Exhibit 99.2
INDEX TO FINANCIAL STATEMENTS
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS....................................................F-1
PRO FORMA CONDENSED COMBINED BALANCE SHEET.................................F-3
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET........................F-4
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME..........................F-6
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME.................F-8
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On May 3, 2002, The Shaw Group Inc. ("Shaw") acquired substantially all of
the operating assets (approximately $330 million) and assumed certain
liabilities (approximately $253 million) of The IT Group, Inc. ("IT Group"). IT
Group was a leading provider of diversified environmental consulting,
engineering, construction, remediation and facilities management services. The
primary reasons for the acquisition were to diversify and expand Shaw's revenue
base and to pursue additional opportunities in the environmental, infrastructure
and Homeland Defense markets. Shaw has formed a new wholly-owned subsidiary,
Shaw Environmental and Infrastructure, Inc., into which it will merge the
operations of the acquired IT Group businesses and Shaw's existing environmental
and infrastructure operations.
The acquisition was completed as part of a Chapter 11 bankruptcy proceeding
for IT Group. The purchase price included the following components (i) cash of
approximately $52.5 million, (ii) 1,671,336 shares of Shaw Common Stock valued
at approximately $52.5 million at closing, (iii) assumption by Shaw of the
outstanding balance ($50 million) of debtor-in-possession financing provided to
IT Group by Shaw, and (iv) transaction costs of approximately $10.5 million.
In a separate transaction, on June 15, 2002, Shaw acquired substantially
all of the assets (approximately $32 million) and assumed certain liabilities
(approximately $17 million) of Beneco Enterprises, Inc ("Beneco"). Beneco was a
wholly-owned subsidiary of IT Group whose primary business was facilities
management for governmental and military facilities. The Beneco acquisition was
completed as part of a Chapter 11 bankruptcy proceeding, which was separate and
independent of IT Group's bankruptcy proceeding. The Beneco purchase price
included (i) cash of approximately $650,000, (ii) assumption by Shaw of the
outstanding balance (approximately $1.6 million) of debtor-in-possession
financing provided to Beneco by Shaw, and (iii) transaction costs of
approximately $1 million.
In conjunction with the acquisitions of IT Group and Beneco (referred to
herein collectively as "ITG"), Shaw entered into agreements with two surety
companies. In exchange for Shaw agreeing to complete certain of the ITG bonded
contracts (i) the sureties paid Shaw approximately $13.3 million in cash and
(ii) the sureties assigned to Shaw their rights to debtor-in-possession
financing of approximately $20 million which the sureties had provided to
Beneco.
The ITG acquisitions were recorded as a purchase. The purchase price has
been allocated to the acquired assets and liabilities based on their estimated
fair values as of May 3 (IT Group), and June 15 (Beneco), 2002, respectively.
However, Shaw has not completed the process of obtaining information about the
fair values of the acquired assets and the assumed liabilities; therefore, the
purchase price allocation is preliminary and subject to revision.
The following unaudited pro forma condensed combined balance sheet of Shaw
as of February 28, 2002 and unaudited pro forma condensed combined statements of
income of Shaw for the six months ended February 28, 2002 and twelve months
ended August 31, 2001, give effect to the acquisition of certain assets and
liabilities of ITG. The statements reflect the business combination accounted
for as a purchase. The pro forma condensed combined balance sheet gives effect
to the business combination as if it occurred on February 28, 2002; the pro
forma condensed combined statements of income give effect to the business
combination as if it occurred on September 1, 2000.
The Shaw information as of February 28, 2002 and for the twelve-month
period ended August 31, 2001 and the six-month period ended February 28, 2002 is
derived from the consolidated financial statements contained in Shaw's Annual
Report on Form 10-K for the fiscal year ended August 31, 2001 and its Quarterly
Report on Form 10-Q for the quarter ended February 28, 2002.
F-1
The information for ITG's trailing twelve-month period ended September 28,
2001 was derived from IT Group's Quarterly Reports on Form 10-Q for the
nine-month periods ended September 28, 2001 and September 29, 2000 and IT
Group's Annual Report on Form 10-K for the year ended December 29, 2000. The ITG
trailing six-month period ended March 29, 2002 is derived from IT Group's
audited financial statements for the year ended December 29,2001, IT Group's
Quarterly Report on Form 10-Q for the nine-month period ended September 28,2001
and from internally prepared unaudited financial statements for the three
month-period ended March 29, 2002. The ITG consolidated balance sheet as of
March 29,2002 was derived from internally prepared unaudited financial
statements.
The following pro forma condensed combined financial statements are
presented for illustrative purposes only. The results shown in the statements
are not necessarily indicative of the actual results that might have occurred if
the business combination had been completed on September 1, 2000. Also, they are
not necessarily indicative of results that might be achieved in the future. In
the opinion of management, these statements include all adjustments necessary
for a fair presentation of the unaudited pro forma condensed combined financial
statements. Accounting policies used in the preparation of these statements are
those disclosed in the Shaw and IT Group historical consolidated financial
statements, which are included or incorporated by reference herein.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the description of the ITG acquisitions included
elsewhere in this filing, the consolidated financial statements and related
notes of Shaw contained in its Annual Report on Form 10-K for the fiscal year
ended August 31, 2001 and its Quarterly Report on Form 10-Q for the six-month
period ended February 28, 2002, and in conjunction with the audited consolidated
financial statements of ITG for the year ended December 28, 2001 included
elsewhere in this Current Report on Form 8-K.
F-2
THE SHAW GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
February 28, 2002
(In thousands)
Pro Forma Adjustments
------------------------------
ITG
Shaw ITG Excluded Shaw &
February 28, March 29, Assets and ITG ITG
2002 2002 Liabilities Acquisition Pro forma
------------ ----------- ----------- ----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 485,776 $ 43,871 $ (18,500)A $ (39,750)A $ 471,397
Accounts receivable 333,672 152,679 (5,106)B (5,000)B 476,245
Inventories 100,359 37,016 (9,050)C 128,325
Costs and estimated earnings
in excess of billings on
uncompleted contracts 143,477 138,817 (21,500)B 260,794
Prepaid expenses and other
current assets 119,580 9,143 24,000 D 152,723
--------------------------- --------- ----------- -----------
Total current assets 1,182,864 381,526 (23,606) (51,300) 1,489,484
Net property, plant and equipment 158,459 59,315 (31,000)E 186,774
Goodwill 370,364 538 (538)C 59,597 F 429,961
Other assets & non-current deferred taxes 110,408 39,648 (44,904)G 105,152
--------------------------- --------- ----------- -----------
Total assets $ 1,822,095 $ 481,027 $ (24,144) $ (67,607) $ 2,211,371
=========================== ========= =========== ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 273,870 $ 227,634 $ (49,192)D $ 33,336 H $ 485,648
Accrued liabilities 72,864 34,742 (25,480)D 7,037 I 89,163
Billings in excess of costs and
estimated earnings on
uncompleted contracts 275,409 39,598 (29,566)D 285,441
Current maturities of long-term
debt 391 822,048 (762,400)D (50,000)J 10,039
Other accrued liabilities 59,244 65,013 (28,823)D 50,000 K 145,434
--------------------------- --------- ----------- -----------
Total current liabilities 681,778 1,189,035 (895,461) 40,373 1,015,725
Long-term debt, less current maturities 515,307 20 515,327
Other liabilities 12,983 7,254 (4,408)D 15,829
Shareholders' equity 612,027 (715,282) 875,725 (107,980)L 664,490
--------------------------- --------- ----------- -----------
Total liabilities and
shareholders' equity $ 1,822,095 $ 481,027 $ (24,144) $ (67,607) $ 2,211,371
=========================== ========= =========== ===========
See notes to unaudited pro forma condensed combined balance sheet.
F-3
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In thousands)
The unaudited pro forma condensed combined balance sheet gives effect to the
following assumptions and adjustments:
IT Group Excluded Assets and Liabilities
A To reflect cash left with the ITG bankruptcy estates to pay accrued
liabilities, including certain employee payments primarily consisting of
accrued paid time off, accrued health insurance claims, self-funded
workers compensation claims and employee reimbursements.
B To remove accounts receivable related to contracts not acquired by Shaw.
C To reverse the goodwill on ITG's books at the acquisition date.
D The following liabilities included in ITG's financial statements were
not assumed by Shaw in the acquisition:
Accounts payable $ 49,192
Accrued liabilities:
Employee retirement obligations $ 6,980
Employee fringes and benefits 18,500
--------
25,480
Billings in excess of costs 29,566
Other accrued liabilities:
Interest $ 14,258
Swap liability 8,208
Earn-out provisions 2,753
Deferred compensation 3,604
--------
28,823
Long-term debt 762,400
Other liabilities:
Employee retirement obligations 4,408
---------
$ 899,869
=========
IT Group Acquisition
A To record the cash consideration paid of $52,500 for IT Group (excluding
Beneco), $650 for Beneco, less $13,400 for proceeds from bonding
companies as cash payments to Shaw to acquire certain bonded projects.
B To reduce ITG's accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts to estimated fair value.
C To write-down ITG's inventory of land held for development and sale to
estimated fair market value.
D To adjust current deferred tax assets as a result of the differences
between financial accounting and tax bases of purchase price allocations
to certain working capital accounts as follows, using an estimated
effective tax rate of 40%:
Contracts in progress $ 30,000
Deferred revenue 20,000
Relocation and severance 5,000
Accounts receivable 5,000
--------
Current temporary differences 60,000
--------
Increase in current deferred tax assets $ 24,000
--------
F-4
E To adjust property, plant and equipment to estimated fair market value.
F To record the purchase price in excess of net assets acquired, based
upon initial estimates of fair market values. Given the nature of these
estimates and assumptions, the final allocation of the purchase price
will be performed when additional information concerning asset and
liability valuations becomes available. The allocation of the purchase
price is as follows:
Cash - IT Group $ 52,500
- Beneco 650
Proceeds from Beneco's creditors (13,400)
--------
Subtotal net cash paid 39,750
Shaw common stock issued 52,463
Transaction costs 11,500
</Table>
<Table>
DIP loan assumption - IT Group 50,000
- Beneco 1,550
--------
Total purchase price 155,263
========
Net book value of assets acquired 160,443
DIP loans assumed 51,550
Fair value adjustment of assets acquired (117,991)
Net deferred taxes provided 34,000
Goodwill 59,597
--------
Allocation of purchase price 187,599
========
G To eliminate the intercompany DIP receivable of $44,000 from the IT
Group as of Shaw's balance sheet date of February 28,2002, and to reduce
land held for investment by $10,904 to estimated fair market value. To
reflect the $10,000 impact on non-current deferred tax assets of
utilization of tax carryforward attributes.
H To (i) accrue transaction costs payable resulting from this acquisition,
(ii) reflect additional payables from an intercompany loan from Shaw to
the IT Group during March 2002, (iii) adjust liabilities for contracts
in progress to fair value and (iv) accrue costs Shaw has agreed to
reimburse the bankruptcy estate.
Transaction costs payable $ 11,500
Project liabilities 5,000
Accrue costs reimbursable to the
bankruptcy estate 10,836
March 2002 DIP loan to the IT Group 6,000
--------
$ 33,336
========
I To record $5,000 of estimated relocation and severance costs for certain
employees resulting from the transaction and accrue $2,037 of employee
benefit obligations assumed by Shaw.
J To eliminate the intercompany debt recorded by ITG as of its balance
sheet date of March 29, 2002. (The intercompany loan provided to Beneco
of $1,550 was funded subsequent to March 29, 2002.)
K To record an estimated $30,000 to adjust certain contracts to estimated
fair value and $20,000 of deferred revenue related to payments received
from surety companies to complete certain contracts in progress.
L To adjust shareholders' equity of Shaw for the common stock issued to
acquire ITG and to eliminate the shareholders' equity of ITG.
Common stock issued by Shaw $ 52,463
Adjusted ITG equity acquired (160,443)
---------
$(107,980)
=========
F-5
THE SHAW GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Six Months ended February 28, 2002
(In thousands, except per share amounts)
Pro Forma Adjustments
---------------------------
Shaw ITG
Six months Six months ITG
Ended Ended Excluded Shaw &
February 28, March 29, Assets and ITG ITG
2002 2002 Liabilities Acquisition Pro forma
----------- ----------- ----------- ----------- -----------
Sales $ 1,019,836 $ 434,442 $ (17,958)A $ 1,436,320
Cost of Sales 889,384 580,193 (25,683)B (4,467)A 1,439,427
---------------------------- ----------- ----------- -----------
Gross profit (loss) 130,452 (145,751) 7,725 4,467 (3,107)
Selling, general and administrative expenses 63,934 61,920 125,854
Goodwill amortization -- 5,271 (5,271)B --
Special charges -- 15,392 15,392
Loss on impairment of assets -- 529,428 (528,778)F 650
---------------------------- ----------- ----------- -----------
Operating income (loss) 66,518 (757,762) 7,725 538,516 (145,003)
Other expenses, primarily interest expense (5,371) (26,030) 25,480 C (448)C (6,369)
---------------------------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and income from
unconsolidated entities 61,147 (783,792) 33,205 538,068 (151,372)
(Provision) benefit for income taxes (22,019) (139,396) (13,282)D 237,686 D 62,989
---------------------------- ----------- ----------- -----------
Income (loss) from continuing operations
before income from unconsolidated entities 39,128 (923,188) 19,923 775,754 (88,383)
Income from unconsolidated entities, net of taxes 1,164 -- 1,164
---------------------------- ----------- ----------- -----------
Income (loss) from continuing operations $ 40,292 $ (923,188) $ 19,923 $ 775,754 $ (87,219)
============================ =========== =========== ===========
Earnings (loss) from continuing operations
per common share:
Basic $ 0.99 $ (2.06)
=========== ===========
Diluted $ 0.95 E $ (2.06)
=========== ===========
Weighted average shares outstanding:
Basic 40,610 42,280
=========== ===========
Diluted 47,994 E 42,280
=========== ===========
Total shares of common stock issued
in transaction 1,670
===========
See notes to unaudited pro forma condensed combined statements of income
F-6
THE SHAW GROUP INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Twelve Months ended August 31, 2001
(In thousands, except per share amounts)
<Table>
<Caption>
Pro Forma Adjustments
-----------------------------
Shaw ITG
Twelve months Twelve months ITG
Ended Ended Excluded Shaw &
August 31, September 28, Assets and ITG ITG
2001 2002 Liabilities Acquisition Pro forma
-------------- ------------- ------------ ----------- -----------
Sales $ 1,538,932 $ 1,464,253 $ (66,113)A $ 2,937,072
Cost of Sales 1,292,316 1,298,506 (60,501)B (9,832)A 2,520,489
---------------------------- ----------- ----------- -----------
Gross profit 246,616 165,747 (5,612) 9,832 416,583
Selling, general and administrative expenses 120,801 53,485 174,286
Goodwill amortization 18,859 20,272 (20,272)B 18,859
Special charges -- 40,745 40,745
---------------------------- ----------- ----------- -----------
Operating income 106,956 51,245 (5,612) 30,104 182,693
Other expenses, primarily interest expense (7,062) (75,830) 75,208 C (2,252)C (9,936)
----------- ----------- -----------
Income (loss) before income taxes,
loss from
unconsolidated entities and
extraordinary item 99,894 (24,585) 69,596 27,852 172,757
(Provision) benefit for income taxes (38,366) 16,230 (27,838)D (17,537)D (67,511)
---------------------------- ----------- ----------- -----------
Income (loss) before loss from
unconsolidated entities and
extraordinary item 61,528 (8,355) 41,758 10,315 105,246
Loss from unconsolidated entities, net of taxes (316) -- (316)
---------------------------- ----------- ----------- -----------
Income (loss) from continuing operations $ 61,212 $ (8,355) $ 41,758 $ 10,315 $ 104,930
============================ =========== =========== ===========
Earnings from continuing operations
per common share:
Basic $ 1.53 $ 2.51
=========== ===========
Diluted $ 1.46 $ 2.41
=========== ===========
Weighted average shares outstanding:
Basic 40,127 41,797
=========== ===========
Diluted 41,828 43,498
=========== ===========
Total shares of common stock issued
in transaction 1,670
===========
See notes to unaudited pro forma condensed combined statements of income
F-7
THE SHAW GROUP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Included in ITG's results for the six-month period ended March 29, 2002 is a
$167,000 reduction in revenues from a reduction of accounts receivable to
estimated net realizable value. During the fourth quarter of 2001, ITG recorded
a charge to reduce accounts receivable and revenues by $167,000, including
$35,000 relating to estimated claims recovery. This charge resulted from
changes in estimates caused by vendor issues, liquidity issues, and ultimately
ITG's filing for protection under the Chapter 11 of the U.S. Bankruptcy Code.
All of the preceding factors led to ITG's inability to complete contracts and
were factors in recording the charge.
Included in ITG's results for the twelve-month period ended September 28, 2001
is a special charge of $40,700, comprised of $37,500 for changes in estimates on
accounts receivable and $3,200 relating to other items. The accounts receivable
portion of the charge primarily reduced the carrying value of project claims
which have been in protracted litigation and adjusted the close-out value of
certain acquired accounts receivable. In the fourth quarter of calendar 2000,
ITG adopted a strategy to accelerate the resolution of these project claims. The
special charge related to the project claims represented estimates of reduced
recoverability of the project claims under the acceleration resolution strategy
as part of the ITG's debt reduction plan. Many of these project claims were
acquired as part of ITG's previous business combinations.
Included in ITG's results for the six-month period ended March 29, 2002 is a
special charge of $15,400, comprised of the write-off of $5,000 of officers'
loans (notes receivable from employees) and a $10,000 facilities charge relating
primarily to minimum lease commitments and the associated payment obligations
due after 2001.
For the six-month period ended March 29, 2002, selling, general and
administrative expenses were significantly higher than the comparative period in
2001 due to non-recurring adjustments of approximately $35 million comprised of
$12,500 for legal and consulting expenses associated with ITG's bankruptcy
estate proceedings and $22,500 resulting primarily from employee related
accruals and the write-off of various assets.
The unaudited pro forma condensed combined statements of income give effect to
the following assumptions and adjustments (in thousands):
IT Group Excluded Assets and Liabilities
A To eliminate sales associated with ITG contracts in progress not
acquired by Shaw.
B To eliminate cost of sales associated with ITG contracts in progress not
acquired by Shaw.
C To eliminate interest expense associated with ITG debt not assumed by
Shaw.
D To adjust the income tax provision for the elimination of items not
acquired by Shaw at an estimated combined effective tax rate of 40%.
IT Group Acquisition
A To adjust depreciation expense to reflect the fair value purchase price
adjustments of property, plant and equipment acquired.
B To reverse goodwill amortization on ITG's books in accordance with the
transition provisions of the FASB's SFAS No. 141 - "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
Goodwill created on business combinations completed after June 30, 2001
should not be amortized; therefore, the goodwill associated with this
transaction is not amortized in the pro forma statements.
C To record Shaw's incremental interest expense and reduction of interest
income of $2,250 for the twelve-months ended August 31, 2001 for funds
used in the acquisition and eliminate Shaw's interest income of $448 for
the six-months ended February 28, 2002 for funds used in the
acquisition.
D To adjust the income tax provision for the impact of the pro forma
acquisition adjustments at an estimated combined effective tax rate of
40%.
E Diluted weighted average shares outstanding and diluted earnings per
share exclude the effect of 7,384 shares because of the pro forma net
loss for the six-months ended February 28, 2002.
F To reverse the impairment of goodwill recorded by ITG in December 2001.
F-8