<PAGE> 1
THE SHAW GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(IN THOUSANDS)
The following unaudited pro forma combined condensed balance sheet of The
Shaw Group Inc. (Shaw) as of May 31, 2000 and unaudited pro forma combined
condensed statements of operations of Shaw for the nine months ended May 31,
2000 and twelve months ended August 31, 1999, give effect to the acquisition of
certain assets and liabilities of Stone & Webster, Incorporated (Stone &
Webster). The statements reflect that the business combination is accounted for
as a purchase. The pro forma combined balance sheet treats the business
combination as if it occurred on May 31, 2000; the pro forma combined statements
of operations treat the business combination as if it had occurred on September
1, 1998.
We believe that there are significant cost savings which can be achieved in
Stone & Webster's operations which are not reflected in the adjustments in the
pro forma financial statements. We believe these savings could be as much as $35
million on a pre-tax annual basis and would be achieved through reductions in
personnel, office lease and business development expenses. There can be no
assurance as to the actual cost savings which we may realize. In addition,
included in Stone & Webster's historical results of operations are several
nonrecurring items including provisions to record losses on lump sum contracts,
which contracts were completed by Stone & Webster by July 14, 2000 and a gain on
the sale of an office building. The nonrecurring contract losses total $14.2
million for the twelve months ended September 30, 1999 and $60.2 million for the
nine months ended March 31, 2000. The gain on the building sale of $151,251 is
included in the pro forma statements of operations for the nine months ended
March 31, 2000.
The Shaw information as of May 31, 2000 and for the periods ended August
31, 1999 and May 31, 2000 is summarized from the consolidated financial
statements contained in Shaw's Annual Report on Form 10-K for the fiscal year
ended August 31, 1999 and its Quarterly Report on Form 10-Q for the quarter
ended May 31, 2000.
The information for Stone & Webster's trailing twelve-month period ended
September 30, 1999 is summarized from its Quarterly Reports on Form 10-Q and
Annual Report on Form 10-K for the nine-month period ended September 30, 1999
and the three-month period ended December 31, 1998. The Stone & Webster trailing
nine-month period ended March 31, 2000 is summarized from the Quarterly Reports
on Form 10-Q and Annual Report on Form 10-K of Stone & Webster for the three
month period ended March 31, 2000 and the year ended December 31, 1999. The pro
forma statements of operations include the results of the three-month period
ended September 30, 1999 for both the trailing twelve- and nine-month periods
(sales -- $286,071; gross profit -- $7,017; loss from continuing operations
($6,854)).
The following pro forma financial statements are presented for information
purposes only. The results shown in the statements are not necessarily
indicative of the actual results that might have occurred if the business
combination had been completed on September 1, 1998. Also, they are not
necessarily indicative of results that might be achieved in the future.
These pro forma financial statements should be read in conjunction with the
consolidated financial statements and related notes of Shaw contained in its
annual report on Form 10-K for the fiscal year ended August 31, 1999 and
contained in its Form 10-Q for the nine months ended May 31, 2000, and in
conjunction with the consolidated financial statements of Stone & Webster
contained in its annual report on Form 10-K for the year ended December 31, 1999
and contained in its Form 10-Q for the three months ended March 31, 2000.
<PAGE> 2
THE SHAW GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED AUGUST 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
12 MONTHS ENDED 12 MONTHS ENDED
AUGUST 31, 1999 SEPTEMBER 30, 1999 EXCLUDED ACQUISITION
HISTORICAL HISTORICAL ASSETS AND PRO FORMA
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS(D) PRO FORMA
--------------- ------------------ ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Sales.......................... $494,014 $1,113,979 $(192,282)(a) $ -- $1,415,711
Cost of sales.................. 400,186 1,205,485 (291,586)(b) -- 1,314,085
-------- ---------- --------- -------- ----------
Gross profit (loss)............ 93,828 (91,506) 99,304 -- 101,626
Amortization of goodwill and
intangibles.................. 1,910 -- -- 9,422(e) 11,332
General and administrative
expenses..................... 58,172 70,770 -- -- 128,942
-------- ---------- --------- -------- ----------
Operating income (loss)........ 33,746 (162,276) 99,304 (9,422) (38,648)
Interest expense............... (8,649) (8,539) -- (3,344)(f) (20,532)
Other Income, net.............. 978 2,986 -- -- 3,964
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations before income
taxes........................ 26,075 (167,829) 99,304 (12,766) (55,216)
Provision (benefit) for income
tax.......................... 8,635 (43,528) 39,722(c) (27,030)(g) (22,201)
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations before earnings
from unconsolidated entity... 17,440 (124,301) 59,582 14,264 (33,015)
Earnings from unconsolidated
entity....................... 681 -- -- -- 681
-------- ---------- --------- -------- ----------
Income (loss) from continuing
operations................... $ 18,121 $ (124,301) $ 59,582 $ 14,264 $ (32,334)
======== ========== ========= ======== ==========
Earnings per share:
Basic........................ 1.52 (2.37)
Diluted...................... 1.47 (2.37)
Weighted Average Number of
Shares
Basic........................ 11,935 1,701(h) 13,635
Diluted...................... 12,355 1,701(h) 13,635
</TABLE>
2
<PAGE> 3
THE SHAW GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
9 MONTHS ENDED 9 MONTHS ENDED
MAY 31, 2000 MARCH 31, 2000 EXCLUDED ACQUISITION
HISTORICAL HISTORICAL ASSETS AND PRO FORMA
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS(D) PRO FORMA
-------------- --------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Sales.......................... $498,817 $1,001,595 $(193,884)(a) $ -- $1,306,528
Cost of sales.................. 416,796 1,016,497 (197,376)(b) -- 1,235,917
-------- ---------- --------- -------- ----------
Gross profit (loss)............ 82,021 (14,902) 3,492 -- 70,611
Amortization of goodwill and
intangibles.................. 1,402 -- -- 7,067(e) 8,469
General and administrative
expenses..................... 47,692 52,804 -- -- 100,496
-------- ---------- --------- -------- ----------
Operating income (loss)........ 32,927 (67,706) 3,492 (7,067) (38,354)
Interest expense............... (4,933) (10,079) -- (2,507)(f) (17,519)
Gain on sale of building....... -- 151,251 -- -- 151,251
Other Income, net.............. 584 2,020 -- -- 2,604
-------- ---------- --------- -------- ----------
Income from continuing
operations before income
taxes........................ 28,578 75,486 3,492 (9,574) 97,982
Provision for income tax....... 9,329 18,039 1,397(c) 9,586(g) 38,351
-------- ---------- --------- -------- ----------
Income from continuing
operations before earnings
from unconsolidated entity... 19,249 57,447 2,095 (19,160) 59,631
Earnings from unconsolidated
entity....................... 979 -- -- -- 979
-------- ---------- --------- -------- ----------
Income from continuing
operations................... $ 20,228 $ 57,447 $ 2,095 $(19,160) $ 60,610
======== ========== ========= ======== ==========
Earnings per share:
Basic........................ 1.41 3.77
Diluted...................... 1.34 3.49
Weighted Average Number of
Shares
Basic........................ 14,361 1,701(h) 16,062
Diluted...................... 15,148 2,232(h) 17,380
</TABLE>
3
<PAGE> 4
THE SHAW GROUP INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(ALL DOLLAR AMOUNTS IN THOUSANDS)
(a) To eliminate sales associated with Stone & Webster contracts in progress
not assumed by Shaw.
(b) To eliminate income from the Stone & Webster overfunded pension plan and
cost of sales associated with contracts in progress not assumed by Shaw.
(c) To adjust the income tax benefit for the elimination of items not assumed
by Shaw.
(d) We believe that there are significant cost savings which can be achieved in
Stone & Webster's operations which are not reflected in the adjustments in
the pro forma financial statements. We believe these savings could be as
much as $35,000 on a pre-tax annual basis and would be achieved through
reductions in personnel, office lease and business development expenses.
There can be no assurance as to the actual cost savings we may realize.
Included in Stone & Webster's historical results of operations are several
nonrecurring items including provisions to record losses on lump sum
contracts, which have been completed as of July 14, 2000, and a gain
recognized on the sale of an office building. The nonrecurring contract
losses total $14,200 for the twelve months ended September 30, 1999 and
$60,200 for the nine months ended March 31, 2000. The gain on the building
sale of $151,251 is included in the pro forma statements of operations for
the nine months ended May 31, 2000.
(e) To record the amortization of goodwill and process technologies recognized
in connection with the Stone & Webster acquisition over 20 years.
(f) To record additional interest expense on amounts borrowed under our new
credit facility in connection with the Stone & Webster acquisition and the
related amortization expense of the bank commitment fee which will be
amortized over three years. In addition, interest expense has been reduced
for the estimated incremental interest cost of carrying the net assets of
the Nordic Refrigerated Services business unit which is held for sale.
(g) To adjust the income tax provision to reverse the valuation allowance
included in Stone & Webster's historical provision for income taxes and to
adjust the income tax provision for the impact of the pro forma acquisition
adjustments.
(h) Shaw issued 2,231,773 shares of Shaw's common stock in connection with the
acquisition of Stone & Webster. On a historical basis, Shaw reported
positive income from continuing operations. Diluted earnings per share is
calculated as if securities convertible into common shares have been
converted if the inclusion of these shares is dilutive. After giving effect
to the Stone & Webster acquisition, we have a pro forma loss on continuing
operations. The accounting rules require that when there is a loss,
convertible securities are treated as if they have not been converted. This
is because if the convertible shares are treated as outstanding the loss
per share would be reduced. Similarly, 531,214 shares issued in connection
with the Stone & Webster acquisition were issued into escrow for purposes
of indemnification. These excluded shares were excluded from weighted
average outstanding shares to calculate basic earnings per share for the
pro forma nine months ended May 31, 2000, and these shares are excluded
from both basic and diluted earnings per share for twelve months August 31,
1999.
4
<PAGE> 5
THE SHAW GROUP INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MAY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 2000 MARCH 31, 2000 EXCLUDED ACQUISITION
HISTORICAL HISTORICAL ASSETS AND PRO FORMA
THE SHAW GROUP STONE & WEBSTER LIABILITIES ADJUSTMENTS PRO FORMA
-------------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.... $ 6,240 $ 36,911 $ -- $ -- $ 43,151
Accounts receivable, net..... 183,035 280,610 (53,125)(a) (10,000)(g) 306,656
(93,864)(b)
Receivables from
unconsolidated entity,
net........................ 4,382 -- -- 4,382
Inventories.................. 84,361 -- 114,124(b) (54,124)(h) 144,361
Cost and estimated earnings
in excess of billings on
uncompleted contracts...... 31,522 121,043 (37,641)(a) 109,664
(5,260)(b)
Prepaid expenses............. 8,074 7,087 -- 15,161
Deferred income taxes........ -- 20,540 (20,540)(c) 56,000(i) 56,000
Other current assets......... 9,906 402 -- 10,308
-------- -------- --------- -------- ----------
Total current
assets.............. 327,520 466,593 (96,306) (8,124) 689,683
Investment in unconsolidated
entity..................... 5,625 -- -- 5,625
Domestic prepaid pension
cost....................... -- 167,365 (167,365)(d) -- --
Investments in securities
available for sale......... 14,922 -- -- 14,922
Property and equipment, less
accumulated depreciation... 96,610 84,967 -- 181,577
Net assets of discontinued
operations................. -- 116,424 -- (31,424)(j) 85,000
Goodwill, net of accumulated
amortization............... 30,152 5,502 (5,502)(e) 143,442(k) 173,594
Other assets................. 10,637 25,778 -- 43,056(l) 79,471
-------- -------- --------- -------- ----------
Total assets.......... $485,466 $866,629 $(269,173) $146,950 $1,229,872
======== ======== ========= ======== ==========
Current liabilities:
Accounts payable............. $ 47,761 $136,436 $ (13,458)(a) $ -- $ 155,739
(15,000)(b)
Accrued liabilities.......... 23,806 81,645 (31,359)(f) 20,000(m) 124,092
30,000(b)
Current maturities of long
term debt.................. 8,101 2,327 -- -- 10,428
Revolving lines of credit.... 38,516 24,359 -- (59,271)(n) 3,604
Deferred
revenue -- prebilled....... 7,570 -- -- -- 7,570
Advanced billings and
billings in excess of cost
and estimated earnings on
uncompleted contracts...... 15,336 252,532 (44,363)(a) 110,000(o) 333,505
-------- -------- --------- -------- ----------
Total current
liabilities......... 141,090 497,299 (74,180) 70,729 634,938
Long-term debt, less current
maturities................. 76,341 19,035 -- (54,300)(p) 41,076
Revolving lines of credit.... -- -- -- 167,721(q) 167,721
Deferred income taxes........ 6,891 24,148 (24,148)(c) -- 6,891
Commitments and
contingencies.............. -- -- -- -- --
Other liabilities............ -- 13,070 -- -- 13,070
Total shareholders'
equity.............. 261,144 313,077 (170,845) (37,200)(r) 366,176
-------- -------- --------- -------- ----------
Total liabilities &
shareholders'
equity.............. $485,466 $866,629 $(269,173) $146,950 $1,229,872
======== ======== ========= ======== ==========
</TABLE>
5
<PAGE> 6
THE SHAW GROUP INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(ALL AMOUNTS IN THOUSANDS)
(a) To eliminate the working capital balances (trade receivables, trade
payables, cost and earnings in excess of billings on uncompleted contracts
and advanced billings and billings in excess of cost and estimated earnings
on uncompleted contracts), associated with Stone & Webster contracts which
were not assumed by Shaw. "Costs and earnings in excess of billings" is an
asset and generally represents work we have completed but for which we have
not yet billed our customers. "Advanced billings and billings in excess of
cost" is a liability and generally represents work we have billed but not
yet performed and accruals for contracts on which we expect losses.
(b) To reclassify the recorded amounts for certain ethylene equipment
associated with the canceled Trans-Pacific Petrochemical Indotama (TPPI)
project in Indonesia to inventory and accrued liabilities. This contract
was not assumed by Shaw.
(c) To exclude deferred taxes (both assets and liabilities) generated by Stone
& Webster activities not assumed by Shaw.
(d) To eliminate the overfunded Stone & Webster pension plan not acquired by
Shaw.
(e) To eliminate the historical goodwill recorded on Stone & Webster's books.
(f) To eliminate Stone & Webster's liabilities not assumed by Shaw including
litigation and workers' compensation accruals.
(g) To record a $10,000 reduction in accounts receivable to our estimated fair
value.
(h) To adjust the TPPI equipment to its estimated fair value.
(i) To adjust deferred tax assets as a result of the book/tax basis
differentials resulting from our acquisition of Stone & Webster.
Adjustments included the following:
<TABLE>
<S> <C>
Contracts in progress.................................... $110,000
Relocation and severance................................. 20,000
Accounts receivable...................................... 10,000
--------
Total temporary differences.............................. 140,000
--------
Tax rate (40%)........................................... $ 56,000
========
</TABLE>
(j) To adjust the Nordic Refrigerated Services business unit to estimated fair
value. We classify this as a discontinued operation because we are actively
seeking a buyer for this segment. The actual fair value may differ from the
estimated fair value used in this pro forma presentation. Any difference
from the fair value we have estimated will result in an adjustment to the
purchase price for the Stone & Webster acquisition.
6
<PAGE> 7
(k) The amount represents purchase price in excess of assets acquired, based
upon preliminary estimates of fair market values. Given the nature of these
estimates and assumptions, the final allocation of the purchase price will
be performed when additional information concerning asset and liability
valuations becomes available. A reconciliation of the allocation of
purchase price is as follows:
<TABLE>
<S> <C>
Purchase price:
Cash.................................................. $ 37,600
Stock................................................. 105,032
Transaction costs..................................... 6,000
---------
Total......................................... $ 148,632
=========
Allocation of purchase price:
Net tangible assets acquired.......................... $ 142,232
Net intangible assets acquired........................ 45,000
Fair value adjustments to assets acquired............. (182,042)
Goodwill.............................................. 143,442
---------
Total purchase price.......................... $ 148,632
=========
</TABLE>
(l) To record a ($12,494) reduction in our estimate of the value of certain
assets, $10,550 representing bank commitment fees for financing required to
complete the Stone & Webster acquisition and $45,000 representing our
estimate of the fair value of certain process technologies acquired from
Stone & Webster.
(m) To provide for $20,000 of relocation and severance costs for certain
employees.
(n) To record the repayment of each of Shaw's and Stone & Webster's outstanding
balances under certain revolving lines of credit at the time of our
acquisition. These amounts were repaid with borrowings under our new
$400,000 credit facility. Borrowings included in the balance outstanding
under our new facility are discussed in Note q below.
(o) To record an estimated $73 million in additional costs to complete the
contracts we have assumed from Stone & Webster and $37 million to adjust
margins on these contracts to fair value. We can provide no assurances that
our actual costs will not exceed those which we have estimated.
(p) To record the repayment of the Shaw senior notes. These notes were repaid
with borrowings incurred under our new credit facility.
(q) Revolving lines of credit -- long term includes additional borrowings
comprised of (i) $59,271 for the repayment of Shaw's previous primary
revolving line of credit and Stone & Webster's existing lines of credit;
(ii) $37,600 for the cash portion of the purchase price for Stone &
Webster; (iii) $10,550 for the bank commitment fees; (iv) $6,000 for
estimated transaction costs and fees; and (v) $54,300 for the repayment of
the Shaw senior notes.
(r) To adjust shareholders' equity of Shaw's shareholders' equity for the fair
value of the common stock issued to acquire Stone & Webster.
7
