain or loss was
recognized in 1995 by this translation. During the year ended August 31, 1995,
the Company recognized as part of its sales aggregate exchange gains of
approximately $.9 million relating to collections on contracts in progress
during the year.
During 1996, the Venezuelan government lifted all foreign exchange
controls. Subsequent to this action, the Bolivar devalued from 170 to 475 to the
U.S. dollar. As a result, the Company recorded a translation loss of
approximately $864,000 in translating the assets and liabilities into U.S.
dollars. The Company also recognized a gain of approximately $818,000 during
1996 related to a Venezuelan Government bond purchased at a fixed exchange rate
which was subsequently sold. The earnings from this subsidiary in 1996 were not
material to the consolidated results of operations.
Note 17--Subsequent Event
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 commissions and other expenses of the
offering, from the issuances of the 2,398,000 shares of Common Stock totaled
approximately $47.0 million and will be used to repay outstanding amounts on the
Company's line of credit, which has been used generally to provide working
capital and fund fixed asset purchases and subsidiary acquisitions.
33
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated May 16, 1997 covering the audited financial
statements of The Shaw Group Inc. (Shaw) and subsidiaries included in its Form
8-K dated June 17, 1997 into Shaw's previously filed Registration Statement File
No. 333-4570 on Form S-3.
/S/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
June 17, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated May 16, 1997 covering the audited financial
statements of The Shaw Group Inc. (Shaw) and subsidiaries included in its Form
8-K dated June 17, 1997 into Shaw's previously filed Registration Statement File
No. 333-4570 on Form S-3.
/s/ Hannis T. Bourgeois & Co., L.L.P.
-------------------------------------
HANNIS T. BOURGEOIS & CO., L.L.P.
Baton Rouge, Louisiana
June 17, 1997