.
.
.
EXHIBIT 99.1
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
March 29, December 28,
2002 2001
------------- -----------
(Unaudited)
ASSETS (In thousands)
Current assets:
Cash and cash equivalents........................................................... $ 45,278 $ 66,770
Receivables, net.................................................................... 309,164 293,699
Prepaid expenses and other current assets........................................... 16,375 15,044
Land held for sale.................................................................. 25,748 23,454
-------- ---------
Total current assets............................................................ 396,565 398,967
Property, plant and equipment, at cost:
Land, buildings and improvements.................................................... 12,755 13,892
Machinery and equipment............................................................. 110,178 108,094
-------- ---------
122,933 121,986
Less accumulated depreciation and amortization.................................. 62,594 59,838
-------- ---------
Net property, plant and equipment.......................................... 60,339 62,148
Cost in excess of net assets of acquired businesses....................................... 538 646
Other assets ........................................................................... 56,335 55,874
--------- ---------
Total assets.................................................................... $ 513,777 $517,635
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise (post-petition):
Current liabilities:
Accounts payable.................................................................... $ 106,912 $ -
Accrued liabilities................................................................. 22,669 -
Debtor-in-possession financing...................................................... 50,000 -
--------- ---------
Total current liabilities not subject to compromise............................. 179,581 -
Liabilities subject to compromise (pre-petition):
Accounts payable.................................................................... 121,762 261,601
Accrued liabilities................................................................. 81,709 114,473
Billings in excess of revenues...................................................... 39,441 38,570
Debt in default..................................................................... 772,107 753,315
-------- ---------
Total liabilities subject to compromise................................................... 1,015,019 1,167,959
Other long-term accrued liabilities....................................................... 6,700 6,551
Minority interest in subsidiary........................................................... 805 799
Stockholders' equity:
Preferred stock, $100 par value; 180,000 shared authorized:
7% cumulative convertible exchangeable, 20,556 shares issued
and outstanding............................................................ 2,056 2,056
6% cumulative convertible participating, 46,095 shares authorized, issued
and outstanding............................................................ 4,609 4,609
Common stock, $.01 par value; 50,000,000 shares authorized;
23,058,291 shares issued........................................................ 231 231
Treasury stock at cost 1,030,447 shares............................................. (4,867) (4,867)
Additional paid-in capital.......................................................... 350,990 350,990
Unearned compensation, restricted stock............................................. (567) (635)
Deficit............................................................................. (1,038,096) (1,007,479)
Accumulated translation adjustment.................................................. (2,684) (2,579)
-------- ----------
Total stockholders' equity (deficit)............................................ (688,328) (657,674)
-------- ----------
Total liabilities and stockholders' equity (deficit)............................ $513,777 $517,635
======== ========
See accompanying notes
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
------------------
March 29, March 30,
2002 2001
---- ----
(Unaudited)
Revenues........................................................... $ 229,932 $ 333,492
Cost and expenses:
Cost of revenues.............................................. 219,793 293,176
Selling, general and administrative expenses.................. 36,460 12,814
Amortization of goodwill...................................... - 5,030
----------- -----------
Operating income................................................... (26,321) 22,472
Interest expense, net.............................................. 4,296 18,923
----------- -----------
Income before income taxes......................................... (30,617) 3,549
Provision for income taxes......................................... - 1,366
----------- -----------
Net income......................................................... (30,617) 2,183
Preferred stock dividends.......................................... - (1,590)
----------- -----------
Net income (loss) applicable to common stock....................... $ (30,617) $ 593
============ ===========
Net income (loss) per common share - basic......................... $ ( 1.41) $ 0.03
=========== ===========
Net income (loss) per common share - diluted ...................... $ (1.41) $ 0.03
=========== ===========
Weighted average common shares outstanding:
Basic.............................................................. 21,790 21,780
=========== ===========
Diluted............................................................ 21,790 21,983
=========== ===========
See accompanying notes
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
------------------
March 29, March 30,
2002 2001
--------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................... $(30,617) $ 2,183
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization..................................................... 2,756 9,613
Deferred income taxes............................................................. - 1,181
Other............................................................................. 75 (1,265)
Changes in assets and liabilities, net of effects from acquisitions:
Changes in assets and liabilities................................................. (61,446) (11,700)
Discontinued operations........................................................... - (5,835)
--------- ----------
Net cash used for operating activities................................................. (89,232) (5,823)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................... (947) (3,944)
Acquisition of businesses.............................................................. - (7,357)
Other, net............................................................................. - 57
--------- ---------
Net cash used for investing activities................................................. (947) (11,244)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing of long-term debt........................................................ 68,792 17,543
Dividends paid on preferred stock...................................................... - (1,590)
--------- ----------
Net cash provided by financing activities.............................................. 68,792 15,953
--------- ---------
Effect of exchange rate changes on cash...................................................... (105) -
--------- ---------
Net decrease in cash and cash equivalents.................................................... (21,492) (1,114)
Cash and cash equivalents at beginning of period............................................. 66,770 15,624
--------- ---------
Cash and cash equivalents at end of period................................................... $ 45,278 $ 14,510
========= =========
See accompanying notes
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation and principles of consolidation
The condensed consolidated financial statements included herein have been
prepared by The IT Group, Inc. (IT or the Company), without audit, and include
all adjustments of a normal, recurring nature which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the fiscal quarter ended March 29, 2002. The Company uses the equity method to
account for certain joint ventures in which the Company does not have in excess
of 50% of voting control. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading.
These condensed consolidated financial statements should be read in
conjunction with the Company's financial statements for the fiscal year ended
December 28, 2001 included in the Form 8-K/A filed by The Shaw Group, Inc.
("Shaw") on July 12, 2002. The results of operations for the fiscal period ended
March 29, 2002 are not necessarily indicative of the results for the full fiscal
year. The December 28, 2001 balance sheet amounts were derived from audited
financial statements as amended.
Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations (SFAS No. 141),
and No. 142 Goodwill and Other Intangible Assets, (SFAS No. 142). In the first
quarter ended March 29, 2002, the Company adopted SFAS No. 142 that requires
that goodwill no longer be amortized, but that impairment of goodwill assets is
reviewed on a regular basis based on a fair value concept. SFAS No. 142 also
removed certain differences between book and tax expense, which has resulted in
a reduction of the Company's effective tax rate. If SFAS No. 142 had been in
effect during the first quarter ended March 30, 2001, the Company estimates that
its diluted earnings per share would have been increased by approximately $0.23
per share. This increase in diluted earnings per share would have resulted from
the cessation of goodwill amortization.
As a result of a continuing deterioration in project performance, volume
fluctuations, reduced bonding capacity, the recessionary U.S. economy and the
events of September 11, 2001, the Company experienced significant operating
losses and liquidity constraints. Due to these indicators of impairment, the
Company evaluated the recoverability of acquired assets resulting from prior
business acquisitions. This evaluation, which incorporated the fair value of the
Company's businesses resulted in a write-off of $528 million related to the
unamortized cost in excess of net assets of acquired businesses during the
twelve months ended December 28, 2001.
Under the new rules, goodwill will no longer be amortized but will be
subject to annual impairment tests in accordance with SFAS No. 142. Other
intangible assets will continue to be amortized over their useful lives. As a
result of the impairment charges taken earlier as indicated above, the
application of SFAS No. 142 during the quarter ended March 29, 2002 was not
material.
Accounting for Derivative Instruments and Hedging Activities
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, (SFAS
No. 133) on December 30, 2000, the beginning of its 2001 fiscal year. SFAS No.
133 requires the transition adjustment from adoption to be reported in net
income or other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle. In accordance with the transition
provisions of SFAS No. 133, the Company recorded a cumulative transition
adjustment to decrease other comprehensive income by $1.3 million, net of
related tax effects, to recognize the fair value of its derivative instruments
as of the date of adoption. During the quarters ended March 29, 2002 and March
30, 2001, unrealized net losses on derivative instruments of approximately $0.0
million and $2.0 million, respectively, net of related tax effects, were also
recorded in other comprehensive income (see Note 11, "Comprehensive income").
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company's credit facilities had required it to have a portion of its
credit facility borrowings converted from variable rate interest to fixed rate
interest. The Company utilized derivative financial instruments, such as
interest rate swaps, to fulfill this requirement. As of December 28, 2001, the
Company had a $150 million interest rate swap agreement that was scheduled to
expire in August 2003, fixing a rate on a like amount of variable rate
borrowings where the Company, as the fixed rate payer, pays (receives) the
difference between 3-month LIBOR and a fixed rate of 6.455%. The fair value of
the swap at December 28, 2001 was an $8.2 million liability classified within
our current liabilities on the Consolidated Balance Sheet. The swap was
designated as a cash flow hedge instrument upon the adoption of SFAS No. 133 on
December 30, 2000, and the swap was a highly effective hedge for the quarters
ended March 30, 2001, June 29, 2001 and September 28, 2001 using the variable
cash flows method. The amounts of hedge ineffectiveness for each of the three
quarterly reporting periods of fiscal 2001 were not significant. During the
quarter ended December 28, 2001, however, the swap failed to qualify as an
effective hedge due to the Company's default under its credit facilities and a
related default on the $150 million interest rate swap agreement. As a result,
the hedged transaction was not probable. At the current fair value based on
prevailing interest rates as of December 28, 2001, the $5.0 million of
accumulated other comprehensive loss (net of related tax effects) related to the
swap agreement was charged to earnings as a result of quarterly swap settlements
with the counter-party and the ineffective portion of the hedge during 2001 and
was recorded as a component of interest expense and income taxes during that
quarterly period.
The Company had an interest rate cap agreement with a notional amount of
$126 million expiring in August 2004 which was also classified as a cash flow
hedge instrument. For the same reasons described above pertaining to the swap
agreement, the cap failed to qualify as an effective hedge during the quarter
ended December 28, 2001. Consequently, $0.2 million of accumulated other
comprehensive income, net of related tax effects, was reclassified into earnings
during that quarter.
Contract accounting and accounts receivable
Included in receivables, net at March 29, 2002 are billed and other
cost-reimbursable receivables of $226 million, costs and estimated profits in
excess of billings of $53 million, contract claims and unapproved change orders
of $9 million, investments in federal privatization projects of $4 million, and
retention of $17 million. Accounts receivable from the U. S. Government at March
29, 2002 were $178 million, or 58% of total accounts receivable. At December 28,
2001 net receivables included billed and other cost-reimbursable receivables of
$227 million, costs and estimated profits in excess of billings of $37 million,
contract claims and unapproved change orders of $4 million, investments in
federal privatization projects of $9 million and retention of $17 million.
Accounts receivable from the U. S. Government as of December 28, 2001 were $144
million, or 49% of total accounts receivable.
Costs and estimated profits in excess of billings typically represent fixed
price project amounts earned under the Company's contracts but not yet
immediately billable according to the contract terms, which usually consider the
passage of time, achievement of certain milestones or completion of the project.
Generally, these amounts are expected to be billed and collected in the
subsequent year. Billings in excess of revenues represent amounts billed in
accordance with contract terms, which are in excess of the amounts includable in
revenue.
Included in accounts receivable at March 29, 2002 is approximately $9
million associated with contract claims and unapproved change orders, which are
believed by management to be probable of realization. Most of these claims and
change orders are being negotiated or are in arbitration. This amount includes
contract claims in litigation (see Note 8,"Contingencies"). The actual amounts
realized could be materially different than the amounts recorded.
2. BANKRUPTCY PROCEEDINGS AND PROPOSED SALE OF COMPANY:
In September 2001, due to uncertainty with maintaining compliance with the
increasingly restrictive financial covenants under its credit facilities, the
Company requested, and received approval from its lenders for, an amendment to
its credit agreement effective September 27, 2001. The amendment revised
financial covenants for maximum EBITDA leverage, minimum interest coverage,
minimum fixed charge coverage, and net worth, for the quarters ended September
28, 2001 and December 28, 2001. As amended, the Company was compliant with its
credit agreement at September 28, 2001. The September 2001 amendment was the
first step of an intended two-step credit facilities amendment process.
As a result of continuing deterioration in project performance, volume
fluctuations, lack of bonding availability, the recessionary U.S. economy and
the events of September 11, 2001, the Company announced on December 31, 2001
that it would
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
not be in compliance with the financial covenants of its credit facilities at
December 28, 2001 and that it was working with its senior lenders to reach a
satisfactory financial arrangement. As a result of the Company's failure to
complete the intended two-step amendment of its credit facilities (see Note 4,
"Debt in Default"), on January 16, 2002, the Company filed voluntary petitions
for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court in Wilmington, Delaware.
Also on January 16, 2002 the Company signed a letter of intent with The
Shaw Group, Inc. ("Shaw") regarding a proposed transaction in which Shaw would
acquire substantially all of the Company's assets in exchange for approximately
$105 million and the assumption of certain liabilities. The Company estimates
the transaction to have a value of approximately $160 million to $200 million
(see Note 12, "Subsequent Event").
In connection with the proposed transaction with Shaw, Shaw has agreed in
principle to provide the Company with a debtor-in-possession ("DIP") credit
facility of up to $75 million, $25 million of which will be available to the
Company upon initial bankruptcy court approval. The remaining $50 million will
be available to the Company at Shaw's discretion upon final bankruptcy court
approval.
The bankruptcy filings and the agreement in principle to provide DIP
financing from Shaw will allow the Company to provide for an orderly sale of the
Company, which will be subject to higher or otherwise better bids in the
bankruptcy court process, while enabling the Company to take steps to address
its liquidity issues and stabilize operations. The Company's joint ventures and
its Canadian subsidiary, Roche Limited Consulting Group, are not included in the
bankruptcy reorganization cases, but are included in the proposed asset sale to
Shaw and are continuing normal business operations.
On December 21, 2001, the New York Stock Exchange (the"NYSE") announced
that it determined that the common stock of the Company, as well as the
depositary shares each representing 1/100th of a share of cumulative convertible
exchangeable preferred stock, should be suspended immediately. In January 2002,
the NYSE subsequently delisted the Company's common stock and the depositary
shares.
3. BUSINESS ACQUISITIONS:
W&H Pacific, Inc.
On May 9, 2000, the Company acquired all of the outstanding capital stock
of W&H Pacific, Inc. (W&H Pacific) for $10 million plus approximately $0.5
million in transaction costs, and contingent consideration up to $9 million over
the next two years. At March 29, 2002 approximately $5 million of contingent
consideration was paid, with up to $4 million of additional contingent
consideration potentially payable during 2002. W&H Pacific is an engineering and
design firm serving the northwestern United States in the telecommunications,
transportation, and land development markets, with annual revenues of
approximately $35 million.
The transaction was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". The excess
of the purchase price over the fair value of assets acquired and liabilities
assumed of $10 million has been finalized and is classified as cost in excess of
net assets of acquired businesses and is being amortized over twenty years. The
estimated fair value of the assets acquired and liabilities assumed of W&H
Pacific, as adjusted, are as follows:
Description Amount
----------- ------
(In thousands)
Current assets.................................................................... $ 6,701
Property and equipment............................................................ 1,054
Cost in excess of net assets of acquired businesses............................... 10,434
Other long term assets............................................................ 1,698
Current liabilities............................................................... 4,592
Long term liabilities, primarily debt............................................. 66
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of the acquisition of W&H Pacific, the Company has adopted a
plan and commenced the process of closing specific overlapping facilities and
reducing consolidated employment. The acquired balance sheet included an accrual
of $1 million for the estimated W&H Pacific severance and lease termination
costs, which was principally paid in 2001.
4. DEBT IN DEFAULT:
Debt consists of the following:
March 29, December 28,
2002 2001
----------- ----------
Credit Agreement Debt:
Revolver borrowings outstanding.......................... $ 175,600 $ 175,600
Term Loan B ........................................... 212,250 212,250
Term Loan C............................................ 97,000 97,000
11.25% Senior Subordinated Notes - Due 4/1/09 ............ 225,000 225,000
8% Convertible Subordinated Debentures -- Due 10/1/06 ..... 31,622 31,622
Debtor-in-possession financing ........................... 50,000 -
Other ..................................................... 30,635 11,843
----------- ----------
822,107 753,315
Less debt in default....................................... (772,107) (753,315)
----------- ----------
Total post-petition debt................................. $ 50,000 $ -
=========== ==========
5. FACILITY CLOSURE RESERVES:
In 2000 and 2001, the Company recorded $1.0 million and $5.9 million in
restructuring charges relating to facility closure and downsizing plans. The
facility restructuring plans included closing and downsizing offices and
warehouses. All facility closure and downsizing actions are to be implemented
within one year of the respective charges. Charges to the reserves through March
29, 2002 were $0.6 million. Payments relating to lease obligations, net of
sublease recovery estimations, will primarily be incurred through 2002, although
some leases on downsized facilities continue through 2006.
As a result of previous acquisitions, the Company established
acquisition-related integration accruals for liabilities recognized in
connection with purchase business combinations relating to severance, facility
closure and lease termination liabilities. Activity in these reserves for the
quarter ended March 29, 2002 were as follows:
Acquisition-related reserves: Quarter Ended March 29, 2002
(in thousands) -------------------------------------------------------
Reserve balance Reserve balance
at December 28, 2001 Payments at March 29, 2002
-------------------- -------- -----------------
Severance..................................... $ 1,655 $ - $ 1,655
Office closure, lease termination and other... 4,282 - 4,282
-------------- ------------ ---------------
Total......................................... $ 5,937 $ - $ 5,937
============== ============ ===============
6. INCOME TAXES:
For the year to date period ended March 29, 2002, the Company has not
recorded an income tax provision or benefit. For the quarter ended March 30,
2001, the Company recorded an income tax provision of $1.4 million, reflecting
an income tax rate of approximately 38.5% on pretax income of $3.5 million which
was based upon the estimated tax rate for the entire year. Additionally, as a
result of the factors discussed in Note 2, "Bankruptcy Proceedings," the Company
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. These factors
and the bankruptcy filing make it more likely than not that the Company will not
be able to realize deferred tax assets on an ongoing basis. Accordingly, the
Company's deferred tax valuation
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
allowance was increased at December 31, 2001 to $321 million, completely
offsetting the value of the Company's deferred tax assets and liabilities.
7. EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended
----------------------------
March 29, March 30,
2002 2001
---------- ----------
(In thousands, except per share data)
Numerator:
Net income........................................................ $ (30,617) $ 2,183
Preferred stock dividends......................................... -- (1,590)
---------- ----------
Numerator for basic earnings per share - net income (loss)
available to common stockholders................................ $ (30,617) $ 593
============ ==========
Effect of conversion of dilutive securities:
Preferred stock dividends ...................................... -- --
Numerator for diluted earnings per share -- net income (loss)
applicable to common stock...................................... $ (30,617) $ 593
=========== ==========
Denominator:
Denominator for basic earnings per share-
weighted average shares......................................... 21,790 21,780
========== ==========
Effect of conversion of dilutive securities:
Common equivalent shares and nonvested stock (a)................ -- 203
Convertible preferred stock (a)................................ -- --
---------- ----------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions......................................... 21,790 21,983
========== ==========
Net income (loss) per share basic:.................................. $ (1.41) $ 0.03
============ ==========
Net income (loss) per share diluted:................................ $ (1.41) $ 0.03
============ ==========
(a) The common stock equivalents, nonvested stock and convertible preferred
stock were not included in the diluted earnings per share computation for the
quarter ended March 29, 2002 since they were anti-dilutive to the net income
available for common stockholders. Additionally, the convertible preferred stock
was not included in the computation for the quarter ended March 30, 2001 due to
its anti-dilutive nature.
8. CONTINGENCIES:
For information regarding legal proceedings of the Company's continuing
operations, please see Note 10, "Commitments and contingencies" in the Notes to
Consolidated Financial Statements in the Company's financial statements for the
fiscal year ended December 28, 2001 included in the Form 8-K/A filed by Shaw on
July 12, 2002. See Note 10, "Discontinued operations" of this filing for
information regarding the legal proceedings of the discontinued operations of
the Company. As a result of the Company's filing for protection under Chapter 11
of the U.S. Bankruptcy Code, all of the Company's ongoing litigation at January
16, 2002, has been stayed pending the outcome of the bankruptcy proceedings.
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. OPERATING SEGMENTS:
Organization
Effective for the period ended September 28, 2001, the Company changed from
four reportable segments: Government Services, Commercial Engineering &
Construction (Commercial E&C), Consulting & Technology (C&T), and International
to three reportable segments. The change involved combining the Commercial E&C
segment with the C&T segment into one Commercial Services segment. This is
designed to streamline and improve our delivery of services to our commercial
clients. The following results have been recast to conform with the Company's
revised approach to managing and analyzing segment performance. The Government
Services segment provides diversified services to the federal government in the
areas of Hazardous, Toxic and Radiological Waste remediation, Outsourced
Services for renovation, design/build and facilities management, and Civil
Works. The Commercial Services segment provides comprehensive consulting,
engineering and construction services to commercial clients, primarily in the
petroleum, chemical, manufacturing, transportation, telecommunication, utility
and solid waste industries through four business lines: Commercial Services,
Solid Waste, Transportation and Telecommunication, and Real Estate Restoration.
The International segment provides comprehensive infrastructure and
environmental services to multi-national and foreign-based clients with
principal operations in Canada, Europe, and Australia.
Segment Information
Government Commercial
Services Services International Total
--------------- --------------- ------------- -------------
(In thousands)
Quarter ended March 29, 2002
Revenues................................ $ 108,904 $ 102,881 $ 18,147 $ 229,932
Segment profit.......................... 332 (427) (905) (1,000)
Quarter ended March 30, 2001
Revenues................................ $ 166,806 $ 145,749 $ 20,937 $ 333,492
Segment profit.......................... 18,759 16,380 997 36,136
Three months ended
-------------------------
March 29, March 30,
2002 2001
------------ ----------
Total profit for reportable segments..................... $ (1,000) $ 36,136
Unallocated amounts:
Corporate selling, general and administrative, and
goodwill amortization expenses....................... (25,321) (13,664)
Interest expense, net.................................. (4,296) (18,923)
------------ ----------
Income (loss) before income taxes........................ $ (30,617) $ 3,549
============ ==========
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. DISCONTINUED OPERATIONS:
Overview
The Company ceased its transportation, treatment and disposal operations
over thirteen years ago. The adequacy of the provision for loss is periodically
reevaluated in light of the developments since the adoption of the divestiture
plan, and management believes that the provision is reasonable; however, the
ultimate effect of the divestiture on the consolidated financial condition,
liquidity and results of operations of the Company is dependent upon future
events, the outcome of which cannot be determined at this time. Outcomes
significantly different from those used to estimate the provision for loss could
result in a material adverse effect on the consolidated financial condition,
liquidity and results of operations of the Company.
Northern California Facilities
Final approval of closure construction by the California EPA, Department of
Toxic Substance Control (DTSC) for the Panoche facility was received in late
2001. The Company maintains environmental insurance coverage that provides for
reimbursement of post-closure costs up to the policy limits, which are in excess
of the Company's post-closure cost estimates, for the four Northern California
Facilities.
The carrying value of the long-term assets of discontinued operations of
$25.8 million at March 29, 2002 is principally comprised of unused residual land
at the inactive disposal facilities and assumes that land sales will occur at
market prices estimated by the Company based on certain assumptions
(entitlements, etc.). During 2001, the Company sold a small parcel of land from
the Northern California Facilities for $1.3 million, net of transaction costs.
The Company has negotiated a sale agreement for additional parcels of the unused
residual land for approximately $12 million, which is equivalent to the
Company's market price assumption. The agreement is subject to customary closing
conditions including the successful completion of due diligence. There is no
assurance as to the timing of development or sales of any of the Company's
residual land, or, until sold, the Company's ability to ultimately liquidate the
land for the estimated sale prices. If the assumptions used to determine such
prices are not realized, the value of the land could be materially different
from the current carrying value.
Other Site Cleanup Actions
The Company, as a major provider of hazardous waste transportation,
treatment and disposal operations in California prior to December 1987, has been
named a PRP at a number of other sites and may from time to time be so named at
additional sites and may also face damage claims by third parties for alleged
releases or discharges of contaminants or pollutants arising out of its
discontinued operations.
11. COMPREHENSIVE INCOME (LOSS):
Comprehensive income represents net income plus the results of certain
non-stockholders' equity changes not reflected in the Condensed Consolidated
Statements of Operations. The components of comprehensive income, net of tax,
were as follows:
Three months ended
--------------------------
March 29, March 30,
2002 2001
------------ -----------
Net (loss) income $ (30,617) $ 2,183
Cumulative translation adjustment of a change in
accounting principle (SFAS No. 133)...................... -- (1,317)
Unrealized derivative losses on cash flow
hedges (SFAS No. 133).................................. -- (1,983)
Foreign currency translation losses...................... (105) (1,474)
------------ -----------
Comprehensive (loss) income ............................. $ (30,722) $ (2,591)
============ ===========
THE IT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. SUBSEQUENT EVENT
Effective as of May 3, 2002, substantially all of the assets ($374
million) and the assumption of certain liabilities ($243 million) of the Company
and its subsidiaries, other than Beneco Enterprises, Inc. ("Beneco") were
acquired by The Shaw Group, Inc. ("Shaw".) The purchase price was approximately
$52.5 million in cash and 1,671,336 shares of Shaw's common stock (the value of
this stock was approximately $52.5 million at closing). Additionally, Shaw had
previously provided the Company with debtor-in-possession financing in
connection with the Company's Chapter 11 bankruptcy reorganization proceedings
(see Note 2, "Bankruptcy Proceedings"). As part of the closing, Shaw assumed the
outstanding balance of the debtor-in-possession financing, which at the closing,
was approximately $50 million. The assets acquired included, among other things,
certain contracts in progress, accounts receivable, equipment and certain real
property. In connection with the acquisition of these assets, Shaw assumed
certain liabilities of the Company, including (i) obligations of the Company
arising out of performance of contracts assumed by the Company on and after the
closing, (ii) certain unpaid accounts payable; and (iii) the other liabilities
specifically described in the purchase agreement. On April 25, 2002, a court
order was signed under Chapter 11 of the U.S. Bankruptcy Code approving the
transaction.
In a separate transaction, on June 15, 2002, Shaw acquired substantially
all of the assets ($32 million) and assumed certain liabilities ($17 million) of
Beneco Enterprises, Inc., a wholly-owned subsidiary of the Company. The Beneco
acquisition was completed as part of a separate Chapter 11 bankruptcy
reorganization proceeding solely for Beneco. Beneco was forced into involuntary
bankruptcy by its creditors separate from the Company's bankruptcy proceeding.
Shaw entered into an agreement with certain of Beneco's and the Company's surety
companies to complete certain contracts-in-progress of Beneco and the Company
that were in progress at the time of the bankruptcy filings. In return, Shaw
received a cash payment of $13.4 million and assumed the debtor-in-possession
financing provided to Beneco by the sureties of $19 million. To complete the
acquisition, Shaw provided debtor-in-possession financing to Beneco of $1.6
million and paid cash of $650,000 at the transaction closing.
Following the sale of substantially all of the Company's assets, the
bankruptcy estate (the assets and liabilities excluded from the Shaw
transaction) had assets of $48 million and liabilities of $878 million with
virtually no ongoing operations. Accordingly, based upon available assets,
including those obtained from Shaw, the secured debt holders will be partially
repaid and the unsecured creditors, preferred stockholders and common
stockholders will substantially never be paid.
For the past 76 years, the Company has addressed the infrastructure and
environmental needs of both private and public sector clients as a leading
provider of diversified services, including environmental, engineering,
facilities management, construction, emergency response, remediation and
information management. Shaw currently plans to continue to use the assets
acquired from the Company in substantially the same businesses in which they
were used prior to the acquisition.