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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended August 31, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-22992
THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-1106167
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
11100 Mead Road, Second Floor 70816
Baton Rouge, Louisiana (zip code)
(Address of principal executive offices)
(504) 296-1140
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common
stock, no par value.
Securities registered pursuant to Section 12(g) of the Act: None.
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
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
(affiliates being directors, officers and holders of more than 5% of the
Company's common stock) of the Registrant at October 31, 1996 was approximately
$136,503,910.
The number of shares of the Registrant's common stock, no par value,
outstanding at November 19, 1996 was 9,524,552.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be prepared
for use in connection with the registrant's 1997 Annual Meeting of Shareholders
to be held in January 1997 will be incorporated by reference into Part III of
this Form 10-K.
PART I
ITEM 1. Business
General
The Shaw Group Inc. ("Shaw" or the "Company") is a leading supplier of
industrial piping systems for new construction and retrofit projects throughout
the world, primarily for customers in the electric power, refining and chemical
industries. Shaw is committed to being the "total piping resource" for its
customers by offering comprehensive design and engineering services, piping
system fabrication, manufacturing and sale of specialty pipe fittings and design
and fabrication of pipe support systems.
The Company was founded in 1987 by current management and subsequently
purchased the assets of Benjamin F. Shaw Company, a century-old pipe fabricator.
The Company has increased its revenues from $29.3 million in the fiscal year
ended August 31, 1988 to $222.0 million in the fiscal year ended August 31, 1996
("fiscal 1996"), both increasing its domestic and international business.
Through internal expansion and a series of strategic acquisitions, the Company
has expanded its fabrication capacity, increased its bending capabilities and
broadened its piping system products and services. These actions have provided
the Company with the ability to achieve substantial economies of scale in
purchasing, manufacturing and transporting fabricated products and the ability
to provide customers with complete piping systems.
The Company believes it has earned a reputation as an efficient,
low-cost supplier of complex piping systems as a result of several competitive
advantages. Specifically, the Company coordinates and integrates project
engineering and fabrication processes in order to maximize overall efficiency in
time, cost and performance. In addition, the Company's significant investment in
state-of-the-art induction bending equipment provides it with time, labor and
raw material savings as compared to traditional fabrication methods. Shaw also
manufactures specialty pipe fittings, pipe hangers and other pipe products. This
manufacturing capability has served to reduce the Company's supply costs and
enhance its overall piping package. The Company utilizes its proprietary
software technology to enhance the planning and scheduling efforts of its
customers, helping to reduce total installed costs and project cycle times.
Forward-Looking Statements and Associated Risks
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934 as amended, including statements
regarding, among other items, (i) the Company's growth strategies, including its
intention to make acquisitions; (ii) anticipated trends in the Company's
business; and (iii) the Company's intention to enter into satisfactory contracts
with its customers, including Alliance Agreements. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of, among other things, the following factors: (i)
adverse economic conditions; (ii) the impact of competitive products and
pricing; (iii) product demand and acceptance risks; (iv) the presence of
competitors with greater financial resources; (v) costs and financing
difficulties; and (vi) delays or difficulties in the production, delivery or
installation of products, including a lengthy strike or other work stoppage by
the Company's union employees at any of the Company's facilities. In light of
these risks and uncertainties, there can be no assurance that actual results
will be as projected in the forward-looking statements. Furthermore, the Company
undertakes no obligation to publicly update or revise any forward-looking
statement whether as a result of new information, future events or otherwise.
Subsequent Event
On October 24, 1996, the Company filed a registration statement with
the Securities and Exchange Commission for a public offering of 2,659,118 shares
of Common Stock. Of the shares offered, 2,000,000 shares will be offered by the
Company and 659,118 shares will be offered by certain selling shareholders. The
net proceeds to the Company from the sale
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of 2,000,000 shares of Common Stock will be used to repay outstanding amounts on
the Company's line of credit, which is generally used by the Company for working
capital purposes. Approximately $12.0 million of the Company's line of credit
was used to fund a portion of the acquisition costs of Word and APP. Pending the
use of the net proceeds from the Offering, such funds will be invested in
short-term, interest-bearing, investment-grade securities.
Fiscal 1996 Developments
On January 16, 1996, the Company purchased certain assets and assumed
certain liabilities of Word Industries Pipe Fabricating, Inc. ("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 Alloy Piping Products, Inc. ("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.
As of August 5, 1996, Shaw entered into an agreement to acquire NAPTech,
Inc., a fabricator of industrial piping systems and engineered piping modules
located in Clearfield, Utah. In connection with the acquisition, pursuant to the
acquisition agreement as it is proposed to be amended, the Company expects to
issue up to an aggregate of 366,790 shares of the Company's Common Stock in
exchange for NAPTech, Inc. and the 335,000 square foot facility that NAPTech,
Inc. currently leases from a related entity (collectively, "NAPTech"). For the
fiscal years ended March 29, 1996 and March 31, 1995, NAPTech, Inc. reported
revenues of $24.9 million and $21.7 million, respectively, and net losses of
$3.1 million and $224,000, respectively. In addition, at June 30, 1996, NAPTech
has an accumulated deficit of $6.1 million and, for the three months ended June
30, 1996, net cash used by operating activities of $2.0 million. Though NAPTech
has experienced historical operating and liquidity difficulties, the Company
does not expect such difficulties to continue after the NAPTech acquisition due
in part to the Company's materials purchasing power and fabrication expertise.
The Company expects benefits from the acquisition of NAPTech to include, among
other things, increased fabrication capacity and additional induction pipe
bending capabilities. In addition, NAPTech estimates it had a backlog of
approximately $39.0 million at August 31, 1996, which primarily consisted of a
large mining industry project. The acquisition of NAPTech is subject to various
conditions, including, without limitation, the approval of Shaw's Board of
Directors and NAPTech's shareholders, as well as necessary regulatory approvals.
If consummated, the acquisition of NAPTech will be accounted for as a pooling of
interests and, accordingly, will result in a restatement of the Company's
financial statements for the year ended August 31, 1994 and subsequent periods.
Although there can be no assurance that the acquisition of NAPTech will be
completed, the Company currently anticipates that the acquisition will be
consummated on or before December 31, 1996.
Industry Overview
The industrial pipe fabrication industry provides piping systems for
new construction and retrofit projects in the electric power, refining, chemical
and other industries, including the gas processing, pulp and paper,
pharmaceutical and food processing industries. The Company estimates that
prefabricated piping systems account for approximately 3% of the total costs of
a new construction project and are crucial components of each project. The
Company divides the industry into two major segments, the electric power
industry segment and the process industry segment. The refining and chemical
sectors represent the largest portion of the process industry segment.
The domestic pipe fabrication industry depends largely on new
construction and retrofit projects in the chemical, refining, gas processing,
pulp and paper, pharmaceutical, food processing and other industries. These
industries have historically been cyclical in nature and vulnerable to general
downturns in the economy. The chemical sector began to experience an upturn in
mid-1995 driven by an increase in capital expenditures for capacity expansions
and retrofits. This resulted in a significant improvement in the domestic
pricing environment during fiscal 1996. Project activity in the chemical and
refining sectors continues to be robust and the Company anticipates that a
significant portion of domestic project work over the next several years will be
generated by chemical plant expansions and refinery retrofits relating to the
modernization of aging facilities and compliance with environmental regulations.
Due to the minimal demand for new electric power plant
2
construction in the United States, the electric power piping market in the
United States consists almost exclusively of retrofits.
In contrast to the domestic market, the international pipe fabrication
market has exhibited significant growth over the last several years, and
industry sources project this growth to continue. New construction represents
the majority of work performed in the electric power sector overseas. Strong
demand for electricity, particularly in underdeveloped and overpopulated areas
of the world, has resulted in a significant increase in new power plant
construction.
Generally, United States pipe fabricators can fabricate electric power
piping systems domestically and ship the finished goods to selected
international markets less expensively than their major overseas competitors,
due primarily to significantly lower labor costs than in certain other
industrialized countries (principally Germany and Japan), greater availability
of raw materials in the United States and a more favorable valuation of the
United States dollar relative to certain foreign currencies. Typically, the
Company's international competitors are divisions of large industrial firms.
Most international projects require a certain percentage of "local
content" sourcing. Therefore, non-critical or low pressure piping for electric
power projects is frequently fabricated at the project site by local welders or
in local fabrication facilities. The same is true for the chemical and refining
sectors, which utilize less critical piping systems. In most areas of the
Pacific Rim and South America, this work is performed at significantly lower
labor costs. In order to bid more competitively for the process and low pressure
piping portion of an overseas project, Shaw has established overseas facilities
and has developed for delivery in January 1997 a portable induction bending
machine that can be used on international job construction sites.
Products And Services
As part of its commitment to being a "total piping resource" for its
customers, the Company provides a complete range of piping products and
services, including pipe fabrication, bending, engineering and design and pipe
fittings manufacturing.
Pipe Fabrication
Shaw's core business is the fabrication of complex piping systems from
raw material made of carbon steel, stainless and other alloys, as well as other
materials, including nickel, titanium and aluminum. The Company produces
prefabricated piping systems by cutting pipe to length, welding fittings on the
pipe and bending the pipe, each to precise customer specifications. Shaw owns
and operates six fabrication facilities in South Carolina, Louisiana, Oklahoma
and Venezuela as well as a 49% interest in a joint venture fabrication facility
in Bahrain. These seven fabrication facilities are capable of handling and
fabricating pipe ranging in diameter from one inch to 72 inches, with overall
wall thicknesses from 1/8 inch to 7 inches. Prefabricated pipe assemblies up to
100 feet in length and weighing up to 45 tons can be processed by the Company.
The Company's products must meet rigid quality control standards. In
addition to visual inspection, the Company uses radiography, hydro testing, dye
penetration and ultrasonic flaw detection to confirm that its products meet
specifications. A significant portion of Shaw's work is the fabrication of
"critical piping systems" for use in high pressure, high temperature or
corrosive applications, including systems designed to withstand pressures of up
to 2,700 pounds per square inch and temperatures of up to 1,020 degrees
Fahrenheit.
Bending
Beginning in fiscal 1994, the Company began purchasing state-of-the-art
induction bending equipment, which significantly increased the Company's
capacity to fabricate piping systems, in both volume and complexity. In
addition, on certain projects Shaw can substitute bends for the cutting of pipe
and welding fittings, resulting in labor, time and raw material savings.
Although the Company has historically been capable of bending pipe using
traditional methods, such bending capabilities were limited with respect to pipe
composition, diameter, wall thickness and bend characteristics. As a result, the
Company generally was required to subcontract for more complex bends,
particularly for pipes with large diameters and wall thicknesses.
3
The market for pipe fabrication is increasingly moving in the direction of
custom pipe bending according to the specifications of customers, since bending
generally allows for significant reductions in labor, time and materials costs
as compared to traditional means of fabrication. The Company believes its
state-of-the-art equipment gives it a technological advantage in this growing
segment of the market.
The Company currently owns four induction pipe bending machines and has
another machine on order. The Company believes its Cojafex model PB Special 16,
currently on order and expected to be delivered in January 1997, will be the
only portable machine of its class in existence and will allow the Company to
perform multi-directional pipe bends at project sites around the world. The
following table shows the locations and technical capabilities of the Company's
pipe bending machines.
Pipe Bending Capabilities
-------------------------
Maximum Pipe Maximum Pipe
Model Location Diameter Wall Thickness
----- -------- -------- --------------
Cojafex PB Special 16 Walker, Louisiana 16 inches 2.5 inches
Cojafex PB Special 16 Laurens, South Carolina 16 inches 2.5 inches
Cojafex PB Special 16 Tulsa, Oklahoma 16 inches 2.5 inches
Cojafex PB Special 16 Portable(1) 16 inches 2.5 inches
Cojafex PB-1200 Walker, Louisiana 48 inches 4.0 inches
(1) Expected delivery in January 1997.
In addition to the induction bending machines in the above table, the
Company will acquire three additional machines in the proposed acquisition of
NAPTech. Specifically, NAPTech's Clearfield, Utah facility has the following
machines: a Cojafex model PB-1600, which is capable of bending pipe with
diameters of up to 66 inches and wall thicknesses of up to 5 inches, a Cojafex
model PB-850, which is capable of bending pipe with diameters of up to 34 inches
and wall thicknesses of up to 3 inches; and a Cojafex model PB Special 12, which
is capable of bending pipe with diameters of up to 12 inches and wall
thicknesses of up to 3/4 of an inch. The acquisition of NAPTech is subject to
various conditions, including the approval of Shaw's Board of Directors and
NAPTech's shareholders, as well as necessary regulatory approvals. Although
there can be no assurance that the acquisition of NAPTech will close, the
Company currently anticipates that the acquisition will be consummated on or
before December 31, 1996.
Engineering and Design
In 1994, as an integral part of its strategy of becoming a "total
piping resource", the Company integrated engineering and design capabilities
into its business for complex piping systems for electric power projects, mainly
for the Company's customers outside the United States. Shaw also designs and
engineers pipe hanger and support systems and specializes in engineering
analyses of complex piping systems and related services, primarily for the
electric power industry. These engineering, design and pipe support capabilities
complement the Company's fabrication business, particularly for electric power
projects, enabling the Company to provide more comprehensive piping packages
with reduced overall lead times and lower total installed costs.
The Company utilizes sophisticated plant design software to create
virtual three-dimensional piping system models. The result is a clear,
understandable picture of the complete project which allows clients to "walk
through" the three-dimensional model for an accurate design review. The Company
currently operates 28 workstations utilizing the plant design software at its
offices in Englewood, New Jersey and Toronto, Canada.
The Company's engineering capabilities are directly linked to the
Company's fabrication shops and the Company's proprietary computer aided design
system, SHAW-DRAW(TM). SHAW-DRAW(TM) converts customer design drawings to the
Company's detailed production drawings in seconds, significantly reducing the
lead time required before fabrication can begin and substantially eliminating
detailing errors. The Company has also implemented SHAW-MAN(TM), which
efficiently
4
manages and controls the movement of all required materials into and through
each stage of the fabrication process utilizing bar code technology. These
proprietary programs enhance the planning and scheduling efforts for Shaw's
customers, helping to reduce total installed costs and project cycle times.
Pipe Fittings Manufacturing
Shaw's manufacturing capabilities extend to specialty stainless, alloy
and carbon steel pipe fittings for the electric power, refining, chemical and
other industries, including the gas processing, pulp and paper, pharmaceutical
and food processing industries. These fittings include stainless and other alloy
elbows, tees, reducers and stub ends ranging in wall thicknesses from 1/2 to 12
inches and heavy wall carbon and chrome elbows, tees, caps and reducers with
wall thicknesses of up to 3 1/2 inches. In addition to its manufacturing
facility in Shreveport, Louisiana, Shaw has manufacturing outlets in New Jersey,
North Carolina, Georgia, Louisiana, Texas, Oklahoma and Arizona, which also
distribute pipe and fittings manufactured by third parties. Shaw's in-house
manufacturing capabilities for pipe fittings further enhance the Company's
piping package, enable the Company to realize greater efficiencies in the
purchase of raw materials, help reduce overall lead times and lower total
installed costs, and are additional steps in the Company's commitment to being a
"total piping resource".
Markets
The Company's principal markets are new construction and retrofits in
the electric power, refining and chemical industries, both in the United States
and internationally. The Company also historically has supplied piping systems
to the gas processing, pulp and paper, pharmaceutical and manufacturing
industries.
The Company's sales for the two fiscal years ended August 31, 1996
by indusry were (in millions):
Year Ended August 31,
---------------------
Industry Sector 1995 1996
- --------------- ---- ----
Electric Power $ 59.2 $ 86.7
Refining 39.2 62.4
Chemical 33.5 62.1
Other 3.4 10.8
------ ------
$135.3 $222.0
====== ======
The Company's sales for the two fiscal years ended August 31, 1996 by
geographic region were (in millions):
Year Ended August 31,
---------------------
Geographic Region 1995 1996
- ----------------- ---- ----
United States $ 86.2 $146.3
Far East/Pacific Rim 24.3 39.6
Middle East 4.2 21.4
Latin America 20.5 2.6
Europe -- 9.0
Other 0.1 3.1
----- -----
$135.3 $222.0
====== ======
Prior to February 1994, the Company's international business was
conducted exclusively from its plants in the United States. The Company believes
that having fabrication facilities in certain key international locations will
assist it in securing additional overseas work, specifically for chemical and
refining projects, where the piping is generally fabricated at the project site
or in a regional shop by local welders. The Company currently has a wholly owned
subsidiary operating in Venezuela and a joint venture facility operating in
Bahrain.
5
Demand for the Company's products and services in Venezuela was low during
the fiscal year ended August 31, 1996. The Company is encouraged by recent
improvements in economic conditions in Venezuela; however, there can be no
assurance that the Venezuelan operations will be profitable.
In November 1993, the Company also entered into a joint venture agreement
to construct and operate a fabrication facility in Bahrain. The Company's joint
venture partner is Abdulla Ahmed Nass, a Bahrain industrialist. The Bahrainian
joint venture facility is one of the first modern pipe fabrication facilities in
the Middle East and has received the Gulf States Certification from the Gulf
Cooperation Council. The Gulf States Certification enables the venture to export
products to other Arab countries without payment of additional tariffs. For
fiscal 1996, the joint venture had sales of $11.5 million and the Company's
share of the joint venture's net earnings was approximately $100,000.
In the future, the Company's use of joint venture relationships for
foreign operations will be determined on a case-by-case basis depending on
market, operational, legal and other relevant factors.
Contracts and Pricing
The Company obtains orders through competitive bidding, negotiated
contracts and awards under Alliance Agreements. The awarding of contracts is
frequently not based exclusively on price but on the Company's reputation and
ability to meet project deadlines.
The Company's contracts are priced on either a "unit" or a "fixed" or
"lump-sum" price basis. The majority of the Company's contracts are bid on a
"unit" basis, pursuant to which the customer pays an agreed-upon rate for each
individual service provided, such as a weld, radiograph inspection, bend or
engineering revision, or the amount of inventory items used. Raw materials
generally are billed to customers at published prices in effect at the date of
the contract, and the Company generally obtains fixed pricing commitments from
its suppliers at such time for most of the items necessary to complete the
project. The Company thereby minimizes the risk of raw material price increases
that may occur during the fabrication process.
Substantially all of the Company's international projects are quoted
on a "fixed" or "lump-sum" price basis. Increasingly, this type of contract is
being requested by the Company's customers, particularly for international
electric power projects. The Company generally does not quote the actual
contract price until it has secured a fixed pricing commitment from its
suppliers for most of the items necessary to complete the project, thereby
minimizing any risk of price increases between the contract date and the time
the project is completed.
The Company also obtains work under Alliance Agreements, which are
agreements that the Company enters into with its customers in order to expedite
individual project contract negotiations through means other than the formal
bidding process. These agreements are typically implemented by establishing a
joint steering committee to provide guidance and direction on alliance issues.
Normally this committee meets on a periodic basis to monitor alliance progress
and assign resources to effect continuous improvements in the various work
processes associated with project execution.
Alliance Agreements allow the customer to achieve greater cost
efficiency and reduced cycle times in the design and fabrication of complex
piping systems for electric power, chemical and refinery projects. In addition,
the Company believes that these agreements will provide Shaw with a steady
source of new projects and help minimize the impact of short-term pricing
volatility.
Backlog
Shaw generally bids for projects that require delivery of piping
systems over a period of three to eighteen months. The Company defines its
backlog as a "working backlog", whereby only projects with a written commitment
are included. Typically, electric power projects remain in the Company's backlog
for at least nine months, depending on the size of the project or whether the
Company is doing the design and engineering as well as the fabrication for a
given project. Refining and chemical projects remain in the Company's backlog
three to six months on average.
6
On occasion, customers will cancel or delay projects for reasons out
of the Company's control. Projects will remain in the Company's backlog for
longer periods if delays occur. Historically, on average less than one percent
of booked projects have been canceled from the Company's backlog or delayed for
an extended period of time. This low cancellation rate is due to the fact that
piping systems are one of the final steps in the construction of a project and
are essential to the construction of these systems as a whole.
The Company estimated its backlog at approximately $154.0 million at
August 31, 1996, not including approximately $3.0 million in joint-venture
backlog. This compares to approximately $101.0 million and $75.0 million at
August 31, 1995 and 1994, respectively. The Company estimates that $141.8
million, or 92.1%, of its backlog at August 31, 1996 will be completed in fiscal
1997.
The following table breaks out the percentage of backlog by industry
sector and geographic region for the periods indicated:
At August 31,
-------------
1994 1995 1996
---- ---- ----
Industry Sector:
Electric Power 47% 51% 57%
Chemical 14 20 32
Refining 38 28 10
Other 1 1 1
---- ---- ----
100% 100% 100%
Geographic Region: ==== ==== ====
Domestic * 56% 34%
International * 44 66
---- ----
100% 100%
==== ====
* Backlog by geographic region is not available for fiscal year 1994.
Customers and Marketing
The Company's customers are principally major multi-national
engineering and construction firms, equipment manufacturers and industrial
corporations. For fiscal 1996, affiliates of Mitsubishi Heavy Industries Ltd.
accounted for 12.3% of the Company's sales. No other customers represented more
than 10% of the Company's sales for fiscal 1996.
The Company's marketing is principally conducted through its own sales
force, comprised of eleven employees. In addition, certain customers and
territories are covered by independent representatives. The Company's sales
force is paid a base salary plus an annual bonus, while independent
representatives receive commissions.
Raw Materials and Suppliers
The Company's principal raw materials are carbon steel, stainless and
other alloy piping, which it obtains from a number of domestic and foreign
primary steel producers. The Company believes that it is not generally dependent
upon any one of its suppliers for raw materials, that the market is extremely
competitive and that its relationship with its suppliers is good. Certain types
of raw materials, however, are available from only one or a few specialized
suppliers, and although the Company has not experienced any significant sourcing
problems to date, there can be no assurance that sourcing problems will not
occur in the future. Shaw purchases a majority of its piping directly from
manufacturers. This eliminates the need for a distributor and results in lower
costs to the Company. Because of the volume of these materials purchased, the
Company is often able to negotiate advantageous purchase prices for steel
piping. Certain items are kept in stock at each of the Company's facilities and
are transported between facilities as required. The Company obtains more
specialized materials from suppliers when required for a project. To date, the
Company has not experienced any significant shortages or delays in
7
obtaining raw materials.
In recent months, the prices for carbon steel have increased. At the
time of obtaining a contract, the Company generally obtains fixed pricing
commitments from its suppliers for most of the items necessary to complete the
project, thereby minimizing any risk of price increases that may occur during
the fabrication process. See "Business--Contracts and Pricing".
Industry Certifications
In order to perform fabrication and repairs of coded piping systems,
the Company's domestic fabrication facilities have obtained the required
American Society of Mechanical Engineers (ASME) stamp, and its Laurens, South
Carolina and Walker, Louisiana facilities have obtained the National Board
stamp. In addition, the Laurens, South Carolina facility is licensed to
fabricate piping for nuclear power plants and is registered by the International
Organization of Standards (ISO 9002), which is required to perform certain
international work. The Company's engineering subsidiary is also registered by
the International Organization of Standards (ISO 9001), as is its pipe support
fabrication facility (ISO 9002).
Patents, Trademarks and Licenses
The Company does not own any material patents, registered trademarks
or licenses. However, the Company considers its design and project control
systems, SHAW-DRAW(TM) and SHAW-MAN(TM), to be proprietary information of the
Company.
Competition
The Company experiences significant competition from a limited number
of competitors in both international and domestic markets. In the United States,
there are a number of smaller pipe fabricators. Internationally, the principal
competitors are divisions of large industrial firms. Some of the Company's
competitors, especially in the international sector, have greater financial and
other resources than the Company.
Orders are obtained by the Company through competitive bidding,
negotiated contracts and awards under Alliance Agreements. In a competitive bid,
the awarding of contracts is frequently not based solely on price but also on
the Company's reputation and ability to meet project deadlines.
Employees
At November 25, 1996, the Company employed 1,862 full-time employees, 846
of whom are represented by the Union and 130 of whom worked in the Company's
wholly owned subsidiary in Venezuela. In January 1993, the Company settled a
dispute with the Union pursuant to which Shaw agreed to allow the Union to
solicit membership at all of its non-union pipe fabricating facilities in the
United States. To date, employees at four of the five United States pipe
fabrication facilities of the Company have approved a Union contract.
The Company believes that the current relationship with its employees and
the Union is generally good. The Company is not aware of any circumstances that
are likely to result in a work stoppage at any of its facilities, although the
collective bargaining agreement with the Union for the Laurens, South Carolina
facility expires on November 30, 1996, and the collective bargaining agreement
with the Union for the Walker, Louisiana and Prairieville, Louisiana facilities
expires on December 31, 1996. The Company experienced a union-initiated work
stoppage of five days in 1992 relating to the expiration and renegotiation of a
collective bargaining agreement covering the Company's B.F. Shaw, Inc.
subsidiary in Laurens, South Carolina.
Environmental
The Company is subject to environmental laws and regulations,
including those concerning emissions into the air, discharges into waterways,
generation, storage, handling, treatment and disposal of waste materials and
health and safety. These laws and regulations generally impose limitations and
standards for certain pollutants or waste materials to obtain a permit and
comply with various other requirements. In addition, under the Comprehensive
Environmental Response,
8
Compensation and Liability Act of 1980, as amended ("CERCLA") and comparable
state laws, the Company may be required to investigate and remediate hazardous
substances. CERCLA and these comparable state laws typically impose liability
without regard to whether a company knew of or caused the release, and liability
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis of allocation. The Company has not been notified
that it is a potentially responsible party under CERCLA or any comparable state
law at any site. The Company's foreign operations are also subject to various
requirements governing environmental protection.
The environmental, health and safety laws and regulations to which the
Company is subject are constantly changing, and it is impossible to predict the
effect of such laws and regulations on the Company in the future. The Company
believes that it is in substantial compliance with all applicable environmental,
health and safety laws and regulations. However, with respect to environmental
matters, the Company has not conducted environmental audits of all of its
properties. To date, the Company's costs with respect to environmental
compliance have not been material, and the Company does not anticipate any
material environmental liability.
ITEM 2. Properties
The principal properties of the Company are as follows:
Location Description Square Feet
-------- ----------- -----------
Baton Rouge, LA Corporate Headquarters 20,000(1)
Laurens, SC Fabrication Facility 200,000
Prairieville, LA Fabrication Facility 60,000(1)
West Monroe, LA Fabrication Facility 70,000
Walker, LA Fabrication Facility 154,000
Maracaibo, Venezuela Fabrication Facility 45,000
Tulsa, OK Fabrication Facility 158,600
Baton Rouge, LA Distribution Facility 30,000(1)
Englewood, NJ Design and Engineering Headquarters 14,000(1)
Toronto, Canada Design and Engineering Office 5,750(1)
Longview, TX Pipe Support Fabrication Facility 28,000
Shreveport, LA Manufacturing Facility 385,000
Shreveport, LA Pipe Storage Facility 40,000
(1) Leased facility.
In addition to the above properties, the Company will obtain a 335,000
square foot fabrication facility located in Clearfield, Utah, upon successful
completion of the proposed acquisition of NAPTech.
The Bahrain joint venture leases a 94,000 square foot facility in
Manama, Bahrain.
The Company considers each of its current facilities to be in good
operating condition and adequate for its present use.
ITEM 3. Legal Proceedings
The Company is involved in various lawsuits in the ordinary course of
its business. Although the outcome of certain of these matters cannot be
predicted, management believes, based upon information currently available, that
none of such lawsuits, if adversely determined, would have a material adverse
effect on its financial position or results of operations.
9
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders
during the fourth quarter of fiscal 1996.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock, no par value (the "Common Stock"), is
traded on the New York Stock Exchange (the "NYSE") under the symbol "SGR". The
Company delisted the Common Stock from the Nasdaq National Market on October 17,
1996, and the Common Stock commenced trading on the NYSE on October 18, 1996.
The following table sets forth, for the quarterly periods indicated, the high
and low sale prices per share for the Common Stock as reported on the Nasdaq
National Market through October 17, 1996, and thereafter as reported by the
NYSE, for the Company's two most recent fiscal years and for the current fiscal
year to date.
High Low
---- ---
Fiscal year ended August 31, 1995
First quarter $12 3/4 $2 3/4
Second quarter 6 1/4 3 7/8
Third quarter 8 11/32 5 5/8
Fourth quarter 10 1/4 7 1/2
Fiscal year ended August 31, 1996
First quarter $10 3/32 $8 1/4
Second quarter 16 3/8 8 3/4
Third quarter 20 5/8 14 1/4
Fourth quarter 33 1/2 15 3/8
Fiscal year ending August 31, 1997
First quarter (through November 25, 1996) $37 $21 7/8
The closing sale price of the Common Stock on November 25, 1996, as
reported on the NYSE, was $26.25 per share. As of September 25, 1996, the
Company had approximately 2,942 shareholders of record.
The Company has not paid any dividends on the Common Stock and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of dividends is at the discretion of the
Company's Board of Directors. The Company's dividend policy will be reviewed by
the Board of Directors at such future time as may be appropriate in light of
relevant factors at the time; however, the Company is subject to certain
prohibitions on the payment of dividends under the terms of existing credit
facilities.
10
ITEM 6. Selected Consolidated Financial Data (in thousands, except per share
data)
The following table presents, for the periods and as of the dates
indicated, selected statement of income data and balance sheet data of the
Company on a consolidated basis. The selected historical consolidated financial
data for each of the three fiscal years in the period ended August 31, 1996
presented below have been derived from the Company's audited consolidated
financial statements. Such data should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Annual Report on Form 10-K and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
TEN TWELVE
MONTHS MONTHS
ENDED ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1992(1) 1992(1) 1993 1994(4) 1995(5) 1996(6)
-------- -------- -------- -------- --------- --------
Consolidated Statements of Income
Sales $ 67,195 $ 84,438 $120,664 $113,177 $135,265 $222,017
======== ======== ======== ======== ======== ========
Income before
extraordinary
item $ 2,562 $ 3,369 $ 4,213 $ 3,008 $ 4,266 $ 8,776
======== ======== ======== ======== ======== ========
Net income (3) $ 2,562 $ 3,369 $ 4,213 $ 3,379 $ 4,266 $ 8,776
======== ======== ======== ======== ======== ========
Earnings per
common share
(2) - Income
before extra-
ordinary item $ .33 $ .44 $ .63 $ .39 $ .50 $ .94
======= ======= ======= ======= ======= ========
Net income (2) $ .33 $ .44 $ .63 $ .44 $ .50 $ .94
======= ======= ======= ======= ======= ========
Consolidated Balance Sheets
Total assets $ 42,653 $ 67,352 $ 91,504 $106,368 $205,366
======== ======== ======== ======== ========
Long-term debt
and lease
obligations
net of current
maturities $ 4,786 $ 8,263 $ 1,680 $ 9,606 $ 32,158
======== ======== ======== ======== ========
(1) During 1992, the Company changed its fiscal year end from October 31, to
August 31. Historical financial data for the twelve months ended August 31,
1992 is presented to facilitate analysis and is unaudited.
(2) In connection with the initial public offering of the Company's 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 per
share data have been adjusted to give effect to the stock split.
11
(3) Includes minority interest in net income of subsidiary in 1992 of $15.
Includes extraordinary gains of $371 in 1994.
(4) Includes the acquisition of Fronek Company, Inc. and F.C.I. Pipe Support
Sales, Inc. in 1994. See Note 3 in "Notes to Consolidated Financial
Statements."
(5) Includes the acquisition of the 50% interest of the other participant in
the Company's joint venture located in Venezuela in Fiscal 1995. See
Note 3 in "Notes to Consolidated Financial Statements."
(6) Includes the acquisition of Word and APP in 1996. See Note 3 in "Notes to
Consolidated Financial Statements."
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 and selected
financial data, included elsewhere in this document.
Recent Acquisitions
On April 29, 1994, the Company acquired the business of Fronek
Company, Inc. ("FCI"), an engineering firm with offices located in Englewood,
New Jersey and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. ("PSSI"), a
pipe support fabrication facility located in Longview, Texas. These acquisitions
were completed through the issuance of 75,000 shares of the Company's Common
Stock valued at $1.4 million and cash of $2.1 million. In addition, the Company
agreed to issue options to acquire up to 57,000 shares of the Company's Common
Stock and make additional cash payments up to $300,000 based on the future
earnings of the Company's subsidiaries managed by the former owner of FCI and
PSSI through 1997. See Note 3 to the Company's Consolidated Financial
Statements.
On December 15, 1994, the Company acquired the 50% interest of the
other participant in the Shaw-Formiconi joint venture located in Venezuela,
together with the concurrent acquisition of certain land, buildings and other
assets used by the venture. The total amount of the purchase price related to
this acquisition, including the selling participant's share of joint venture
profits, was approximately $2.9 million. The Company had previously accounted
for its investment in the joint venture as an unconsolidated subsidiary under
the equity method. Since December 15, 1994, the Venezuelan operation has
operated as a wholly owned subsidiary and is included as a consolidated
subsidiary in the Company's consolidated statements since that date. See Notes 3
and 5 to the Company's Consolidated Financial Statements.
On January 16, 1996, the Company purchased certain assets and assumed
certain liabilities of Word, TS&M Corporation and T.N. Word and certain of Mr.
Word's family members. The acquisition of Word increased the Company's
production capacity and added a facility in Tulsa, Oklahoma. The total purchase
price related to the acquisition was approximately $4.2 million, consisting of
the issuance of 385,000 shares of the Company's Common Stock valued at $3.4
million and cash 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.
12
As of August 5, 1996, Shaw entered into an agreement to acquire NAPTech,
Inc., a fabricator of industrial piping systems and engineered piping modules
located in Clearfield, Utah. In connection with the acquisition, pursuant to the
acquisition agreement as it is proposed to be amended, the Company expects to
issue up to an aggregate of 366,790 shares of the Company's Common Stock in
exchange for NAPTech, Inc. and the 335,000 square foot facility that NAPTech,
Inc. currently leases from a related entity. For the fiscal years ended March
29, 1996 and March 31, 1995, NAPTech, Inc. reported revenues of $24.9 million
and $21.7 million, respectively, and net losses of $3.1 million and $224,000,
respectively. In addition, at June 30, 1996, NAPTech has an accumulated deficit
of $6.1 million and, for the three months ended June 30, 1996, net cash used by
operating activities of $2.0 million. Though NAPTech has experienced historical
operating and liquidity difficulties, the Company does not expect such
difficulties to continue after the NAPTech acquisition due in part to the
Company's materials purchasing power and fabrication expertise. The Company
expects benefits from the acquisition of NAPTech to include, among other things,
increased fabrication capacity and additional induction pipe bending
capabilities. In addition, NAPTech estimates it had a backlog of approximately
$39.0 million at August 31, 1996, which primarily consisted of a large mining
industry project. The acquisition of NAPTech is subject to various conditions,
including, without limitation, the approval of Shaw's Board of Directors and
NAPTech's shareholders, as well as necessary regulatory approvals. If
consummated, the acquisition of NAPTech will be accounted for as a pooling of
interests and, accordingly, will result in a restatement of the Company's
financial statements for the year ended August 31, 1994 and subsequent periods.
Although there can be no assurance that the acquisition of NAPTech will be
completed, the Company currently anticipates that the acquisition will be
consummated on or before December 31, 1996.
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 85.3 81.8 81.4
----- ----- -----
Gross profit 14.7 18.2 18.6
General and administrative expenses 10.3 11.1 11.4
----- ----- -----
Operating income 4.4 7.1 7.2
Interest expense (1.5) (2.1) (1.8)
Other income, net 0.3 0.2 0.4
----- ----- -----
Income before income taxes 3.2 5.2 5.8
Provision for income taxes 1.2 1.6 1.9
----- ----- -----
Income before earnings (losses) from
unconsolidated entities 2.0 3.6 3.9
Earnings (losses) from unconsolidated entities 0.7 (0.4) 0.1
----- ----- -----
Income before extraordinary item 2.7 3.2 4.0
Extraordinary item, less applicable income taxes 0.3 -- --
----- ----- -----
Net income 3.0% 3.2% 4.0%
===== ===== =====
Fiscal 1996 Compared to Fiscal 1995
Sales increased $86.7 million, or 64.1%, for fiscal 1996 to $222.0
million from $135.3 million for fiscal 1995. This increase was due primarily to
increased sales for projects in the domestic chemical and refinery sectors and
the international power sector, as well as to the acquisitions of Word and APP,
which contributed approximately $15.6 million and $24.9 million, respectively,
in sales from their respective dates of acquisition.
13
The Company's sales by geographic region were as follows:
Fiscal 1995 Fiscal 1996
-------------------- ----------------------
(in millions) % (in millions) %
------------- --- ------------- ----
Geographic Region:
U.S.A. $ 86.2 63.7% $146.3 65.9%
Far East/Pacific Rim 24.3 18.0 39.6 17.8
Middle East 4.2 3.1 21.4 9.6
Latin America 20.5 15.2 2.6 1.2
Europe -- -- 9.0 4.1
Other 0.1 0.0 3.1 1.4
------ ----- ----- -----
$135.3 100.0% $222.0 100.0%
====== ===== ====== =====
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%
====== ===== ====== =====
The gross margin for fiscal 1996 increased to 18.6% from 18.2% for the
prior year. The increase was attributable primarily to the increase in
international projects with their generally higher profit margins, improvement
in pricing in the domestic market and contributions from the APP and Word
subsidiaries. These improvements in gross margins were offset to a large extent
by a substantial decrease in sales and gross profits from the company's
Venezuelan facility, which historically has achieved higher gross margin
percentages than the Company's domestic subsidiaries. The Company does not
expect significant contributions in sales or profits, if any, from its
Venezuelan subsidiary until at least the second quarter of fiscal 1997.
General and administrative expenses were $25.2 million for fiscal
1996, compared to $15.0 million for the prior year. The $10.2 million increase
was due primarily to the integration of Word and APP into Shaw's business and to
the variable costs associated with the increased sales.
Interest expense for fiscal 1996 was $4.0 million, up 40.3% from the
$2.8 million incurred in fiscal 1995, primarily due to increased borrowing
resulting from the expansion of business, billing delays, and the acquisitions
of APP and Word in 1996. Beginning in the fourth quarter of fiscal 1995, the
Company has benefitted from new loan and security agreements with commercial
lenders and insurance companies, as well as an industrial revenue bond
financing, that reduced overall interest rates applicable to the Company and
helped reduce the impact of the aforementioned increased borrowings.
The Company's effective tax rates for fiscal 1996 and 1995 were 32.7%
and 31.4%, respectively. The increase in the fiscal 1996 tax rates, as compared
to the same period the prior year, was primarily due to an increased proportion
of the Company's net profit in the domestic market due in part to the
integration of APP and Word into the Company's operations.
14
Fiscal 1995 Compared to Fiscal 1994
Sales increased by 19.5% for fiscal 1995 to $135.3 million from $113.2
million for fiscal 1994. Gross profit increased 48.2% to $24.7 million for
fiscal 1995 from $16.7 million for fiscal 1994. Both sales and gross profits
were positively impacted by the increase in international sales which have
historically generated higher profit margins. International sales for fiscal
1995 included $9.4 million of sales by the Company's Venezuelan subsidiary,
which became a wholly owned subsidiary in December 1994. In addition, fiscal
1995 sales included $10.2 million of sales by the Company's engineering and pipe
support fabrication subsidiaries, which were acquired in April 1994.
The Company's sales by geographic region were as follows:
Fiscal 1995
----------------------------
(in millions) %
------------- ----
Geographic Region:
U.S.A. $ 86.2 63.7%
Far East/Pacific Rim 24.3 18.0
Middle East 4.2 3.1
Latin America 20.5 15.2
Other 0.1 0.0
----- -----
$135.3 100.0%
====== =====
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%
====== ===== ====== =====
Gross margins for fiscal 1995 increased to 18.2% from 14.7% for fiscal
1994. This increase was due to higher margins on international projects,
primarily attributable to work performed by the Company's Venezuelan subsidiary,
as well as improvement in the domestic market in the third and fourth quarters
of fiscal 1995. Fiscal 1994 gross margins were down due to a number of domestic
projects that were adversely affected by competitive pricing, quick delivery
requirements and/or productivity difficulties. These factors also impacted gross
margins for the first and second quarters of fiscal 1995.
General and administrative expenses for fiscal 1995 increased by $3.4
million to $15.0 million as compared to $11.6 million in fiscal 1994. This
increase was due primarily to $1.5 million in additional overhead attributable
to the Company's engineering and pipe support fabrication subsidiaries and a
$1.2 million increase in overhead relating to the Company's international
operations. The remaining $700,000 increase was due primarily to variable costs
associated with increased sales levels.
15
The Company's effective tax rates for fiscal 1995 and fiscal 1994 were
31.4% and 38.2%, respectively. The decrease in fiscal 1995 from fiscal 1994 was
primarily due to tax benefits derived from export sales and lower state income
taxes.
Liquidity and Capital Resources
Net cash used in operations was $20.0 million for fiscal 1996,
compared to net cash provided by operations of $5.5 million for fiscal 1995. For
fiscal 1996, net cash used in operations was a result primarily of increases of
$16.1 million in receivables and $21.1 million in inventories, partially offset
by an increase of $8.3 million in accounts payable.
The increase in receivables was primarily attributable to a higher
volume of sales activity for fiscal 1996. During the year, the Company
experienced some billing delays due to an increased number of contracts with
intricate and time consuming billing provisions. At the end of fiscal 1996,
there has been a shift in the contract mix, and the Company has substantially
eliminated these billing delays.
Inventories increased due to the procurement of material for current
and future sales activities, which are expected to exceed historical levels,
based upon the Company's backlog at August 31, 1996 of approximately $154.0
million. The increase in inventories was primarily financed by the increase in
accounts payable and increases in the Company's revolving credit agreement.
Net cash used in investing activities was $25.6 million for fiscal
1996, compared to $2.7 million for fiscal 1995. During fiscal 1996, the Company
invested $0.8 million in cash in connection with the acquisition of Word and a
net $8.7 million of cash in connection with the acquisition of APP. In addition,
the Company purchased $18.1 million of property and equipment in fiscal 1996.
Major property and equipment purchases include $2.3 million for an induction
bending machine for the Company's subsidiary in Laurens, South Carolina; $2.6
million for an induction bending machine and $2.8 million of facility expansion
for the Company's subsidiary in Walker, Louisiana; $2.0 million of assets at the
Company's Venezuelan subsidiary; and $3.7 million of transportation equipment.
Net cash provided by financing activities was $48.8 million for fiscal
1996, compared to $2.6 million used for fiscal 1995. For fiscal 1996, $30.5
million of cash was provided from the Company's revolving line of credit
facility under the Company's loan and security agreement with its commercial
lenders. The revolving line of credit facility has been used generally to
provide working capital and fund fixed asset purchases and acquisitions. During
fiscal 1996, the Company borrowed $21.1 million in term debt. The borrowings
were used primarily to refinance $5.8 million of APP's debt, pay down $3.8
million of revolving debt and purchase two induction bending machines
aggregating $4.9 million and transportation equipment totaling $2.8 million.
Concurrent with the acquisition of APP, the Company amended its loan and
security agreement with its commercial lenders to provide for a revolving line
of credit of up to $70.0 million, depending upon the Company's collateral base
(which consists primarily of certain eligible amounts of receivables and
inventory) and up to $10.0 million in term loans at an interest rate based upon,
at the Company's option, either the London Interbank Offering Rate ("LIBOR")
plus 85 to 200 basis points or prime rate plus zero to 75 basis points,
depending on certain financial ratios. Pursuant to the amended loan and security
agreement, the 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
16
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%.
On October 24, 1996, the Company filed a registration statement with
the Securities and Exchange Commission for a public offering of 2,659,118 shares
of Common Stock. Of the shares offered, 2,000,000 shares will be offered by the
Company and 659,118 shares will be offered by certain selling shareholders. The
net proceeds to the Company from the sale of 2,000,000 shares of Common Stock
will be used to repay outstanding amounts on the Company's line of credit, which
is generally used by the Company for working capital purposes. Approximately
$12.0 million of the Company's line of credit was used to fund a portion of the
acquisition costs of Word and APP. Pending the use of the net proceeds 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 $64.4 million from $80.6
million at August 31, 1995 to $145.0 million at August 31, 1996. The increase
resulted primarily from increases in inventories of $38.0 million and accounts
receivable of $23.0 million. Receivables increased primarily due to increased
sales levels and acquisitions, and inventories increased primarily due to
current and future production requirements and acquisitions. At August 31, 1996,
approximately $23.4 million of the inventories and $9.5 million of the
receivables were attributable to the newly acquired Word and APP subsidiaries.
Property and equipment increased by $33.7 million to $60.1 million at
August 31, 1996 from $26.4 million at August 31, 1995. This increase resulted
primarily from the $12.3 million of property and equipment acquired in the
acquisition of APP, the $5.4 million of property and equipment acquired in the
acquisition of Word, the purchase of two induction bending machines aggregating
$4.9 million, $4.8 million in fixed asset additions relating to the expansion of
the facilities for the Company's subsidiaries in Walker, Louisiana and
Venezuela, and transportation equipment of $3.7 million.
The Company's current liabilities increased $54.8 million from $40.6
million at August 31, 1995 to $95.4 million at August 31, 1996. The increase is
due primarily to increases of $35.3 million in the revolving line of credit and
$10.7 million in accounts payable. The increases in accounts payable and the
revolving line of credit were used to finance the Company's increase in accounts
receivable, inventories, fixed asset purchases and acquisitions.
Financial Accounting Standards Board Statements
In December 1990, Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Post-Retirement Benefits Other Than Pensions ("SFAS
106"), was issued and required to be adopted by the Company no later than fiscal
1994. The Company presently offers no post-retirement benefits which would be
required to be reflected in its financial statements by SFAS 106.
17
In November 1992, Statement of Financial Accounting Standards No. 112,
Employer's Accounting for Post-Employment Benefits ("SFAS 112"), was issued and
required to be adopted by the Company no later than fiscal 1995. The Company
presently offers no post-employment benefits which would be required to be
reflected in its financial statements by SFAS 112.
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
be Disposed of", was issued and required to be adopted by the Company no later
than the fiscal year ending August 31, 1997. The adoption of this new standard
will not have a material impact on the Company's financial position or results
of operations.
In December 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued which
establishes, among other things, financial accounting and reporting standards
for stock-based employee compensation plans. Entities may either adopt a "fair
value based method" of accounting for an employee stock option as defined by
SFAS 123 or may continue to use accounting methods as prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees". Entities electing to remain
with the accounting in APB Opinion No. 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS 123 had been applied. The Company expects
to continue following APB Opinion No. 25 and make appropriate disclosures in the
future in accordance with SFAS 123.
18
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 20
Consolidated Balance Sheets as of August 31, 1995 and 1996 21 - 22
Consolidated Statements of Income for the years
ended August 31, 1994, 1995 and 1996 23
Consolidated Statements of Shareholders' Equity for the
years ended August 31, 1994, 1995 and 1996 24
Consolidated Statements of Cash Flows for the years
ended August 31, 1994, 1995 and 1996 25 - 26
Notes to Consolidated Financial Statements 27 - 37
19
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
October 31, 1996
20
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 $ 766,319 $ 2,932,434
Accounts receivable, net--Note 7 48,238,346 71,286,099
Receivables from unconsolidated
entities--Note 5 1,630,862 700,479
Inventories--Notes 4 and 7 28,456,393 66,411,960
Prepaid expenses 644,300 2,039,182
Deferred income taxes--Note 8 857,400 1,634,817
---------- -----------
Total current assets 80,593,620 145,004,971
Investment in unconsolidated entities
--Note 5 1,824,448 1,920,880
Property and equipment--Notes 6 and 10:
Transportation equipment 939,616 4,593,249
Furniture and fixtures 3,837,829 5,895,454
Machinery and equipment 10,210,324 29,482,645
Buildings and improvements 7,302,977 16,213,648
Assets acquired under capital leases 2,693,616 896,677
Land 1,411,030 3,001,626
---------- ----------
26,395,392 60,083,299
Less: Accumulated depreciation (including
amortization of assets acquired under
capital leases) (6,338,976) (9,194,533)
----------- -----------
20,056,416 50,888,766
Note receivable from related party--
Notes 3 and 15 -- 625,000
Other assets, net--Notes 3, 8 and 15 3,893,022 6,926,849
------------ ------------
$106,367,506 $205,366,466
============ ============
(Continued)
The accompanying notes are an integral part of these statements.
21
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 15,059,300 25,761,803
Accrued liabilities 5,561,045 8,843,391
Current maturities of long-term debt--Note 6 1,676,890 3,448,670
Revolving line of credit--Note 7 14,001,285 49,322,111
Current portion of obligations under capital
leases--Note 10 481,411 68,143
Deferred revenue--prebilled 902,004 1,839,689
Advanced billings 2,135,820 2,990,631
---------- ----------
Total current liabilities 40,598,940 95,379,184
Long-term debt, less current maturities--Note 6 8,896,537 32,112,869
Obligations under capital leases, less current
portion--Note 10 709,547 44,696
Deferred income taxes--Note 8 2,024,800 4,507,411
Shareholders' equity--Notes 9 and 12:
Preferred stock, no par value, 5,000,000
shares authorized, no shares issued and
outstanding -- --
Common stock, no par value, 50,000,000 shares
authorized; 15,214,916 and 16,186,218 shares
issued in 1995 and 1996; 8,552,000 and
9,523,302 shares outstanding in 1995 and 1996 39,711,434 50,119,560
Retained earnings 21,254,083 30,030,581
Treasury stock, 6,662,916 shares (6,827,835) (6,827,835)
------------ ------------
Total shareholders' equity 54,137,682 73,322,306
------------ ------------
$106,367,506 $205,366,466
============ ============
The accompanying notes are an integral part of these statements.
22
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 $113,176,824 $135,264,643 $222,017,437
Cost of sales 96,522,760 110,578,027 180,834,668
---------- ----------- -----------
Gross profit 16,654,064 24,686,616 41,182,769
General and administrative
expenses 11,631,175 15,022,595 25,202,302
------------ ----------- -----------
Operating income 5,022,889 9,664,021 15,980,467
Interest expense (1,731,456) (2,828,968) (3,970,336)
Other income, net 292,990 235,619 879,839
------------ ----------- -----------
(1,438,466) (2,593,349) (3,090,497)
Income before income taxes 3,584,423 7,070,672 12,889,970
Provision for income taxes
--Note 8 1,368,188 2,217,058 4,216,403
------------- ------------ ----------
Income before earnings
(losses) from unconsolidated
entities 2,216,235 4,853,614 8,673,567
Earnings (losses) from
unconsolidated entities--Note 5 792,144 (587,569) 102,931
------------ ------------ -----------
Income before extraordinary item 3,008,379 4,266,045 8,776,498
Extraordinary item, less
applicable income taxes of
$204,000--Note 2 370,455 -- --
------------ ------------ ------------
Net income $ 3,378,834 $ 4,266,045 $ 8,776,498
============ ============ ============
Earnings per common share--
Note 12: Income before
extraordinary item $ .39 $ .50 $ .94
Extraordinary item .05 -- --
------------ ------------ ------------
Net income $ .44 $ .50 $ .94
============ ============ ============
The accompanying notes are an integral part of these statements.
23
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
Net income ....... -- -- -- -- 3,378,834 3,378,834
Share purchase ... -- -- 873,875 (4,850,000) -- (4,850,000)
Share sale ....... 2,875,000 37,612,721 -- -- -- 37,612,721
Shares issued to
acquire F.C.I
Pipe Support
Sales, Inc. ....
--Note 3 ....... 75,000 1,350,000 -- -- -- 1,350,000
---------- ---------- ---------- ---------- ----------- -----------
Balance,
August 31, 1994 . 15,214,916 39,711,434 6,662,916 (6,827,835) 16,988,038 49,871,637
Net income ....... -- -- -- -- 4,266,045 4,266,045
---------- ---------- ---------- ---------- ----------- -----------
Balance,
August 31, 1995 . 15,214,916 39,711,434 6,662,916 (6,827,835) 21,254,083 54,137,682
Net income ....... -- -- -- -- 8,776,498 8,776,498
Shares issued to
acquire
Word--Note 3 ... 385,000 3,401,900 -- -- -- 3,401,900
Shares issued to
acquire APP
--Note 3 ........ 541,177 6,724,712 -- -- -- 6,724,712
Exercise of
options ......... 45,125 281,514 -- -- -- 281,514
---------- ------------ --------- ------------ ----------- ------------
Balance,
August 31, 1996 . 16,186,218 $ 50,119,560 6,662,916 $ (6,827,835) $ 30,030,581 $ 73,322,306
========== ============ ========= ============ ============ ============
The accompanying notes are an integral part of these statements.
24
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 $ 3,378,834 $ 4,266,045 $ 8,776,498
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,494,588 2,234,187 4,040,100
Provision (benefit) for deferred
income taxes 90,500 809,900 (1,231,745)
(Earnings) losses from
unconsolidated entities (792,144) 663,569 (102,931)
Translation loss -- -- 863,822
Gain on sale of marketable
securities -- -- (855,047)
Other (314,981) 55,692 (251,170)
Changes in assets and liabilities,
net of effects of acquisitions:
(Increase) in receivables (12,208,847) (8,265,755) (16,143,275)
(Increase) in inventories (641,726) (2,830,372) (21,052,970)
(Increase) decrease in other
current assets 8,853 (67,571) (1,127,130)
(Increase)in other assets (200,713) (1,004,108) (863,184)
Increase (decrease) in accounts
payable (2,822,608) 6,650,126 8,255,580
Increase (decrease) in deferred
revenue--prebilled (288,563) 156,014 937,685
Increase (decrease) in accrued
liabilities (2,812,737) 665,216 (2,114,045)
Increase in advanced billings -- 2,135,820 854,811
--------- --------- ---------
Net cash provided by (used in)
operating activities (15,109,544) 5,468,763 (20,013,001)
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 70,275 1,702,573
Purchase of property and equipment (4,708,509) (4,591,595) (18,145,089)
Purchase of marketable securities (920,411) (269,351) (1,433,143)
Cash transferred (to) from escrow
fund (802,000) 1,295,000 --
Proceeds from sale of marketable
securities -- 1,694,070 2,288,190
Issuance of note receivable to a
related party -- -- (625,000)
----------- ----------- ------------
Net cash used in investing activities (9,489,701) (2,665,522) (25,633,232)
(Continued)
The accompanying notes are an integral part of these statements.
25
1994 1995 1996
---- ---- ----
Cash flows from financing activities:
Net proceeds (repayments) from
revolving credit agreement (2,173,750) (10,930,673) 30,466,289
Proceeds from issuance of debt 1,245,884 10,208,218 21,109,541
Repayment of debt and leases (11,115,124) (2,250,250) (5,414,414)
Increase (decrease) in outstanding
checks in excess of bank balance (380,255) 380,734 2,323,561
Purchase of treasury stock (1,000,000) -- --
Issue common stock 37,619,309 -- 281,514
----------- ---------- ----------
Net cash provided by (used in)
financing activities 24,196,064 (2,591,971) 48,766,491
Effects of exchange rate changes
on cash -- -- (954,143)
----------- ---------- ----------
Net increase (decrease) in cash (403,181) 211,270 2,166,115
Cash and cash equivalents--beginning
of year 958,230 555,049 766,319
----------- ---------- -----------
Cash and cash equivalents--end of year $ 555,049 $ 766,319 $ 2,932,434
=========== ========== ===========
Supplemental disclosures:
Cash payments for:
Interest $ 1,823,509 $ 2,842,980 $ 4,012,283
=========== =========== ===========
Income taxes (refund) $ 3,151,457 $(2,370,260) $ 7,712,620
=========== =========== ===========
Noncash investing and financing
activities:
Property and equipment acquired
through issuance of debt $ 366,852 $ 86,363 $ --
=========== =========== ===========
Investment in subsidiaries acquired
through issuance of common stock $ 1,350,000 $ -- $10,126,613
=========== =========== ===========
Treasury stock acquired through
issuance of debt $ 3,850,000 $ -- $ --
=========== =========== ===========
Investment in unconsolidated entities
through reduction in receivables $ -- $ 1,015,000 $ 89,014
=========== =========== ===========
Property and equipment acquired
through recovery of investment
in unconsolidated subsidiary $ -- $ 1,075,300 $ --
=========== =========== ===========
Other assets acquired through
issuance of debt $ -- $ -- $ 2,131,515
=========== =========== ===========
The accompanying notes are an integral part of these statements.
26
THE SHAW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The Shaw
Group Inc. (a Louisiana corporation) and its wholly-owned subsidiaries (the
Company). All material intercompany accounts and transactions have been
eliminated in these financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Nature of Operations
The Company is a supplier of industrial piping systems for new
construction and retrofit projects throughout the world, primarily for customers
in the electric power, refining and chemical industries. The Company offers
comprehensive design and engineering services, piping system fabrication,
manufacturing and sale of speciality pipe fittings and design and fabrication of
pipe support systems. The Company's operations are conducted through eight
fabrication facilities, two engineering offices and one manufacturing facility.
Cash and Cash Equivalents
For purposes of reporting cash flows, all highly liquid investments
with a maturity of three months or less when purchased are cash equivalents.
Accounts Receivable and Credit Risk
The Company's customers include major multi-national construction and
engineering firms and industrial corporations. Work is performed under contract
and the Company believes that its credit risk is minimal. The Company grants
short-term credit to its customers.
During 1996, the Company established an allowance for doubtful accounts and
contract adjustments. The reserve balance as of August 31, 1996 is $430,000.
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.
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.
27
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 5-7 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.
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.
28
Note 2--Initial Public Offering
In December 1993, the Company completed the initial public offering
(the "IPO") of its common stock. The Company issued 2,875,000 shares at $14.50
per share. Net proceeds to the Company, after underwriting discounts and
commissions and other expenses of the offering, were approximately $38 million.
The net proceeds from the offering were used primarily to repay the Company's
outstanding indebtedness. As a result of its early retirement of certain debt
instruments, the Company recognized an extraordinary gain of approximately
$370,000 (net of income tax).
Note 3--Acquisitions
On April 29, 1994, the Company acquired the business of Fronek Company,
Inc. (FCI), an engineering firm with offices located in Englewood, New Jersey
and Toronto, Canada, and F.C.I. Pipe Support Sales, Inc. (PSSI), a pipe support
fabrication facility in Longview, Texas. These acquisitions were completed
through the issuance of 75,000 shares of the Company's common stock valued at
$1,350,000 and cash of $2,130,524. In addition, the Company agreed to issue
options to acquire up to 57,000 shares of common stock and additional cash
payments up to $300,000 based on the future earnings of the Company's
subsidiaries managed by the former owner through 1997.
These acquisitions were accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of the net assets
acquired of $1,565,912, included in other assets, is being amortized over twenty
years using the straight-line method. The pro forma effect of this acquisition,
as though it had occurred at the beginning of year ended August 31, 1994, is not
material to the operating results of the Company.
On December 15, 1994, the Company acquired the 50% interest of the
other participant in the Shaw-Formiconi joint venture located in Venezuela,
together with the concurrent acquisition of certain land, buildings and other
assets used by the venture. The total amount of the purchase price related to
this acquisition, including the selling participant's share of joint venture
profits, was approximately $2,900,000. The purchase method was used to account
for the acquisition. The $926,825 of excess cost over the estimated fair value
of the assets acquired, which is included in other assets, is being amortized
over twenty years using the straight-line method. The name of the wholly-owned
continuing entity is Manufacturas Shaw South America, C.A.
On January 16, 1996, the Company's newly formed, wholly-owned
subsidiary, Word Industries Fabricators, Inc. (Word), purchased certain assets
and assumed certain liabilities from Word Industries Pipe Fabricating, Inc.
(WIPF), TS&M Corporation and T.N. Word and certain of his family members. The
acquisition was completed through the issuance of 385,000 shares of the
Company's common stock valued at $3,442,000 and cash of $503,000. Acquisition
costs of $246,000 were incurred by the Company. The purchase 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.
29
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.
The following summarized unaudited income statement data reflects the
impact the above acquisitions would have had on the Company's results of
operations if the Shaw-Formiconi transaction had taken place on September 1,
1993 and the Word and APP acquisitions had taken place on September 1, 1994:
Unaudited Pro-forma Results for the Year Ended August 31,
1994 1995 1996
---- ---- ----
Gross revenue $120,512,408 $215,744,556 $265,285,338
============ ============ ============
Net income $ 4,170,978 $ 7,585,139 $ 9,009,967
============ ============ ============
Earnings per common share $ 0 .54 $ 0.80 $ 0.92
============ ============ ============
As of August 5, 1996, the Company entered into an agreement to acquire
NAPTech, Inc. ("NAPTech"), a fabricator of industrial piping systems and
engineered piping modules located in Clearfield, Utah. In connection with the
acquisition, the Company expects to issue up to an aggregate of 366,790 shares
of common stock in exchange for NAPTech and the 335,000 square foot facility
that NAPTech currently leases from a related entity. The acquisition of NAPTech
is subject to various conditions, including, without limitation, the approval of
the Company's Board of Directors and NAPTech's shareholders, as well as
necessary regulatory approvals. If consummated, the acquisition of NAPTech will
be accounted for as a pooling of interests and, accordingly, will result in a
restatement of the Company's financial statements. Although there can be no
assurance that the acquisition of NAPTech will be completed, the Company
currently anticipates that the acquisition will be consummated on or before
December 31, 1996.
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 21,596,205 32,972,692
Work In Process 4,836,440 10,301,030
----------- -----------
$28,456,393 $66,411,960
=========== ===========
30
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.
31
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
Note payable to a bank; variable interest
rate based upon London Interbank Offering
Rate(LIBOR)plus 85 to 200 basis points
depending upon certain financial ratios.
Interest rate as of August 31, 1996 was 7.0%;
60 monthly principal payments of $50,000
through May 31, 2000; secured by equipment
with an approximate net book value of
$2,832,000 as of August 31, 1996 2,900,000 2,300,000
Note payable to a corporation; interest
payable quarterly at 60% of prime rate;
repayable in annual installments through
December 15, 1995, unsecured 580,000 --
Note payable to a bank; interest payable
annually at LIBOR plus 1.6%; payable in 28
annual installments of $264,286 with
remaining balance due in 2003; secured by
equipment with an approximate net book value
of $8,757,000 -- 7,400,000
Mortgages payable to a bank; interest payable
monthly at 8.375%; 95 monthly payments of $9,850
and $26,935 with remaining balance due on
June 1, 2002; secured by real property with an
approximate net book value of $2,074,000 and
deposits at financial institutions with an
approximate value of $2,010,000 -- 3,432,531
South Carolina Revenue Bonds payable; principal due
in 2005; interest paid monthly accruing at a
variable rate of 3.95% as of August 31, 1996;
secured by $4,000,000 letter of credit -- 4,000,000
Notes payable to employees relating to non-
competition agreements; interest payable
monthly at 7%; monthly payments of $42,000,
and $5,000 until April 2001 and August 2000
respectively; unsecured--see Note 15 -- 2,131,515
Installment notes payable; variable interest
rates ranging from 8% to 11.5%; payable in
monthly installments based on amortization
over the respective note lives; maturing
from 1996 to 1998 3,990 326,254
----------- -----------
Total debt 10,573,427 35,561,539
Less: current maturities (1,676,890) (3,448,670)
----------- -----------
Total long-term debt $ 8,896,537 $32,112,869
=========== ===========
32
Annual maturities of long-term debt during each year ending August 31,
are as follows:
1997 $ 3,448,670
1998 3,458,867
1999 3,603,497
2000 3,730,780
2001 and thereafter 21,319,725
-----------
$35,561,539
===========
Certain of the debt agreements contain restrictive covenants which the
Company is required to meet including financial ratios and minimum capital
levels. As of August 31, 1996, the Company was in compliance with the covenants
or had obtained the required waivers.
The estimated fair value of long-term debt approximated its carrying
value, based on borrowing rates currently available to the Company for notes
with similar terms and average maturities, as of August 31, 1995 and 1996.
Note 7--Revolving Line Of Credit
In 1996, the Company entered into a new loan and security agreement
with its commercial lenders which allows the Company to borrow up to
$70,000,000, depending upon the Company's collateral base (which consists
primarily of certain eligible amounts of receivables and inventory), under a
revolving line of credit at an interest rate not to exceed 2% over the London
Interbank Offering Rate (LIBOR) or .75% over the Prime rate. The index used to
determine the interest rate is selected by the Company and the spread over the
index is dependent upon certain financial ratios of the Company. The interest
rate adjusts quarterly. This replaced the prior year revolving line of credit
which allowed the Company to borrow up to $30,000,000 at an interest rate based
upon the LIBOR plus 85 to 200 basis points depending upon certain financial
ratios of the Company. During 1995 and 1996, the maximum amount outstanding was
approximately $29,318,000 and $55,512,000, respectively, and the average amount
outstanding was $24,441,000 and $31,752,000, respectively, at weighted average
interest rates of 9.79% and 7.04%, respectively. The new agreement expires March
31, 1999.
The line of credit is secured by the Company's accounts receivable and
inventories.
The line of credit is also subject to certain restrictive covenants
similar to those of the long-term debt. As of August 31, 1996, the Company was
in compliance with these covenants or had obtained the required waivers.
Note 8--Income Taxes
A summary of net deferred taxes is as follows:
August 31,
----------
1995 1996
---- ----
Deferred tax assets $ 857,400 $ 1,971,900
Deferred tax liabilities (Net of deferred tax
liabilities assumed in Word and APP acquisitions
totaling -0- in 1995 and $2,818,541 in 1996) (2,024,800) (1,688,870)
----------- -----------
Net deferred taxes $(1,167,400) $ 283,030
============ ===========
33
The significant components of net deferred taxes are as follows:
August 31,
----------
1995 1996
---- ----
Assets:
Tax basis of inventory in excess of $ 184,200 $ 244,800
of book basis
Expenses not currently deductible 673,200 1,727,100
----------- -----------
$ 857,400 $ 1,971,900
=========== ===========
Liabilities:
Excess of financial reporting over
tax basis of assets $ 1,751,300 $ 4,009,273
Income not currently taxable 273,500 498,138
----------- -----------
2,024,800 4,507,411
Less: Deferred tax liabilities assumed
in Word and APP acquisitions -- (2,818,541)
----------- -----------
$ 2,024,800 $ 1,688,870
=========== ===========
Long-term deferred tax assets as of August 31, 1995 and 1996 were $0
and $337,083, respectively. These balances are included in other assets.
Income before provision for income taxes for the years ended August 31
was as follows:
1994 1995 1996
---- ---- ----
Domestic $3,584,423 $1,803,426 $12,848,236
Foreign -- 5,267,246 41,734
---------- ---------- -----------
Total $3,584,423 $7,070,672 $12,889,970
========== ========== ===========
The provision for income taxes for the years ended August 31 was as
follows:
1994 1995 1996
---- ---- ----
Current $1,271,888 $1,423,158 $ 5,546,833
Deferred (113,500) 809,900 (1,450,430)
State 209,800 (16,000) 120,000
---------- ----------- -----------
Total $1,368,188 $2,217,058 $ 4,216,403
========== ========== ===========
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) (2)
--- --- ---
38% 31% 33%
== == ==
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.
34
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
========== =========
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, 58% of the Company's labor force
was covered by collective bargaining agreements. Of this amount, 92% are covered
by collective bargaining agreements which will expire during the Company's next
fiscal year. The Company does not expect the renewal of the agreements will have
an adverse impact on the Company's results of operations or financial position.
See Note 3 regarding the Company's proposed acquisition of NAPTech.
35
Note 12--Earnings Per Common Share
In connection with the initial public offering of 2,500,000 shares of
its common stock, the Company's shareholders approved a stock split and
recapitalization on December 6, 1993 which caused the number of outstanding
shares to increase from 4,567.5 to 5,602,000. For all periods, the share amounts
and per share data throughout the financial statements have been adjusted to
give effect to the stock split. Earnings per common share is calculated based on
the weighted average number of shares outstanding, including dilutive common
stock equivalents when material, during the periods adjusted for the effect of
the stock split. The weighted average number of shares outstanding for 1994,
1995, and 1996 were 7,744,209, 8,552,001, and 9,324,729 respectively.
Note 13--Major Customers and Export Sales
For the year ended August 31, 1994, sales to customers accounting for
more than 10% of sales totaled $13,100,000 and $11,900,000 for two customers and
comprised 22% of sales. For the year ended August 31, 1995, sales to a customer
accounting for more than 10% of sales totaled $19,100,000 and comprised 14% of
sales. For the year ended August 31, 1996, sales to a customer accounting for
more than 10% of sales totaled $27,200,000 and comprised 12% of sales. Because
of the nature of the Company's business, the significant customers vary between
years.
For the years ended August 31, 1994, 1995 and 1996, the Company has
included as part of its international sales approximately $32,000,000,
$40,000,000, and $74,000,000 respectively, of exports from its domestic
facilities.
Note 14--Employee Benefit Plans
Effective with its initial public offering, the Company adopted a Stock
Option Plan (the Plan) under which both qualified and non-qualified options may
be granted. In addition, 804,875 shares of common stock are reserved for
issuance under the Plan. The Plan is administered by a committee of the Board,
which selects persons eligible to receive options and determines the number of
shares subject to each option, the vesting schedule, the option price, and the
duration of the option. 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 -- -- --
Granted 210,500 5,000 $5.875
Exercised -- -- --
------- ------ --
Outstanding at August 31, 1994 210,500 5,000 $5.875
Granted 220,000 -- $5.875-$6.75
Exercised -- -- --
--------- ------
Outstanding at August 31, 1995 430,500 5,000 $5.875-$6.75
Granted 20,000 85,000 $17.375-$19.50
Exercised (45,125) -- $5.875-$6.75
--------- -------
Outstanding at August 31, 1996 405,375 90,000 $5.875-$19.50
========= =======
Exercisable at August 31, 1996 58,125 5,000 $5.875-$6.75
========= =======
36
During 1994, the Company adopted a voluntary 401(k) profit sharing plan
for substantially all employees who are not subject to collective bargaining
agreements. The plan provides for the eligible employee to contribute from 1% to
10% of annual compensation, subject to an annual limit, with the Company
matching 50% of the employee's eligible contribution up to 6%. The Company's
contribution to this plan during 1994, 1995 and 1996 was approximately $102,000,
$220,000, and $285,000 respectively.
APP has a defined contribution profit sharing plan covering
substantially all of APP's employees. The plan allows APP to make a
discretionary contribution to the plan of up to 15% of eligible employee
compensation. For the period from the effective date of acquisition through
August 31, 1996, APP accrued $175,000 in contributions to the plan.
Note 15--Related Party Transactions
During 1994, the Company entered into an employment agreement with the
President and Chief Executive Officer (CEO) of the Company. Under terms of the
agreement, the President and CEO has agreed to serve in that capacity until
December 31, 1996 (subject to an automatic three-year extension) and will
receive, among other things, an annual base salary of $500,000, participation in
the Company's annual bonus plan as determined by the Compensation Committee of
the Board of Directors, and other benefits such as health and life insurance. In
the event the President and CEO's employment is terminated due to events as
defined in the agreement, the President and CEO will receive a lump-sum payment
equal to the full amount payable under the agreement.
During 1995, the Company entered into several loan agreements with key
management some of which were non-interest bearing. The impact of discounting
such loans to record interest income was not significant. The balance of these
employee loan receivables as of August 31, 1995 and 1996 was $231,900 and
$220,191, respectively. These balances are included in other assets.
As discussed in Note 3, in connection with the Word acquisition, the
Company entered into a $625,000 loan agreement with Word Industries Pipe
Fabricating, Inc. ("WIPF"). WIPF is owned primarily by certain stockholders of
the Company. The loan is due on January 15, 2001 and bears interest at a rate
equal to that charged on the Company's revolving line of credit.
In addition, as of August 31, 1996 the Company has included in its
accounts payable approximately $280,000 to WIPF.
During 1996, in connection with an acquisition, the Company has entered
into non-competition agreements with certain employees. Related assets totaling
approximately $2.3 million, included in other assets, are being amortized over
five years using the straight-line method. The corresponding liabilities are
included in long-term debt as further discussed in Note 6.
Note 16--Foreign Currency Transactions
The Company's wholly-owned subsidiary in Venezuela has net assets of
approximately $7,000,000 denominated in Venezuelan Bolivars. In accordance with
SFAS 52, the U.S. dollar is used as the functional reporting currency since the
Venezuelan economy is defined as highly inflationary. Therefore, the assets and
liabilities must be translated into U.S. dollars using a combination of current
and historical exchange rates. During 1995, the Venezuelan government fixed the
exchange rate for Bolivars, thus there was no change in the exchange rate used
to translate these assets and liabilities, and accordingly no gain or loss was
recognized in 1995 by this translation. During the year ended August 31, 1995,
the Company recognized as part of its sales aggregate exchange gains of
approximately $.9 million relating to collections on contracts in progress
during the year.
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 October 24, 1996, the Company filed a registration statement with
the Securities and Exchange Commission for a public offering of 2,659,118 shares
of Common Stock. Of the shares offered, 2,000,000 shares will be offered by the
Company and 659,118 shares will be offered by certain selling shareholders. The
net proceeds to the Company from the sale of 2,000,000 shares of Common Stock
will be used to repay outstanding amounts on the Company's line of credit, which
is generally used by the Company for working capital purposes.
37
ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosures.
There have been no changes in accountants and no disagreements on
accounting principles or practices, financial statement disclosure or auditing
scope or procedure between the Company and its independent certified public
accountants during the period beginning September 1, 1993 and ending on the date
hereof.
The single jointly signed auditor's report is considered to be the
equivalent of two separately signed auditor's reports. Thus, each firm
represents that it has complied with generally accepting auditing standards and
is in a position that would justify being the only signatory of the report.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors and executive officers of the Company is to
be included in the Company's definitive proxy statement prepared in connection
with the 1997 Annual Meeting of the Shareholders to be held in January 1997 and
is incorporated herein by reference.
Item 11. Executive Compensation.
Information regarding executive compensation is to be included in the
Company's definitive proxy statement prepared in connection with the 1997 Annual
Meeting of Shareholders to be held in January 1997 and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and
management is to be included in the Company's definitive proxy statement
prepared in connection with the 1997 Annual Meeting of Shareholders to be held
in January 1997 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is to
be included in the Company's definitive proxy statement prepared in connection
with the 1997 Annual Meeting of Shareholders to be held in January 1997 and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements.
See Item 8 of Part II of this report.
2. Financial Statement Schedules.
No financial statement schedule is required to be filed with this Form
10-K.
38
3. Exhibits.
**3.1 Restatement of the Articles of Incorporation of the Company
dated December 10, 1993.
**3.2 Amended and Restated By-Laws of the Company dated
December 9, 1993.
*4.1 Specimen Common Stock Certificate.
***10.1 Second Amended Loan and Security Agreement dated as of March
29, 1996 among the Company, the Borrowing Subsidiaries
listed on Exhibit 1.1 thereto, Mercantile Business Credit,
Inc., City National Bank of Baton Rouge, Hibernia National
Bank and Union Planters Bank of Louisiana.
*10.2 Settlement Agreement dated January 20, 1993, by and among
B. F. Shaw, Inc., National Fabricators, Inc.,
Lone Star Fabricators, Inc. and the United Association of
Journeymen and Apprentices of the Plumbing
Pipefitting Industry of the United States and Canada,
AFL-CIO.
*10.3 Incentive Stock Option Plan
*10.4 Employment Agreement by and between the Company and
James M. Bernhard, Jr.
*10.5 Joint Venture Agreement of Shaw-Nass Middle East, W.L.L.
dated November 18, 1993, by and among
Shaw Overseas (Cayman), Ltd., Abdulla Ahmed Nass and the
Company.
**10.6 Personal Service and Employment Agreement entered into as of
April 29, 1994 among Fronek Engineering
& Consulting, Inc., Shaw-Fronek Fabrication, Inc. and
Frank Fronek.
+10.7 Stock Purchase Agreement, dated as of March 1, 1996,
between R. Dale Brown, Sr. and Mildred Gayle O'Pry Brown
and The Shaw Group Inc.
+10.8 Asset Purchase Agreement, dated as of March 1, 1996, between
Ronald D. Brown, Jr., Susan Nance Brown and Speedline, a
Louisiana partnership, and The Shaw Group Inc.
+10.9 Employment Agreement, dated as of April 5, 1996, between
Alloy Piping Products, Inc. and Ronald D.
Brown, Jr.
+10.10 Consulting and Non-Competition Agreement, dated as of
April 5, 1996, between The Shaw Group Inc. and
Ronald D. Brown, Jr.
++10.11 Asset Purchase and Sale Agreement between The Shaw Group
Inc. and Word Industries Fabricators, Inc.
and Word Industries Pipe Fabricating, Inc., Word Industries,
Inc. and T. N. Word, dated as of January 15,
1996.
++10.12 Real Property Purchase and Sale Agreement and Plan of
Reorganization between Word Industries Fabricators, Inc. and
T. S. & M. Corporation dated as of January 15, 1996.
++10.13 Agreement dated as of January 15, 1996 between Word
Industries Fabricators, Inc. and T. N. Word.
21.1 Subsidiaries of the Company.
-------------
* Incorporated by reference from the Company's Registration
Statement on Form S-1 filed October 22, 1993, as amended
(Registration Number 33-70722).
** Incorporated by reference from the Company's Form 10-K for the
fiscal year ended August 31, 1994, as amended.
*** Incorporated by reference from the Company's Form 10-Q for
the quarterly period ended May 31, 1996.] + Incorporated by
reference from the Company's Current Report on Form 8-K
dated April 17, 1996, as amended
by Amendment No. 1 to Current Report on Form 8-K/A-1 filed on
June 19, 1996.
++ Incorporated by reference from the Company's Current Report on
Form 8-K dated January 30, 1996, as amended by Amendment No. 1
to Current Report on Form 8-K/A-1 filed on March 29, 1996
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended August
31, 1996, although the Company's Current Report on Form 8-K dated April
17, 1996 was amended by Amendment No. 1 to Current Report on Form
8-K/A-1 filed on June 19, 1996.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ J. M. BERNHARD, JR.
By: J. M. Bernhard, Jr.
President and Chief Executive Officer
Date: November 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
s/ J. M. BERNHARD, JR. Chairman of the Board, November 26, 1996
(J. M. Bernhard, Jr.) President and Chief
Executive Officer
/s/ BRET M. TALBOT Director, Chief Financial November 26, 1996
(Bret M. Talbot) Officer and Chief
Accounting Officer
/s/ GEORGE R. SHEPHERD Director and Chief November 26, 1996
(George R. Shepherd) Operating Officer
/s/ FRANK FRONEK Director November 26, 1996
(Frank Fronek)
/s/ ALBERT MCALISTER Director November 26, 1996
(Albert McAlister)
/s/ L. LANE GRIGSBY Director November 26, 1996
(L. Lane Grigsby)
/s/ DAVID W. HOYLE Director November 26, 1996
(David W. Hoyle)
/s/ JOHN W. SINDERS, JR Director November 26, 1996
(John W. Sinders, Jr.)
/s/ R. DALE BROWN, SR Director November 26, 1996
(R. Dale Brown, Sr.)
40
EXHIBIT 21.1
Subsidiaries
B.F. Shaw, Inc.
Sunland Fabricators, Inc.
National Fabricators, Inc.
Lone Star Fabricators, Inc.
FVF, Incorporated
Associated Valve, Inc.
Shaw Industrial Supply Co., Inc.
Fronek Engineering & Consulting, Inc.
Fronek A/DE, Inc.
Shaw/Fronek Fabrication, Inc.
Secorp, Inc.
Shaw International, Inc.
Shaw Overseas (Cayman) Ltd.
Shaw-Nass Middle East, W.L.L.
World Industrial Constructors, Inc.
Shaw Overseas (Far East) Ltd.
Shaw Asia Company Limited
Manufacturas Shaw South America, C.A.
Shaw Heat Treating, C.A.
Shaw Holdings South America, C.A.
Shaw Trading FSC, Ltd.
Shaw Group International, Inc.
Alloy Piping Products, Inc.
Word Industries Fabricators, Inc.
Welding Technologies of America, Inc.
Shaw Managed Services, Inc.
SAON, Inc.
Shaw Power Services, Inc.
41