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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 28, 2003
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THE SHAW GROUP INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 1-12227 72-1106167
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification Number)
4171 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (225) 932-2500
NOT APPLICABLE
(Former name or former address, if changed since last report.)
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ITEM 9. REGULATION FD DISCLOSURE
A. INTRODUCTION
On March 12, 2003, The Shaw Group Inc. (the "Company") issued a press release
announcing that it had priced its private placement of $253,029,000 principal
amount at maturity of senior notes due 2010 (the "Notes") with a coupon of 10
3/4%. The Notes were priced at 98.803% of their principal amount to yield 11% to
maturity. The Company intends to use the net proceeds of the private placement
of the Notes to purchase for cash up to $384.6 million in aggregate principal
amount at maturity of its outstanding 20-year, zero coupon, unsecured,
convertible debt Liquid Yield Option(TM) Notes (the "LYONs") by means of a
tender offer using a modified Dutch auction procedure.
The information contained in this Current Report on Form 8-K is neither an
offer to sell nor a solicitation of an offer to buy any of the Notes. The Notes
will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities laws and may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act.
The information contained in this Current Report on Form 8-K is also
not an offer to purchase, a solicitation of an offer to purchase, or a
solicitation of an offer to sell securities, with respect to any LYONs. The
offer to purchase LYONs may only be made pursuant to the terms of the Company's
Offer to Purchase and the accompanying Letter of Transmittal.
B. LIMITATION ON INCORPORATION BY REFERENCE
In accordance with General Instruction B.2 of Form 8-K, the information set
forth in this Item 9 shall not be deemed to be "filed" for purposes of Section
18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to the liabilities of that section, nor shall such information
be deemed incorporated by reference in any filing under the Securities Act or
the Exchange Act, except as shall be expressly set forth by specific reference
in such a filing. The information set forth in this Item 9 shall not be deemed
an admission as to the materiality of any information in this report on Form 8-K
that is required to be disclosed solely to satisfy the requirements of
Regulation FD.
C. INFORMATION CONTAINED IN THE OFFERING CIRCULAR
The following sets forth certain supplemental information contained in the
offering circular dated March 12, 2003 relating to the private placement of the
Notes (the "Offering Circular"). Except as otherwise indicated in the
supplemental information set forth below, or as the context may otherwise
require, (i) the words "we," "our," "us" and "Shaw" refer to the Company and its
subsidiaries, including the operations of businesses we acquired prior to the
date of acquisition, (ii) "Notes" refer to the senior notes due 2010 of the
Company that are the subject of the Offering Circular, (iii) "IT Group" refers
to The IT Group, Inc., whose business and assets we purchased in the third
quarter of fiscal 2002, (iv) "Stone & Webster" refers to Stone and Webster,
Inc., whose business and assets we purchased on July 14, 2000, (v) "Existing
Credit Facility" refers to our senior secured credit facility under a credit
agreement dated July 14, 2000, as amended and restated as of the date hereof,
(vi) "Amended Credit Facility" refers to our Existing Credit Facility as
proposed to be amended and restated concurrently with the closing of the private
placement of the Notes, (vii) "Tender Offer" refers to our offer to purchase,
for cash, a portion of our outstanding 20-year, zero-coupon, unsecured,
convertible debt Liquid Yield Option(TM) Notes (the "LYONs") by means of a
tender offer using a modified Dutch auction procedure commenced on February 26,
2003, (viii) pro forma financial data and information presented below give
effect to the IT Group acquisition, the Amended Credit Facility, the private
placement of the Notes and the anticipated use of proceeds of the private
placement of the Notes to repurchase LYONs in the Tender Offer and (ix)
references to our fiscal years refer to the twelve month period ended August 31
of such years (for example, our fiscal 2002 is fiscal year ended August 31,
2002).
1. UNAUDITED PRO FORMA FINANCIAL INFORMATION
In connection with the private placement of the Notes, we prepared
unaudited pro forma financial statements for the year ended August 31, 2002, the
three months ended November 31, 2002 and 2001 and the twelve months ended
November 31, 2002, in each case to give pro forma effect for the acquisition of
substantially all of the assets and operations of IT Group, the private
placement of the Notes and the completion of the Tender Offer. We also prepared
other pro forma financial information as of and for the twelve months ended
November 30, 2002 on the same basis and certain historical financial information
for the twelve months ended November 30, 2002. The following is a summary of
this pro forma and historical financial information that is included in the
Offering Circular.
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements and Other Historical and Pro Forma Financial Information are based on
(1) our historical financial statements which are included in our Annual Report
on Form 10-K for the fiscal year ended August 31, 2002 and our Quarterly Report
on Form 10-Q for the fiscal quarter ended November 30, 2002, (2) the historical
financial statements of IT Group included as an exhibit to our Current Report on
Form 8-K filed with the SEC on May 16, 2002, as amended by our Current Report on
Form 8-K/A filed with the SEC on July 12, 2002, and (3) other historical
financial statements of IT Group that we prepared based on unaudited financial
information of IT Group made available to us in connection with the IT Group
acquisition. The Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended August 31, 2002, the three months ended November
30, 2002 and 2001 and the twelve months ended November 30, 2002 and the other
pro forma financial information included under "C. 2. Other Historical and Pro
Forma Information" below give pro forma effect to (i) the IT Group acquisition
(except for the three months ended November 30, 2002, as the results of
operations of IT Group are included in our historical financial statements for
this period which are included in our Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 2002), (ii) the private placement of the Notes
and (iii) the repurchase of LYONs in the Tender Offer with the proceeds of the
private placement of the Notes, assuming the valid tender of sufficient LYONs at
$650.00 per $1,000 principal amount at maturity, as if each such transaction had
occurred on September 1, 2001. The unaudited as adjusted balance sheet
information as of November 30, 2002 set forth below under "C. 2. Other
Historical and Pro Forma Financial Information" gives effect to the issuance of
the Notes in the private placement and the anticipated use of the net proceeds
from the private placement of the Notes, assuming the valid tender in the Tender
Offer of a sufficient number of LYONs at $650.00 per $1,000 principal amount at
maturity, and also gives effect to our use of $8.9 million of cash available to
us prior to the completion of the private placement to repurchase LYONs at the
assumed purchase price and the use of $3.5 million to pay certain fees and
expenses in connection with the Tender Offer. There can be no assurance that
holders of LYONs will tender any LYONs in the Tender Offer or that we will
complete the Tender Offer. In the event
that the Tender Offer is not consummated, the decrease in net income resulting
from the additional interest expense is presented in footnote (5) to the notes
to the Unaudited Pro Forma Condensed Consolidated Financial Statements. The
Unaudited Pro Forma Statement of Operations for the twelve months ended November
30, 2002 is derived by adding the historical data for the fiscal year ended
August 31, 2002 to the pro forma financial data for the three months ended
November 30, 2002 and subtracting the pro forma financial data for the three
months ended November 30, 2001. The pro forma impact of the private placement of
the Notes and application of the proceeds of the private placement of the Notes
is shown below under "C. 3. Capitalization."
The Unaudited Pro Forma Condensed Consolidated Financial Statements and the
other pro forma financial information included under "C. 2. Other Historical and
Pro Forma Financial Information" below are presented for illustrative purposes
only and do not purport to represent what the results of operations actually
would have been if the IT Group acquisition, the private placement of the Notes
and the repurchase of LYONs in the Tender Offer in fact had occurred on
September 1, 2001, nor do they purport to project the results of operations for
any future period. All pro forma adjustments are described more fully in the
accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements and the other pro forma financial information included under "C. 2.
Other Historical and Pro Forma Financial Information" below, as the case may be.
All pro forma adjustments are based upon preliminary estimates and certain
assumptions that we believe are reasonable, and we believe all adjustments have
been made that are necessary to present fairly the pro forma data. Accounting
policies used in the preparation of these statements and information are those
disclosed in our historical financial statements included in our Annual Report
on Form 10-K for the fiscal quarter ended August 31, 2002 and our Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 2002.
The Unaudited Pro Forma Condensed Consolidated Financial Statements and the
Other Historical and Pro Forma Financial Information should be read in
connection with the other information in this Current Report on Form 8-K,
including the information set forth below under "C. 3. Capitalization," and our
financial statements and other information contained in our Annual Report on
Form 10-K for the fiscal year ended August 31, 2002 and our Quarterly Report on
Form 10-Q for the fiscal quarter ended November 30, 2002, and the historical
financial statements of IT Group included in our Current Report on Form 8-K
filed with the SEC on May 16, 2002, as amended by our Current Report on Form
8-K/A filed on July 12, 2002.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 2002
<Table>
<Caption>
HISTORICAL HISTORICAL ACQUISITION ACQUISITION OFFERING TENDER OFFER
SHAW IT GROUP(1) ADJUSTMENTS(2) SUBTOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(5)
---------- ----------- -------------- ----------- -------------- -------------- ------------
(IN THOUSANDS)
Revenues.............. $3,170,696 $ 624,010 $ (15,258)A $3,779,448 $ -- $ -- $3,779,448
Cost of revenues...... 2,843,070 787,263 (36,736)B 3,593,597 -- -- 3,593,597
---------- --------- --------- ---------- -------- ------- ----------
Gross profit (loss)... 327,626 (163,253) 21,478 185,851 -- -- 185,851
Selling, general and
administrative
expenses............ 161,248 81,214 -- 242,462 -- -- 242,462
Goodwill
amortization........ -- 6,988 (6,988)C -- -- -- --
Special charges....... -- 15,392 -- 15,392 -- -- 15,392
Loss on impairment of
assets.............. -- 529,428 (528,778)D 650 -- -- 650
---------- --------- --------- ---------- -------- ------- ----------
Operating income
(loss).............. 166,378 (796,275) 557,244 (72,653) -- -- (72,653)
Interest expense...... (23,028) (32,474) 31,723 E (23,779) (28,768)H 8,043 I (44,504)
Interest income....... 11,518 -- (596)F 10,922 -- -- 10,922
Other income, net..... (3,856) -- -- (3,856) -- -- (3,856)
---------- --------- --------- ---------- -------- ------- ----------
(15,366) (32,474) 31,127 (16,713) (28,768) 8,043 (37,438)
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) before
income taxes........ 151,012 (828,749) 588,371 (89,366) (28,768) 8,043 (110,091)
Provision (benefit)
for income taxes.... 54,348 140,232 (224,235)G (29,655) (10,356)G 2,895 G (37,116)
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) from
continuing
operations before
earnings from
unconsolidated
entities............ 96,664 (968,981) 812,606 (59,711) (18,412) 5,148 (72,975)
Earnings from
unconsolidated
entities............ 1,703 -- -- 1,703 -- -- 1,703
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) from
continuing
operations.......... 98,367 (968,981) 812,606 (58,008) (18,412) 5,148 (71,272)
Discontinued
operations.......... -- (17,200) -- (17,200) -- -- (17,200)
---------- --------- --------- ---------- -------- ------- ----------
Net income (loss)..... $ 98,367 $(986,181) $ 812,606 $ (75,208) $(18,412) $ 5,148 $ (88,472)
========== ========= ========= ========== ======== ======= ==========
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2002
<Table>
<Caption>
HISTORICAL OFFERING TENDER OFFER
SHAW ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(5)
---------- -------------- -------------- ------------
(IN THOUSANDS)
Revenues................................. $996,906 $ -- $ -- $996,906
Cost of revenues......................... 914,480 -- -- 914,480
-------- ------- ------ --------
Gross profit............................. 82,426 -- -- 82,426
Selling, general and administrative
expenses............................... 49,892 -- -- 49,892
-------- ------- ------ --------
Operating income......................... 32,534 -- -- 32,534
Interest expense......................... (5,774) (7,192)H 2,011I (10,955)
Interest income.......................... 1,539 -- -- 1,539
Other income, net........................ (99) -- -- (99)
-------- ------- ------ --------
(4,334) (7,192) 2,011 (9,515)
-------- ------- ------ --------
Income (loss) before income taxes........ 28,200 (7,192) 2,011 23,019
Provision (benefit) for income taxes..... 10,152 (2,589)G 724G 8,287
-------- ------- ------ --------
Income (loss) from continuing operations
before losses from unconsolidated
entities............................... 18,048 (4,603) 1,287 14,732
Losses from unconsolidated entities...... (1,595) -- -- (1,595)
-------- ------- ------ --------
Net income (loss)........................ $ 16,453 $(4,603) $1,287 $ 13,137
======== ======= ====== ========
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 2001
<Table>
<Caption>
HISTORICAL HISTORICAL ACQUISITION ACQUISITION OFFERING TENDER OFFER
SHAW IT GROUP(1) ADJUSTMENTS(2) SUBTOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(5)
---------- ----------- -------------- ----------- -------------- -------------- ------------
(IN THOUSANDS)
Revenues............... $453,609 $376,890 $(17,764)A $812,735 $ -- $ -- $812,735
Cost of revenues....... 390,899 334,507 (18,923)B 706,483 -- -- 706,483
-------- -------- -------- -------- ------- ------- --------
Gross profit........... 62,710 42,383 1,159 106,252 -- -- 106,252
Selling, general and
administrative
expenses............. 30,908 17,806 -- 48,714 -- -- 48,714
Goodwill
amortization......... -- 5,265 (5,265)C -- -- -- --
-------- -------- -------- -------- ------- ------- --------
Operating income....... 31,802 19,312 6,424 57,538 -- -- 57,538
Interest expense....... (5,805) (17,627) 17,382 E (6,050) (7,192)H 2,011I (11,231)
Interest income........ 3,022 -- (224)F 2,798 -- -- 2,798
Other income, net...... 367 -- -- 367 -- -- 367
-------- -------- -------- -------- ------- ------- --------
(2,416) (17,627) 17,158 (2,885) (7,192) 2,011 (8,066)
-------- -------- -------- -------- ------- ------- --------
Income (loss) before
income taxes......... 29,386 1,685 23,582 54,653 (7,192) 2,011 49,472
Provision (benefit) for
income taxes......... 10,585 648 8,442G 19,675 (2,589)G 724G 17,810
-------- -------- -------- -------- ------- ------- --------
Income (loss) before
earnings from
unconsolidated
entities............. 18,801 1,037 15,140 34,978 (4,603) 1,287 31,662
Earnings from
unconsolidated
entities............. 151 -- -- 151 -- -- 151
-------- -------- -------- -------- ------- ------- --------
Net income (loss)...... $ 18,952 $ 1,037 $ 15,140 $ 35,129 $(4,603) $ 1,287 $ 31,813
======== ======== ======== ======== ======= ======= ========
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED NOVEMBER 30, 2002
<Table>
<Caption>
HISTORICAL HISTORICAL ACQUISITION ACQUISITION OFFERING TENDER OFFER
SHAW IT GROUP(1) ADJUSTMENTS(2) SUBTOTAL ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA(5)
---------- ----------- -------------- ----------- -------------- -------------- -------------
(IN THOUSANDS)
Revenues................. $3,713,993 $ 247,120 $ 2,336A $3,963,449 $ -- $ -- $3,963,449
Cost of revenues......... 3,366,651 452,756 (18,007)B 3,801,400 -- -- 3,801,400
---------- --------- --------- ---------- -------- ------- ----------
Gross profit............. 347,342 (205,636) 20,343 162,049 -- -- 162,049
Selling, general and
administrative
expenses............... 180,232 63,408 -- 243,640 -- -- 243,640
Goodwill amortization.... -- 1,723 (1,723)C -- -- -- --
Special charges.......... -- 15,392 -- 15,392 -- -- 15,392
Loss on impairment of
assets................. -- 529,428 (528,778)D 650 -- -- 650
---------- --------- --------- ---------- -------- ------- ----------
Operating income
(loss)................. 167,110 (815,587) 550,844 (97,633) -- -- (97,633)
Interest expense......... (22,997) (14,847) 14,217 E (23,627) (28,768)H 8,043I (44,352)
Interest income.......... 10,035 -- (373)F 9,662 -- -- 9,662
Other expense, net....... (4,322) -- -- (4,322) -- -- (4,322)
---------- --------- --------- ---------- -------- ------- ----------
(17,284) (14,847) 13,844 (18,287) (28,768) 8,043 (39,012)
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) before
income taxes........... 149,826 (830,434) 564,688 (115,920) (28,768) 8,043 (136,645)
Provision (benefit) for
income taxes........... 53,915 139,584 (235,230)G (41,731) (10,356)G 2,895G (49,192)
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) from
continuing operations
before losses from
unconsolidated
entities............... 95,911 (970,018) 799,918 (74,189) (18,412) 5,148 (87,453)
Losses from
unconsolidated
entities............... (43) -- -- (43) -- -- (43)
---------- --------- --------- ---------- -------- ------- ----------
Income (loss) from
continuing
operations............. 95,868 (970,018) 799,918 (74,232) (18,412) 5,148 (87,496)
Discontinued
operations............. -- (17,200) -- (17,200) -- -- (17,200)
---------- --------- --------- ---------- -------- ------- ----------
Net income (loss)........ $ 95,868 $(987,218) $ 799,918 $ (91,432) $(18,412) $ 5,148 $ (104,696)
========== ========= ========= ========== ======== ======= ==========
</Table>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(1) Historical IT Group information presented in the Pro Forma Consolidated
Statement of Operations for the year ended August 31, 2002 relates to the eight
month period from September 1, 2001 to May 3, 2002 (the date of the IT Group
acquisition). Historical IT Group information presented in the Pro Forma
Consolidated Statement of Operations for the three months ended November 30,
2001 relates to the three month period from September 1, 2001 to November 30,
2001. Historical IT Group information presented in the Pro Forma Consolidated
Statement of Operations for the twelve months ended November 30, 2002 relates to
the five month period from December 1, 2001 to May 3, 2002 (the date of the IT
Group acquisition).
Included in IT Group's historical results of operations presented in the
Pro Forma Consolidated Statements of Operations for the year ended August 31,
2002 and the twelve months ended November 30, 2002 are charges of approximately
$277.6 million generally relating to the following items resulting from changes
in estimates caused by vendor issues, liquidity issues and ultimately IT Group's
filing for bankruptcy protection on January 16, 2002 (in thousands):
<Table>
Reduction of accounts receivable.......................... $203,000(a)
Employee accruals, write off of assets and other
charges................................................ 34,200(b)
Legal, consulting and insurance expenses.................. 14,500(c)
Write off of notes receivable............................. 5,000(d)
Facilities accrual........................................ 10,200(e)
Employee utilization...................................... 6,000(f)
Redundant corporate expenses.............................. 4,650(g)
--------
Total charges..................................... $277,550
========
</Table>
- ---------------
(a) Reduction of accounts receivable. Represents a reduction of
accounts receivable of IT Group to estimated net realizable value,
including $35.0 million relating to estimated claims recovery. The
factors described above led to IT Group's inability to complete
contracts and were factors in recording the charge.
(b) Employee accruals, write off of assets and other charges.
Represents $2.5 million of various employee accruals of IT Group
primarily related to costs of deferred compensation plans for
former executive officers, $25.2 million of assets of IT Group
written off (including costs associated with system upgrades,
inventory, property rejected in bankruptcy and equipment no longer
in use or impaired) and $6.5 million of other charges primarily
related to litigation.
(c) Legal, consulting and insurance expenses. Represents fees incurred
by IT Group for legal and consulting services relating to IT
Group's bankruptcy proceedings, as well as tail insurance premiums.
(d) Write off of notes receivable. Represents write off of notes
receivable from employees of IT Group.
(e) Facilities accrual. Represents lease commitments and the associated
payment obligations due after 2001 related to abandoned office
space.
(f) Employee utilization. Represents charges related to excess
personnel costs caused by abnormally low utilization. The low
employee utilization resulted from a substantial reduction in
project activity caused by IT Group's bankruptcy proceedings.
(g) Redundant corporate expenses. Represents costs associated with
maintaining a separate board of directors for IT Group and certain
corporate departments for IT Group such as communications,
government affairs and treasury which were eliminated after the
acquisition.
The elimination of these charges would not qualify as a pro forma
adjustment under Regulation S-X under the Securities Act. Accordingly, no
pro forma adjustments have been made to exclude these
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
charges in the Pro Forma Consolidated Statements of Operations set forth
above under "C. 1. Unaudited Pro Forma Financial Information."
(2) Gives effect to the following assumptions and adjustments relating to
the IT Group acquisition, including the elimination of assets and liabilities
not acquired by us. Immediately following notes (A)-(G) below is a tabular
presentation summarizing the assumptions and adjustments described in each of
notes (A)-(G) below for the periods presented:
(A) To eliminate revenues associated with IT Group contracts in
progress and not acquired by us. For the twelve months ended November 30,
2002, write offs of unbilled revenue on rejected contracts exceeded the
revenue recognized; as a result, the adjustment increases revenue on a pro
forma basis for this period.
(B) To eliminate cost of revenues associated with IT Group contracts
in progress and not acquired by us and to adjust depreciation expense to
reflect the fair value purchase price adjustments of property, plant and
equipment.
(C) To reverse goodwill amortization on IT Group's books in accordance
with the transition provisions of 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 the IT Group acquisition
is not amortized in the pro forma statements.
(D) To reverse the impairment of goodwill recorded by IT Group in
December 2001. This goodwill related to acquisitions consummated by IT
Group and the impairment charge was caused by significant operating losses
and liquidity constraints experienced by IT Group prior to its acquisition
by us. Assuming our acquisition of IT Group occurred on September 1, 2001,
this goodwill would not have been recorded; therefore, this impairment
charge would not have been necessary.
(E) To eliminate interest expense associated with IT Group debt not
assumed by us.
(F) To record reduction of interest income for funds of approximately
$39.8 million used in the acquisition, assuming a rate of 2.25% per annum.
(G) To adjust the income tax provision to reflect our effective tax
rate of 36%.
Summary of assumptions and adjustments:
<Table>
<Caption>
THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, NOVEMBER 30, NOVEMBER 30,
2002 2001 2002
---------- ------------ -------------
(IN THOUSANDS)
Revenues (note A):
Contracts not acquired....................... $ (15,258) $(17,764) $ 2,336
Cost of revenues (note B):
Contracts not acquired -- costs.............. (29,361) (16,074) (13,397)
Depreciation expense -- IT Group............. (9,465) (3,633) (5,916)
Depreciation expense -- Shaw................. 2,090 784 1,306
--------- -------- ---------
Total........................................ (36,736) (18,923) (18,007)
Goodwill amortization (note C):
Elimination -- SFAS 141 and 142.............. (6,988) (5,265) (1,723)
Impairment of goodwill (note D):
Impairment charge -- December 2001........... (528,778) -- (528,778)
</Table>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
<Table>
<Caption>
THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, NOVEMBER 30, NOVEMBER 30,
2002 2001 2002
---------- ------------ -------------
(IN THOUSANDS)
Interest expense (note E):
Eliminate interest on unassumed debt of IT
Group..................................... 31,723 17,382 14,217
Reduction of interest income (note F).......... (596) (224) (373)
Effective tax rate (note G):
Adjusted tax rate provision (benefit)........ (224,235) 8,442 (235,230)
--------- -------- ---------
Net income..................................... $ 812,606 $ 15,140 $ 799,918
========= ======== =========
</Table>
(3) Assumes net proceeds of $241.1 million (after deducting estimated
expenses and the initial purchasers' discounts) from the issuance of the Notes
at the interest rate of 10 3/4% per annum, accretion of the original issue
discount and the amortization of issuance costs with respect to the Notes as
follows:
(H) To record additional interest expense, including accretion of
original issue discount, associated with the Notes. This interest expense
is summarized as follows for each of the periods presented:
<Table>
<Caption>
THREE MONTHS THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED ENDED
AUGUST 31, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2002 2002 2001 2002
---------- ------------ ------------ -------------
(IN THOUSANDS)
Interest on Notes................. $27,500 $6,875 $6,875 $27,500
Amortization of issuance costs.... 1,268 317 317 1,268
------- ------ ------ -------
Total........................... $28,768 $7,192 $7,192 $28,768
======= ====== ====== =======
</Table>
(4) Assumes the valid tender by holders of LYONs in the Tender Offer, and
acceptance and repurchase by us, of approximately $384.6 million in aggregate
principal amount at maturity of LYONs at a purchase price of $650.00 per $1,000
principal amount at maturity of LYONs using the net proceeds from the issuance
of the Notes plus an additional $8.9 million of our available cash. The net loss
associated with the repurchase of LYONs is not reflected in the accompanying
Unaudited Pro Forma Condensed Consolidated Statements of Operations. Assuming
the repurchase occurred on September 1, 2001, the net loss would have been $8.0
million. The net loss consists of the write off of unamortized issuance costs
related to the LYONs and a loss on repurchase of the LYONs, including expenses
associated with the Tender Offer. Also gives effect to the following adjustment
relating to the repurchase (immediately following note (I) is a tabular
presentation summarizing the adjustment described in note (I) for each of the
periods presented):
(I) To record reduction of interest expense associated with the
repurchase of LYONs. The reduction in interest expense consists of
yield-to-maturity of the LYONs of 2.25% and amortization of issuance costs
relating to the LYONs.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
<Table>
<Caption>
THREE MONTHS THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED ENDED
AUGUST 31, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2002 2002 2001 2002
---------- ------------ ------------ -------------
(IN THOUSANDS)
Interest on LYONs................. $5,573 $1,393 $1,393 $5,573
Amortization of issuance costs.... 2,470 618 618 2,470
------ ------ ------ ------
Total (note I).................. $8,043 $2,011 $2,011 $8,043
====== ====== ====== ======
</Table>
(5) In the event the private placement is completed but the Tender Offer
for the LYONs is not consummated, we have presented below the decrease in net
income resulting from the additional interest we would incur related to the
LYONs, which would remain outstanding.
<Table>
<Caption>
THREE MONTHS THREE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED ENDED
AUGUST 31, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2002 2002 2001 2002
---------- ------------ ------------ -------------
(IN THOUSANDS)
$5,148 $1,287 $1,287 $5,148
====== ====== ====== ======
</Table>
2. OTHER HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following information is included in the Offering Circular:
<Table>
<Caption>
HISTORICAL(1)
---------------
TWELVE MONTHS
ENDED
NOVEMBER 30,
-------------
2002(2)
-------------
(IN THOUSANDS, EXCEPT RATIO DATA)
OTHER FINANCIAL DATA:
Cash interest expense(3)............... $ 1,576
Depreciation and
amortization......................... 33,719
Capital expenditures(4)................ 60,976
Backlog(5)............................. 5,002,000
EBITDA(6).............................. 206,542
Pro Forma Adjusted
EBITDA(6) ........................... 220,282
Ratio of Pro Forma Adjusted
EBITDA to pro forma interest
expense(7) ........................... 5.0x
Ratio of total debt as adjusted to Pro
Forma Adjusted EBITDA................ 2.4x
Ratio of net debt as adjusted to Pro
Forma Adjusted
EBITDA(8)............................ 0.9x
Net cash provided by (used
in) operating
activities........................... $ 166,766
Net cash provided by (used
in) investing
activities........................... (202,731)
Net cash provided by (used
in) financing
activities........................... (107,474)
</Table>
<Table>
<Caption>
THREE MONTHS
YEAR ENDED ENDED
AUGUST 31, NOVEMBER 30,
2002 2002
---------- ------------
Pro forma ratio of earnings to fixed charges(9) 3.0x 2.6x
</Table>
<Table>
<Caption>
AT NOVEMBER 30,
2002
---------------
AS ADJUSTED(10)
---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total cash(11)......................... $ 415,376
Working capital(12).................... 342,511
Total assets........................... 2,166,773
Total debt............................. 526,702
Shareholders' equity................... 661,170
</Table>
- ---------------
(1) All of the financial information in the table below is historical except
for Pro Forma Adjusted EBITDA, the ratio of Pro Forma Adjusted EBITDA to
pro forma interest expense, ratio of total debt as adjusted to Pro Forma
Adjusted EBITDA, the ratio of net debt as adjusted to Pro Forma Adjusted
EBITDA, the pro forma ratio of earnings to fixed charges and the as
adjusted balance sheet information.
(2) The summary historical financial information was derived by adding
historical financial information for fiscal 2002 to historical financial
information for the three months ended November 30, 2002 and then
subtracting historical financial information for the three months ended
November 30, 2001.
(3) Cash interest expense includes capitalized interest.
(4) Capital expenditures represent cash payments for the purchase of property
and equipment.
(5) We define our backlog in our Integrated EPC Services segment as a "working
backlog" that includes projects for which we have received a commitment
from our customers. This commitment typically takes the form of a written
contract for a specific project, a purchase order, or a specific indication
of the amount of time or material we need to make available for a
customer's anticipated project. In certain instances the engagement is for
a particular product or project for which we estimate revenue, often based
on engineering and design specifications that have not been finalized and
may be revised over time.
Our backlog for maintenance work is derived from maintenance contracts,
some of which do not specify actual dollar amounts of maintenance work, in
which case our backlog is based on estimates of work to be performed in
light of such customers' historic maintenance requirements.
Many of the contracts in backlog provide for cancellation fees in the event
the customer were to cancel projects. These cancellation fees usually
provide for reimbursement of our out-of-pocket costs and revenue associated
with work performed to date. Furthermore, certain Integrated EPC contracts
provide that, upon cancellation, we will receive a varying percentage of
the profits we would have realized had the contract been completed. In
addition to cancellation risks, projects may remain in our backlog for
extended periods of time.
Backlog from our Environmental & Infrastructure segment includes the value
of awarded contracts and the estimated value of unfunded work. This
unfunded backlog generally represents various federal, state and local
government project awards for which the project funding has been partially
authorized or awarded by the relevant government authorities, for example,
when an authorization or an award has been provided for only the initial
year or two of a multi-year project. Because of appropriation limitations
in the governmental budget processes, firm funding is usually made for only
one year at a time, and, in some cases, for periods less than one year,
with the remainder of the years under the contract expressed as a series of
one-year options. Amounts included in backlog are based on the contract's
total awarded value and our estimates regarding the amount of the award
that will ultimately result in the recognition of revenue. These estimates
are based on our experience with similar awards and similar customers and
average approximately 75% of the total unfunded awards. Estimates are
reviewed periodically and appropriate adjustments are made to the amounts
included in backlog and in unexercised contract options. Our backlog does
not include any awards, funded or unfunded, for work expected to be
performed more than 5 years after the date of the financial statements
presenting such backlog. The amount of future actual awards may be more or
less than our estimates.
Backlog is not a measure defined in generally accepted accounting
principles, or GAAP, and our backlog may not be comparable to the backlog
of other companies.
(6) EBITDA is net income before interest expense, income taxes, depreciation
and amortization. In calculating EBITDA, we exclude earnings (losses) from
unconsolidated entities, extraordinary items and the cumulative effect of
accounting changes. Pro Forma Adjusted EBITDA is EBITDA as adjusted to give
effect to certain items that management believes are appropriate to
consider in evaluating our ability to meet our future debt service, capital
expenditures and working capital requirements. We believe that both EBITDA
and Pro Forma Adjusted EBITDA provide useful information for such
evaluation. Neither EBITDA nor Pro Forma Adjusted EBITDA is a measure of
operating performance computed in accordance with GAAP and should not be
considered as a substitute for operating income, net income, cash flows
from operations, or other statement of operations or cash flow data
prepared in conformity with GAAP, or as measures of profitability or
liquidity. In addition, the way we calculate EBITDA and Pro Forma Adjusted
EBITDA may not be comparable to the EBITDA or Pro Forma Adjusted EBITDA
calculations of other companies. EBITDA and Pro Forma Adjusted EBITDA may
not be indicative of historical operating results, and we do not mean for
either to be predictive of future results of operations or cash flows.
Actual results may differ materially from those reflected in Pro Forma
Adjusted EBITDA.
Pro Forma Adjusted EBITDA has been calculated by determining EBITDA on a
pro forma basis for the twelve month period ended November 30, 2002 based
on the pro forma financial information for this period set forth under the
caption "C. 1. Unaudited Pro Forma Financial Information," above and then
adjusted as set forth below to eliminate certain charges and write offs
taken by IT Group prior to our acquisition of substantially all of the
assets of IT Group in the third quarter of fiscal 2002.
The calculations for Pro Forma Adjusted EBITDA are set forth below. The
explanations for notes (a) - (g) are set forth in note (1) to the Unaudited
Pro Forma Condensed Consolidated Statements of Operations set forth above
under the caption "C. 1. Unaudited Pro Forma Financial Information."
<Table>
<Caption>
PRO FORMA
--------------------
TWELVE MONTHS ENDED
NOVEMBER 30, 2002
--------------------
(IN THOUSANDS)
Loss before income taxes................................. $(136,645)
Interest expense....................................... 44,352
Depreciation and amortization.......................... 35,025
---------
EBITDA................................................... (57,268)
Adjustments:
Reduction of accounts receivable....................... 203,000(a)
Employee accruals, write off of assets and other
charges............................................. 34,200(b)
Legal, consulting and insurance expenses............... 14,500(c)
Write off of notes receivable.......................... 5,000(d)
Facilities accrual..................................... 10,200(e)
Employee utilization................................... 6,000(f)
Redundant corporate expenses........................... 4,650(g)
---------
Total adjustments.............................. 277,550
---------
Pro Forma Adjusted EBITDA................................ $ 220,282
=========
</Table>
The foregoing adjustments presented to derive Pro Forma Adjusted EBITDA
would not qualify as pro forma adjustments under Regulation S-X under the
Securities Act. Accordingly, no pro forma adjustments have been made to
exclude the foregoing adjustments in the pro forma consolidated statements
of operations set forth above under "C. 1. Unaudited Pro Forma Financial
Information."
(7) Ratio of pro forma Adjusted EBITDA to pro forma interest expense of $44.4
million gives effect to the net increase in interest expense resulting from
the issuance of the Notes and the anticipated use of the net proceeds of
the private placement of the Notes, assuming the valid tender in the Tender
Offer of a sufficient amount of LYONs at $650.00 per $1,000 principal
amount at maturity. Also gives effect to the use of $8.9 million of cash
available to us prior to the completion of the private placement of the
Notes to repurchase LYONs in the Tender Offer at the assumed purchase
price. If no LYONs are tendered in the Tender Offer, the ratio of Pro Forma
Adjusted EBITDA to pro forma interest expense would be 4.2x.
(8) Net debt as adjusted represents total debt as adjusted less cash, cash
equivalents and marketable securities. Net debt as adjusted has not been
reduced by $96.5 million of escrowed cash which secures a performance bond
on an international project.
(9) Pro forma ratio of earnings to fixed charges gives effect to the net
increase in interest expense resulting from the issuance of the Notes and
the anticipated use of the net proceeds of the private placement of the
Notes, assuming the valid tender in the Tender Offer of a sufficient amount
of LYONs at $650.00 per $1,000 principal amount at maturity. See
introduction to "C.1 Unaudited Pro Forma Financial Information."
(10) Gives effect to the issuance of the Notes and the anticipated use of the
net proceeds of the private placement of the Notes, assuming the valid
tender in the Tender Offer of a sufficient amount of LYONs at $650.00 per
$1,000 principal amount at maturity. Also gives effect to the use of $8.9
million of cash available to us prior to the completion of the private
placement of the Notes to repurchase LYONs in the Tender Offer at the
assumed purchase price and the use of $3.5 million of cash available to us
prior to the completion of the private placement of the Notes to pay
certain fees and expenses in connection with the Tender Offer.
(11) Includes cash, cash equivalents and marketable securities. Cash also
includes $96.5 million of escrowed cash which secures a performance bond on
an international project.
(12) Working capital represents current assets less current liabilities.
3. CAPITALIZATION
The following table sets forth our cash, marketable securities and
capitalization at November 30, 2002 as adjusted to give effect to the issuance
of the Notes and the anticipated use of the proceeds of the private placement of
the Notes, assuming the valid tender is the Tender Offer of a
sufficient amount of LYONs at $650.00 per $1,000 principal amount at maturity.
There can be no assurance that holders of LYONs will tender any LYONs in the
Tender Offer.
<Table>
<Caption>
AT NOVEMBER 30, 2002
--------------------
AS ADJUSTED
--------------------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents............. $ 264,204(1)
====================
Escrowed cash(2)...................... $ 96,500
====================
Marketable securities,
held to maturity.................... $ 54,672
====================
Short-term borrowings and current
maturities of long-term debt:
Short-term borrowings (revolving
lines of credit)(3)............ $ --
Current maturities of long-term
debt(4)........................ 5,202
--------------------
Total short-term borrowings and
current maturities of
long-term debt................ 5,202
--------------------
Long-term debt, excluding current
portion(4):
Revolving credit facility(3)..... --
Other long-term debt............. 3,019
LYONs, with early repurchase
options by holders............. 268,481
Notes offered hereby, net of
original issue discount of
$3.029 million................. 250,000
--------------------
Total long-term debt........... 521,500
--------------------
Shareholders' equity:
Preferred stock, no par value;
20,000,000 shares authorized;
no shares issued and
outstanding.................... --
Common stock, no par value;
200,000,000 shares authorized;
shares issued and 37,732,416
outstanding(5).................. 494,838
Retained earnings..................... 280,586
Accumulated other comprehensive income
(loss).............................. (14,341)
Treasury stock, 5,331,655 shares..... (99,913)
--------------------
Total shareholders' equity..... 661,170
--------------------
Total capitalization........ $ 1,187,872
====================
</Table>
- ---------------
(1) Gives effect to the use of $8.9 million of cash available to us prior to the
completion of the private placement of the Notes to repurchase LYONs at the
assumed purchase price in the Tender Offer and $3.5 million of cash
available prior to the completion of the private placement of the Notes to
pay certain fees and expenses in connection with the Tender Offer.
(2) Represents cash in escrow which secures a performance bond on an
international project.
(3) At November 30, 2002, we had approximately $173.2 million in letters of
credit outstanding. No revolving credit loans were outstanding under our
credit facilities at November 30, 2002.
(4) Includes obligations under capital leases.
(5) Does not include 6,545,723 shares reserved for issuance under our stock
option plans. As of November 30, 2002, options to purchase 4,502,014 shares
at a weighted average exercise price of $17.81 had been issued.
4. OTHER INFORMATION
(a) The following statements are included in the Offering Circular:
For the last nine months of fiscal 2003, we project that we will realize
negative free cash flow of between $55.0 million and $75.0 million. For fiscal
2004, we expect to generate between $90.0 million and $110.0 million of free
cash flow which would be sufficient for us to repurchase in cash any outstanding
LYONs that are submitted to us for repurchase on May 1, 2004 (assuming that we
use all of the net proceeds of this offering to repurchase LYONs in the Tender
Offer). We determine free cash flow by subtracting from our projected EBITDA the
projected amounts of cash used to pay taxes and interest expenses, to fund
changes in working capital and to fund capital expenditures.
(b) The following statements are included in the Offering Circular and
provide disclosure about the legal proceedings relating to our current projects
with PG&E National Energy Group ("NEG"):
On December 13, 2002, we filed suit in the U.S. District Court in Delaware
seeking a declaration that NEG has repudiated the contracts and that we are
entitled to adequate assurances of performance under these contracts, including
adequate assurance of payment. The suit further requests that, in the event
adequate assurance is not provided, we be relieved of our obligation to complete
the EPC services on these projects. In addition, we have provided a notice of
default under the agreements to NEG and its lenders, and of our right to
terminate the contracts, unless adequate assurance of payment under the
contracts can be made. If we exercise our rights to terminate, we could be
subject to claims for damages for breach of contract by NEG or its lenders,
which claims for damages could include the cost of third parties to complete the
projects. Such claims for damages could exceed our own estimates of the cost to
complete such projects. In such an event, any such claims by NEG or its lenders
would likely be determined in any legal proceeding in which our claims against
NEG would be determined.
(c) The following statements are included in the Offering Circular and are
substantially identical to the statements included in the Current Report on 8-K
filed by the Company on February 27, 2003, except for certain updates based on
the negotiations with the Company's lenders in connection with the Amended
Credit Facility.
(i) OUR REPURCHASE OBLIGATIONS UNDER THE LYONS COULD RESULT IN ADVERSE
CONSEQUENCES.
In May 2001, we issued $790.0 million aggregate principal amount at
maturity of 20-year, zero-coupon, unsecured, convertible debt Liquid Yield
Option(TM) Notes, or LYONs. The LYONs were issued on an original issue discount
basis of $639.23 per $1,000 maturity value of the LYONs. On May 1 of 2004, 2006,
2011 and 2016, holders of LYONs may require us to purchase all or a portion of
the LYONs at their accreted value (the original issue price of LYONs increases
by 2.25% per year). At May 1, 2004, the accreted value of the LYONs will be
$683.61 per $1,000 maturity value and the aggregate accreted value of the LYONs
will be $540.0 million (or $277.1 million after giving effect to the anticipated
repurchase of $384.6 million aggregate principal amount at maturity of LYONs in
the Tender Offer). The effective conversion price of the LYONs into our common
stock is $77.03 per share and the closing price of our common stock on the New
York Stock Exchange on March 11, 2003 was $9.01 per share. Unless our common
stock price increases to a price in excess of $77.03 per share, we anticipate
that a substantial portion, and perhaps all, of the LYONs will be submitted for
repurchase as early as May 1, 2004. In the event that holders of LYONs require
us to repurchase the LYONs on any of these dates, we may, subject to certain
conditions, choose to redeem the LYONs in cash or in shares of our common stock,
or in a combination of both. If we elect to issue our common stock, the value of
the common stock would be determined by reference to the current market value of
our common stock at the time of each repurchase. Unless our common stock price
increases significantly, we anticipate that we would fund all or substantially
all of this repurchase obligation with cash. Assuming that we purchase $384.6
million aggregate principal amount at maturity of LYONs in our recently
announced Tender Offer for the LYONs and assuming that our cash flow from
operations through the repurchase date meets our reported projections, we
anticipate that we would have sufficient cash resources to repurchase up to the
remaining $277.1 million in accreted value of the LYONs with cash on May 1,
2004. However, if we elect to fund all or substantially all of this repurchase
obligation with cash, we will substantially reduce our available cash resources
or other forms of liquidity. This could have the effect of restricting our
ability to fund new acquisitions or to meet other future working capital needs,
as well as increasing our costs of borrowing. We may seek to refinance or
restructure our obligations under the LYONs, including the incurrence of
additional borrowings, but we may not be successful in doing so or the
refinancing or restructuring may result in terms less favorable to us and the
holders of the notes than the terms of the LYONs. Our Amended Credit Facility
will permit us to repurchase LYONs as long as, after giving effect to the
purchase, we have the ability to borrow up to $50.0 million under that facility
and that we have designated amounts of cash and cash equivalents. Prior to May
1, 2004, cash and cash equivalent amounts must be not less than $100.0 million
and thereafter not less than $75.0 million. Under our Amended Credit Facility,
cash and cash equivalents for purposes of this test consist of those sums not
otherwise pledged or escrowed under our Amended Credit Facility and are reduced
by amounts borrowed under our Amended Credit Facility. In addition, regardless
of whether we meet these tests, our Amended Credit Facility will permit us to
use up to $10.0 million to repurchase LYONs.
(ii) DESCRIPTION OF OTHER INDEBTEDNESS AND PREFERRED STOCK-AMENDED CREDIT
FACILITY
The Amended Credit Facility will contain certain financial covenants,
including a leverage ratio (which will become more restrictive over time) and a
minimum fixed charge coverage ratio, which require us to achieve levels of
defined net worth and EBITDA and which limit our capital expenditures. The
Amended Credit Facility will also contain customary restrictions upon
acquisitions, sales of assets, payment of dividends, mergers, sales of accounts,
redemptions or repurchases of stock, transactions with stockholders and
affiliates, liens, capital expenditures, capital leases, negative pledges,
sale-leaseback transactions, indebtedness, contingent obligations, investments,
acquisitions and joint ventures. The Amended Credit Facility will also prohibit,
without the consent of the lenders, prepayments of the notes and amendments to
the terms of the notes. The Amended Credit Facility will include customary
events of default, including a defined "change of control." The Amended Credit
Facility will permit us to repurchase LYONs as long as, after giving effect to
the purchase, we have the ability to borrow up to $50.0 million under that
facility and we have designated amounts of cash and cash equivalents. Prior to
May 1, 2004, cash and cash equivalent amounts must be not less than $100.0
million and thereafter not less than $75.0 million. Under our Amended Credit
Facility, cash and cash equivalents for purposes of this test consist of those
sums not otherwise pledged or escrowed under our Amended Credit Facility and are
reduced by amounts borrowed under our Amended Credit Facility. In addition,
regardless of whether we meet these tests, our Amended Credit Facility will
permit us to use up to $10.0 million to repurchase LYONs. Borrowings under the
Amended Credit Facility are subject to numerous conditions.
D. SUPPLEMENTAL INFORMATION
The following information was used by senior executives of the Company in making
presentations to small groups of prospective investors. The information is
substantially identical to the information in the Current Report on Form 8-K
filed by the Company on February 28, 2003, except for certain corrections made
to the information presented under subsection 2 of this Section D.
For purposes of the information set forth below, references to "we," "us" and
"our" refer to the Company and its subsidiaries, including the operations of
businesses that we acquired prior to the date of acquisition. For purposes of
the information set forth below, our business segments are presented as follows:
(1) engineering, procurement, construction and maintenance services (EPC&M), (2)
environmental and infrastructure services (E&I) and (3) pipe fabrication,
manufacturing and distribution services (FM&D).
1. HISTORICAL INFORMATION
(a) At November 30, 2002, our approximately $5.0 billion of
backlog consisted of $2.5 billion for the EPC&M segment, $2.3 billion
for the E&I segment and $0.2 billion for the FM&D segment. At that
date, E&I segment backlog was comprised of approximately $1.6 billion
for environmental services, $484 million for infrastructure services
and $158 million for other E&I services.
(b) At November 30, 2002, our backlog by customer type
consisted of approximately $2.9 billion in private customers, $2.0
billion in federal government customers and $79 million in state and
local government customers.
(c) We expect to complete approximately 47% of our November
30, 2002 backlog in the 12 months following November 30, 2002, 20% of
that backlog between 13 and 24 months after November 30, 2002 and the
remaining 33% of that backlog more than 24 months after November 30,
2002.
(d) The following table sets forth certain information
relating to our ten largest contracts, in terms of backlog, at
November 30, 2002:
<Table>
<Caption>
========================================================================================================================
CUSTOMER BACKLOG
UNSECURED 11/30/02 EXPECTED
COMPANY CONTRACT TYPE CREDIT RATING SERVICES CONTRACTED ($ MM) COMPLETION
------------------------------------------------------------------------------------------------------------------------
1. TVA - Browns Ferry Unit 1 Cost-plus AAA Nuclear Restart $ 444 2007
2. TVA Cost-plus AAA Nuclear Maintenance 364 2010
3. BASF - SINOPEC Negotiated BBB Ethylene Plant EPC 296 2005
Fixed-plus
4. FP&L - Marcus Hook Cost-plus A Fossil-Fuel EPC 212 2004
5. Exelon Cost-plus BBB+ Nuclear Maintenance 204 2007
6. Keyspan - Ravenswood Cost-plus A Fossil-Fuel EPC 176 2004
7. USACE Omaha TERC Cost-plus U.S. Government Environmental Remediation 156 2006
8. USACE KC TERC Cost-plus U.S. Government Environmental Remediation 134 2008
9. USACE SAD TERC Cost-plus U.S. Government Environmental Remediation 123 2006
10. Navy - EFA West RAC II Cost-plus U.S. Government Environmental Remediation 115 2005
------------------------------------------------------------------------------------------------------------------------
TOTAL $2,224
% OF BACKLOG 44%
------------------------------------------------------------------------------------------------------------------------
</Table>
(e) The following table sets forth our percentage of backlog
at November 30, 2002 by end market for the type of contract indicated:
<Table>
<Caption>
Cost-Plus Contract Fixed Price Contract Unit Price Contract
------------------------------------------------------------------------------------------------------
End Market Percentage End Percentage End Percentage
of Backlog Market of Backlog Market of Backlog
------------------------------------------------------------------------------------------------------
Power/Process 42% E&I 9% Pipe Fabrication 4%
------------------------------------------------------------------------------------------------------
E&I 35% BASF - SINOPEC 6% E&I 1%
------------------------------------------------------------------------------------------------------
Pipe
Fabrication 1% Construction 1%
------------------------------------------------------------------------------------------------------
Other 1%
------------------------------------------------------------------------------------------------------
Total 77% Total 17% Total 6%
------------------------------------------------------------------------------------------------------
</Table>
(f) Approximately $1.9 billion to $2.1 billion of our annual
revenue and approximately $130 million to $160 million of our annual
earnings before interest, taxes, depreciation and amortization
("EBITDA") are generated from what we believe to be stable, predictable
revenue streams. The following table sets forth additional detail about
this recurring revenue and EBITDA as it relates to our business
segments:
<Table>
<Caption>
($ in millions)
===================================================================================
SEGMENT REVENUE EBITDA
-----------------------------------------------------------------------------------
E&I $1,250 - $1,350 $ 90 - $100
EPC&M:
Maintenance -- Nuclear 205 - 235
Maintenance -- Petrochemical 95 - 105
Consulting 50 - 75
-----------------------------------------------------------------------------------
Total EPC&M $ 350 - $ 415 $ 10 - $ 20
FM&D 275 - 325 30 - 40
-----------------------------------------------------------------------------------
TOTAL $1,875 - $2,090 $130 - $160
-----------------------------------------------------------------------------------
</Table>
(g) We have a proven record of acquiring companies at
conservative EBITDA multiples. We acquired substantially all of the
assets and businesses of Stone & Webster, Inc. in July 2000 and of The
IT Group, Inc. in May 2002 at multiples of adjusted EBITDA of 1.4x and
1.7x, respectively. For purposes of determining these multiples, the
purchase price for the acquired assets and businesses includes
transaction costs and is net of proceeds of the sale of a major asset,
in the case of Stone & Webster, Inc., and of debtor-in-possession
financing that we provided to The IT Group, Inc., in the case of The IT
Group, Inc. Adjusted EBITDA means the historical EBITDA of the assets
and businesses acquired adjusted for major non-recurring items.
2. FISCAL 2003 AND FISCAL 2004 GUIDANCE
(a) On February 26, 2003, we issued a press release providing
guidance on our fiscal 2003 and fiscal 2004 operating performance. In
that press release, we announced that we expect to generate revenues of
$3.1 billion to $3.3 billion for fiscal 2003 and revenues of $2.4
billion to $2.8 billion for fiscal 2004. We announced also that we
expect EBITDA to range between $160 million and $170 million in fiscal
2003 and between $175 million and $190 million in fiscal 2004.
(b) The following sets forth certain information regarding
certain contingencies in the domestic power market engineering,
construction and procurement projects indicated:
<Table>
<Caption>
($ in millions)
========================================================================================
ASSUMED TIMING OF
RECOVERY BASED ON
MANAGEMENT GUIDANCE
ESTIMATED % ---------------------------------
COMPLETE(1) THROUGH POST-
PROJECT(S) COMPANY AS OF 11/30/02 FISCAL 2004(2) FISCAL 2004
----------------------------------------------------------------------------------------
WOLF HOLLOW AES 87% $0 $27
COVERT & HARQUAHALA NEG 85% $30 $25
PIKE NRG Discontinued $30 $45
----------------------------------------------------------------------------------------
</Table>
(1) Based on total estimated cost to completion.
(2) Fiscal year ending August 31.
Management expects to fully recover all costs to be incurred on these
projects.
(c) In the press release referred to above, we also announced
our expectations for our cash flow for fiscal 2003 and fiscal 2004. The
following table sets forth additional detail about those projections
for each of the periods presented:
<Table>
<Caption>
($ in millions)
=====================================================================================================
Q2 - Q4 2003 FULL YEAR 2004
LTM -------------------- --------------------
11/30/2002 LOW-END HIGH-END LOW-END HIGH-END
-----------------------------------------------------------------------------------------------------
EBITDA $207 $ 115 - $ 125 $175 - $190
Less: Cash Taxes (8) (6) (10)
Less: Cash Interest (1) (10) (22)
Less: Working Capital (6) (152) - (142) (33) - (28)
Less: Capital Expenditures (61) (22) (20)
-----------------------------------------------------------------------------------------------------
FREE CASH FLOW $130 $ (75) - $ (55) $ 90 - $110
PRO FORMA
---------
Net Debt(1) $105 $ 180 - $ 160 $ 90 - $ 50
Net Debt(1)/EBITDA 0.5x 1.1x - 0.9x 0.5x - 0.3x
-----------------------------------------------------------------------------------------------------
</Table>
(1) Includes approximately $97 million of restricted cash in
connection with BASF-SINOPEC project.
(d) On February 27, 2003, we filed a Current Report on Form
8-K containing elective disclosure for purposes of Regulation FD that
updated the risk factor in our Annual Report on Form 10-K for the
fiscal year ended August 31, 2002 entitled, "The Company's repurchase
obligations under its zero-coupon, unsecured, convertible notes due
2021 (LYONs) could result in adverse consequences." Set forth below is
additional information regarding our expected cash availability at and
immediately after May 1, 2004, assuming that we repurchase the maximum
principal amount of LYONs that we offered to purchase for cash in the
tender offer that we announced on February 26, 2003 and that all LYONs
outstanding thereafter are submitted to us for repurchase on May 1,
2004:
<Table>
<Caption>
($ in millions)
===================================================================================
-----------------------------------------------------------------------------------
Unrestricted Cash and Equivalents at 11/30/02 $ 331
(+) Net Proceeds of Proposed Senior Notes(1) 238
(+) Conversion of BASF Restricted Cash(2) 97
(-) LYONs Tendered(3) (250)
(+) Estimated Free Cash Flow Dec. - Aug. 2003 (65)
(+) Estimated Free Cash Flow Sept. 2003 - Apr. 2004 70
-----------------------------------------------------------------------------------
ESTIMATED CASH AVAILABLE TO SATISFY LYONs PUT $ 420
-----------------------------------------------------------------------------------
(-) LYONs Remaining at May 2004(4) $(268)
-----------------------------------------------------------------------------------
ESTIMATED REMAINING CASH $ 152
-----------------------------------------------------------------------------------
(+) Anticipated Availability Under Revolver(5) $ 120
-----------------------------------------------------------------------------------
LIQUIDITY FOR OPERATIONS POST-PUT $ 272
-----------------------------------------------------------------------------------
</Table>
(1) Net of discount to initial purchasers on the senior notes and
estimated fees and expenses of the private placement of the senior
notes and the tender offer.
(2) Assumes that approximately $60 million of restricted cash is
released by May 2004 put date and that remaining $27 million is
posted against the amended credit facility as a letter of credit.
(3) Represents $385 million in aggregate face amount of LYONs assumed
to be tendered in the tender offer and purchased by us for an
aggregate purchase price of $250 million.
(4) Represents satisfaction of remaining $405 million aggregate face
amount of LYONs outstanding after the tender offer for $268
million.
(5) Assumes outstanding balances on letters of credit of approximately
$130 million at May 2004.
3. Amended Credit Facility
On February 26, 2003, we issued a press release announcing that we had
received commitments from our lenders to amend our existing senior secured
credit facility to extend the term to three years from the date of the closing
of the amended credit facility and to provide for borrowing capacity, including
letters of credit, of $250 million. We also announced that we expect the closing
of the amendment and extension of our existing credit facility to occur
concurrently with the closing of our proposed private placement of senior notes
that we also announced on February 26, 2003. The following is a summary of some
of the expected terms of our amended and restated senior secured credit
facility at the time of the presentations to the small groups of prospective
investors described in the introduction to this Section D.:
<Table>
<Caption>
SENIOR SECURED CREDIT FACILITY
($ in millions)
============================================================================================
- --------------------------------------------------------------------------------------------
Size $250 MM
Spread(1) L + 250
Maturity March 2006
Expected Closing Simultaneously with proposed senior notes offering
Key Covenants:
- --------------
Minimum EBITDA $135 MM
Total Leverage:
Through 5/31/04 3.50x
Thereafter 2.75x
Fixed Charge Coverage 2.00x
- --------------------------------------------------------------------------------------------
</Table>
(1) Contingent on ratings from S&P & Moody's.
E. FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The statements contained in this Current
Report on Form 8-K that are not historical facts (including without limitation
statements to the effect that we "believe," "expect," "anticipate," "plan,"
"intend" or "foresee," and other similar expressions) are forward-looking
statements. These forward-looking statements are based on our current
expectations and beliefs concerning future developments and their potential
effects on us. There can be no assurance that future developments affecting us
will be those anticipated by us. These forward-looking statements involve
significant risks and uncertainties (some of which are beyond our control) and
assumptions. They are subject to change based upon various factors, including
but not limited to the following risks and uncertainties:
o changes in the demand for our products and services;
o changes in general economic conditions, and, specifically, changes
in the rate of economic growth in the United States and other major
international economies;
o the presence of competitors with greater financial resources and
the impact of competitive products, services and pricing;
o the cyclical nature of the individual markets in which our
customers operate;
o the financial strength of our customers and their ability to make
scheduled payments on their contracts with us;
o changes in investment by the energy, power and environmental and
infrastructure industries;
o the availability of qualified engineers, professional staff and
craft labor needed to execute contracts;
o the uncertain timing of awards and contracts;
o the funding of backlog, including government budget constraints,
cost overruns on fixed or unit priced contracts;
o cost overruns which negatively affect fees to be earned or cost
variances to shared on cost-plus contracts;
o changes in laws and regulations and in trade, monetary and fiscal
policies worldwide;
o currency fluctuations;
o the effect of our policies, including but not limited to the amount
and rate of growth of our expenses;
o the continued availability to us of adequate funding sources;
o delays or difficulties in the production, delivery or installation
of products and the provision of services, including in the ability
to recover for changed conditions;
o our ability to successfully integrate acquisitions;
o the protection and validity of patents and other intellectual
property; and
o various other legal, regulatory and litigation risks.
Should one or more of these risks or uncertainties materialize, or should any of
our assumptions prove incorrect, actual results may vary in material respects
from those projected in the forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements contained
in this Current Report on Form 8-K whether as a result of new information,
future events or otherwise. For a more detailed discussion of some of the
foregoing risks and uncertainties, see Section 14 - "Certain Significant
Considerations" of the Offer to Purchase filed as an exhibit to our Schedule TO
filed with the SEC on February 26, 2003 relating to the Tender Offer and the
"Risk Factors" described in Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K
for the fiscal year ended August 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE SHAW GROUP INC.
(Registrant)
Date: March 14, 2003 /s/ GARY P. GRAPHIA
----------------------------------------
Gary P. Graphia
Secretary and General Counsel