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FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2003

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 1-12815

CHICAGO BRIDGE & IRON COMPANY N.V.

Incorporated in The Netherlands	IRS Identification Number: Not Applicable

Polarisavenue 31
2132 JH Hoofddorp
The Netherlands
31-23-5685660
(Address and telephone number of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES (X)          NO (  )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange act).

YES (X)          NO (  )

The number of shares outstanding of a single class of common stock as of October 31, 2003 – 46,228,881

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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
Table of Contents

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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(in thousands, except per share data)
(Unaudited)

1.     Significant Accounting Policies

Basis of Presentation—The accompanying unaudited consolidated financial statements for Chicago Bridge & Iron Company N.V. and Subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, our unaudited consolidated financial statements include all adjustments necessary for a fair presentation of our financial position as of September 30, 2003, and our results of operations for each of the three-month and nine-month periods ended September 30, 2003 and 2002 and our cash flows for each of the nine-month periods ended September 30, 2003 and 2002. The consolidated balance sheet at December 31, 2002 is derived from the December 31, 2002 audited consolidated financial statements. Although management believes the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and cash flows for the interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited interim consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2002 Annual Report on Form 10-K.

New Accounting Standards—In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated assets’ retirement costs. Our adoption of this statement effective January 1, 2003 did not have a significant impact on our financial statements as of that date.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces Issue 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Our adoption of this statement effective January 1, 2003 did not have a significant impact on our financial statements as of that date.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” This standard permits two additional transition methods for entities that adopt the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure requirements in both annual and interim financial statements. We will continue to apply Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock options. The amended interim disclosure requirements of SFAS No. 148 are presented below in our Stock Plans discussion.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN 46”) which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” The interpretation states that certain variable interest entities may be required to be consolidated into the results of operations and financial position of the entity that is the primary beneficiary. The change may be made prospectively with a cumulative-effect adjustment in the period first applied or by restating previously issued

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financial statements. Our adoption of this interpretation effective July 1, 2003 did not have a significant impact on our financial statements as of that date.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 provides clarification on financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. This statement is effective for contracts entered into or modified after June 30, 2003 and will be applied prospectively. Our adoption of this statement effective July 1, 2003 did not have a significant impact on our financial statements as of that date.

Earnings Per Share Computations—Basic earnings per share (EPS) is calculated by dividing our net income by the weighted average number of common shares outstanding for the period, which includes stock held in trust. Diluted EPS reflects the assumed conversion of all dilutive securities, consisting of employee stock options, restricted shares and directors deferred fee shares.

The following schedule reconciles the income and shares utilized in the basic and diluted EPS computations:

Stock Plans—We account for stock-based compensation using the intrinsic value method prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of our stock at the date of the grant over the amount an employee must pay to acquire the stock, subject to any vesting provisions.

Had compensation expense for the Employee Stock Purchase Plan and stock options granted under the Incentive Plans been determined consistent with the fair value method of SFAS No. 123 (using the Black-Scholes pricing model), our net income and net income per common share would have been reduced to the following pro forma amounts:

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Using the Black-Scholes option-pricing model, the fair value of each option grant is estimated on the date of grant based on the following weighted-average assumptions:

2.     Acquisitions

Petrofac Inc.—On April 29, 2003, we acquired certain assets and assumed certain liabilities of Petrofac Inc., an engineering, procurement and construction (EPC) company servicing the hydrocarbon processing industry for consideration of $26.2 million including transaction costs, of which $19.5 million and $1.4 million were paid in the second and third quarters of 2003, respectively. The remaining $5.3 million, which is reflected as notes payable on the September 30, 2003 Consolidated Balance Sheet, is payable in various installments through the second quarter of 2004. The acquired operations located in Tyler, Texas, will be fully integrated within our North America segment’s CB&I Howe-Baker unit and will expand our capacity to engineer, fabricate and install EPC projects for the oil refining, oil production, gas treating and petrochemical industries.

John Brown Hydrocarbons Limited—On May 30, 2003, we acquired certain assets and assumed certain liabilities of John Brown Hydrocarbons Limited (“John Brown”), for consideration of $30.2 million including transaction costs, net of cash acquired. The transaction was subject to certain mutually agreed upon post-closing adjustments that resulted in the former owner owing us $5.1 million to be settled in the fourth quarter of 2003. Therefore, the balance is reflected in other current assets on the September 30, 2003 Consolidated Balance Sheet. John Brown provides comprehensive engineering, program and construction management services in the offshore, onshore and pipeline sectors of the hydrocarbon industry, as well as for LNG terminals and flue gas desulfurization plants. The acquired operations, located in London, Moscow, the Caspian Region and Canada, will be integrated into our Europe, Africa, Middle East (“EAME”) segment. This addition is expected to strengthen our international engineering and execution platform and expand our capabilities into the upstream oil and gas sector.

The purchase prices for the above acquisitions were allocated to the net assets acquired based upon their estimated fair market values on the date of acquisition and the balances were recorded as goodwill. The net assets and

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operating results have been included in our financial statements from the respective dates of the acquisitions. Financial information has not been disclosed separately as the amounts were not material to our overall financial condition or results of operations.

The balances included in the Consolidated Balance Sheets related to acquisitions completed in the last 12 months are based upon preliminary information and are subject to change when additional information concerning final asset and liability valuations is obtained. Material changes to the preliminary allocations are not anticipated by management.

3.     Contingent Earnout Obligations

In connection with our acquisition of Howe-Baker in 2000, we assumed two earnout arrangements which are contingent upon the performance of the underlying acquired entities. One of the arrangements which has and will continue to require us to make cash payments to the previous owners expires in July 2004 (of which $1.5 million is included in accrued liabilities), while the other arrangement was scheduled to expire on or before December 31, 2008 (“2008 Earnout”), subject to certain of our call rights and the put rights of the previous owners.

On April 30, 2003 we exercised our call option related to the 2008 Earnout and in October 2003, we settled all obligations of the 2008 Earnout through a $20.6 million cash payment and collection of the note receivable from the previous owners.

At September 30, 2003 our combined contingent earnout obligations totaled $42.2 million, of which $32.4 million is reported in minority interest in subsidiaries-current and $9.8 million is reported in accrued liabilities. Consistent with the provisions of SFAS No. 141, “Business Combinations,” any additional purchase consideration with respect to these contingent obligations is allocated to goodwill when recognized.

4.     Exit or Disposal Costs

Effective January 1, 2003, we were required to record costs for exit or disposal activities in accordance with SFAS No. 146. However, there were no exit or disposal activities initiated after January 1, 2003. Moving, replacement personnel and integration costs will be recorded as incurred. The changes for the nine months ended September 30, 2003 in our accrued expense balances relating to exit or disposal activities were as follows:

Personnel accruals include severance and personal moving costs associated with the relocation, closure or downsizing of offices and a voluntary resignation offer. Facilities and other accruals include costs related to the sale, closure, downsizing or relocation of operations.

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5.     Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2003 and 2002 is as follows:

Accumulated other comprehensive loss reported on our balance sheet at September 30, 2003 includes $12,791 of cumulative translation adjustment, $290 of unrealized loss on debt securities and $1,024 of minimum pension liability adjustments.

6.     Goodwill and Other Intangibles

Goodwill

General—At September 30, 2003 and December 31, 2002, our goodwill balances were $217,135 and $157,903 respectively, attributable to the excess of the purchase price over the fair value of assets acquired relative to acquisitions within our North America and EAME segments. The increase reflects the excess of the purchase price over the fair value of assets acquired relative to our acquisitions of Petrofac Inc. and John Brown and additional purchase consideration related to contingent earnout obligations associated with our Howe-Baker acquisition.

The change in goodwill by segment for the nine months ended September 30, 2003 is as follows:

Impairment Testing—SFAS No. 142 “Goodwill and Other Intangible Assets” prescribed a two-phase process for impairment testing of goodwill, which is performed annually, absent any indicators of impairment. The first phase screens for impairment, while the second phase (if necessary) measures the impairment. We have elected to perform our annual analysis during the fourth quarter based on goodwill balances as of the end of the third calendar quarter. No indicators of impairment have been identified during 2003.

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Other Intangible Assets

The following table provides information concerning our other intangible assets resulting from acquisitions within our North America segment as of September 30, 2003 and December 31, 2002:

7.     Financial Instruments

Forward Contracts—At September 30, 2003 our forward contracts to hedge intercompany loans, which mature within 41 days following quarter end, are summarized as follows:

At September 30, 2003 our forward contracts to economically hedge certain operating exposures, which mature within the next eleven months, included $10,386 to buy Euros, $394 to buy British Pounds, and $150 to sell South African Rand. These contracts were not designated as “hedges” under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The carrying value of our forward contracts approximates their fair values because of the short-term nature of these instruments.

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8. Segment Information

We manage our operations by four geographic segments: North America; Europe, Africa, Middle East; Asia Pacific; and Central and South America. Each geographic area offers similar services.

The Chief Executive Officer evaluates the performance of these four segments based on revenues and income from operations excluding exit costs. Each segment’s performance reflects the allocation of corporate costs, which were based primarily on revenues. Intersegment revenues are not material.

9. Commitments and Contingencies

Antitrust Proceedings—On October 25, 2001, the U.S. Federal Trade Commission (the “FTC” or the “Commission”) announced its decision to file an administrative complaint (the “Complaint”) challenging our February 2001 acquisition of certain assets of the Engineered Construction Division of Pitt-Des Moines, Inc. (PDM). The FTC’s Complaint alleged that our acquisition of these assets violated Section 7 of the Clayton Antitrust Act and Section 5 of the Federal Trade Commission Act by threatening to substantially lessen competition in four specific markets in which both we and PDM had competed in the United States: liquefied natural gas storage tanks and associated facilities constructed in the United States; liquefied nitrogen, liquefied oxygen and liquefied argon storage tanks constructed in the United States; liquefied petroleum gas storage tanks constructed in the United States; and field erected thermal vacuum chambers (used for the testing of satellites) constructed in the United States. The FTC’s Complaint asserts that the consequence of the acquisition will be increased prices in these four markets.

A trial before an FTC Administrative Law Judge was concluded on January 16, 2003. On June 12, 2003, the FTC Administrative Law Judge issued his ruling. The ruling found that our acquisition of PDM assets threatens to substantially lessen competition in the four markets identified above in which both CB&I and PDM participated. As

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a result of this finding by the FTC Administrative Law Judge, we have been ordered to divest within 180 days of a final order all physical assets, intellectual property and any uncompleted construction contracts of the PDM Divisions that we acquired from PDM to a purchaser approved by the FTC that is able to utilize those assets as a viable competitor.

We believe the FTC Administrative Law Judge’s ruling is inconsistent with the law and the facts presented at trial. We have appealed the ruling to the full Federal Trade Commission. The FTC Staff has also appealed the ruling to the full Federal Trade Commission. On November 12, 2003, oral arguments were held before the full Federal Trade Commission that will issue its decision in due course. Until the FTC order becomes final, we expect the impact on our earnings will be minimal. However, the remedies contained in the order, if implemented, could have an adverse effect on us, including an expense relating to a potential write-down of the net book value of the assets subject to the FTC order if an involuntary disposal of the assets is required.

In addition, we were served with a subpoena for documents on July 23, 2003, by the Philadelphia office of the U.S. Department of Justice, Antitrust Division. The subpoena seeks documents which are in part related to matters that were the subject of testimony in the FTC administrative law trial, as well as documents relating to CB&I’s Water Division. We are cooperating fully with the investigation.

Other Proceedings—We are a defendant in a number of lawsuits arising in the normal course of business, including among others, lawsuits wherein plaintiffs allege exposure to asbestos due to work we may have performed at various locations. We have never been a manufacturer, distributor or supplier of asbestos products, and we have in place appropriate insurance coverage for the type of work that we have performed. During the nine months ended September 30, 2003, we were named as a defendant in additional asbestos-related lawsuits. To date, we have been able to dismiss or settle all such claims without a material impact on our operating results or financial position and do not currently believe that the asserted claims will have a material adverse effect on our future results of operations or financial position. As a matter of standard policy, we continually review our litigation accrual and as further information is known on pending cases, increases or decreases, as appropriate, may be recorded in accordance with SFAS No. 5, “Accounting for Contingencies.”

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Item 2 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes.

Results of Operations

For the three months ended September 30, 2003, new business taken, representing the value of new project commitments received during a given period, increased to $445 million compared with $435 million in 2002. These commitments are included in backlog until work is performed and revenue is recognized or until cancellation. Significant new contracts during the quarter included a liquefied natural gas (LNG) terminal project in the southern United States. New business taken for the first nine months of 2003 was $1.31 billion compared with $1.27 billion for the same period last year. Backlog at September 30, 2003, stood at $1.6 billion compared with $1.3 billion at the end of the third quarter 2002.

Revenues for the third quarter of 2003 grew 56% to $429.1 million from $275.8 million in the third quarter of 2002. Revenues increased more than 175% in the Europe, Africa, Middle East (EAME) segment, due to strong backlog going into the year and the inclusion of post-acquisition revenues from the John Brown Hydrocarbons Limited acquisition made on May 30, 2003. Revenues more than doubled in the Asia Pacific (AP) segment, due primarily to large projects now under way in China and Australia. Revenues increased in North America, due mainly to a higher volume of process-related work, but declined slightly in the Central and South America (CSA) segment as a result of lower new awards in certain Latin American markets. Revenues for the first nine months of 2003 increased 39% to $1.14 billion compared with $819.8 million for the comparable 2002 period.

Gross profit for the three months ended September 30, 2003 increased 35% to $51.5 million or 12.0% of revenues compared with 13.9% of revenues for the comparable period in 2002. Gross margin performance was consistent with as-sold margins but was lower than the previous year due to the mix and timing of projects being executed in the period. For the first nine months of 2003, gross profit increased 26% to $140.5 million compared with $111.5 million in the first nine months of 2002.

Selling and administrative expenses for the three months ended September 30, 2003 were $25.1 million, or 5.8% of revenues compared with $16.8 million, or 6.1% of revenues in the comparable 2002 period. The absolute dollar increase compared with 2002 relates primarily to higher incentive compensation program costs, higher insurance costs and the impact of acquired operations. For the first nine months of 2003, selling and administrative expenses increased 32% to $68.1 million compared with $51.7 million in the first nine months of 2002, however 2003 costs as a percentage of revenues declined to 6.0% compared with 6.3% in the 2002 period.

No exit costs or other special charges were recorded in the third quarter or first nine months of 2003. In 2002, we reported exit costs of $0.7 million in the third quarter and $3.0 million for the first nine months.

Third quarter 2003 income from operations increased 38% to $28.1 million compared with $20.3 million in third quarter 2002. North American results increased primarily due to the significantly higher volume of process-related EPC projects for the hydrocarbon industry. Higher revenues and project cost savings led to improved operating income in the EAME segment, while the AP segment benefited from several significant projects currently under way. Operating income declined in the CSA segment due to lower revenues and the recognition in 2002 of cost savings on several major contracts nearing completion. Third quarter income from operations benefited from a gain on the sale of real estate near our Plainfield, Illinois facility. For the first nine months of 2003, income from operations increased 31% to $73.2 million compared with $55.8 million in the year-earlier period.

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Liquidity and Capital Resources

At September 30, 2003, cash and cash equivalents equaled $95.4 million. During the first nine months of 2003, our operations generated $49.6 million of cash flows, attributable to strong profitability.

In the first nine months of 2003, we used $27.6 million for capital expenditures, which included $15.5 million for the construction costs of our new administrative office in Texas. Additionally, we reported proceeds of $6.5 million related to the sale of property and equipment, primarily from the sale of real estate near our Plainfield, Illinois facility. Our utilization of cash also included $51.0 million to fund our acquisitions of Petrofac Inc. (“Petrofac”) and John Brown Hydrocarbons Limited (“John Brown”) and a $3.4 million payment for earnout obligations associated with our Howe-Baker acquisition.

We acquired certain assets and assumed certain liabilities of Petrofac for consideration of $26.2 million including transaction costs, of which $19.5 million and $1.4 million were paid in the second and third quarters of 2003, respectively. The remaining $5.3 million, which is reflected as notes payable on the September 30, 2003 Consolidated Balance Sheet, is payable in various installments through the second quarter of 2004.

We acquired certain assets and assumed certain liabilities of John Brown for consideration of $30.2 million including transaction costs, net of cash acquired. The transaction was subject to certain mutually agreed upon post-closing adjustments that resulted in the former owner owing us $5.1 million to be settled in the fourth quarter of 2003. Therefore, the balance is reflected in other current assets on the September 30, 2003 Consolidated Balance Sheet.

In connection with our acquisition of Howe-Baker in 2000, we assumed two earnout arrangements which are contingent upon the performance of the underlying acquired entities. One of the arrangements which has and will continue to require us to make cash payments to the previous owners expires in July 2004 while the other arrangement was scheduled to expire on or before December 31, 2008 (“2008 Earnout”), subject to certain of our call rights and the put rights of the previous owners.

On April 30, 2003 we exercised our call option related to the 2008 Earnout and in October 2003, we settled all obligations of the 2008 Earnout through a $20.6 million cash payment and collection of the note receivable due from the previous owners. We continue to evaluate and selectively pursue opportunities for expansion of our business through acquisition of complementary businesses. These acquisitions, if they arise, may involve the use of cash or, depending upon the size and terms of the acquisition, may require debt or equity financing.

Net cash flows provided by financing activities were $18.8 million including proceeds from a public offering of 9.9 million shares of our common stock. The offering consisted of 8.9 million secondary shares, for which we received no proceeds, and 1 million primary shares. We utilized the proceeds from the primary shares of approximately $20.3 million for general corporate purposes, including settlement of the 2008 Earnout. Cash dividends of $5.4 million were paid during the first nine months of 2003.

Our primary internal source of liquidity is cash flow generated from operations. Capacity under revolving credit agreements is also available, if necessary, to fund operating or investing activities. We have a three-year $233 million revolving credit facility and a five-year $117 million letter of credit facility, which terminate in August 2006 and August 2008, respectively. Both facilities are committed and unsecured. As of September 30, 2003, no direct borrowings existed under either facility, but we had issued $102.5 million of letters of credit under the three-year facility. The five-year facility was not utilized. As of September 30, 2003, we had $247.5 million of available capacity under these facilities for future operating or investing needs. The facilities contain certain restrictive covenants including minimum levels of net worth, fixed charge and leverage ratios, among other restrictions. The facilities also place restrictions on us with regard to subsidiary indebtedness, sales of assets, liens, investments, type of business conducted, and mergers and acquisitions, among other restrictions. Our $75 million of senior notes also contain a number of restrictive covenants, including minimum levels of net worth and debt and fixed charge ratios, among other restrictions. The notes also place restrictions on us with regard to investments, other debt, subsidiary

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indebtedness, sales of assets, liens, nature of business conducted and mergers, among other restrictions. We were in compliance with all covenants at September 30, 2003.

We also have various short-term, uncommitted revolving credit facilities across several geographic regions of approximately $259.3 million. These facilities are generally used to provide letters of credit or bank guarantees to customers in the ordinary course of business to support advance payments, as performance guarantees or in lieu of retention on our contracts. At September 30, 2003, we had available capacity of $112.8 million under these uncommitted facilities. In addition to providing letters of credit or bank guarantees, we also issue surety bonds in the ordinary course of business to support our contract performance.

As of September 30, 2003, the following commitments were in place to support our ordinary course obligations:

Note: Includes $17,808 of letters of credit issued in support of our insurance program.

For the remainder of 2003, capital expenditures are anticipated to be in the $7.0 to $10.0 million range. We believe funds generated by operations, amounts available under existing credit facilities and external sources of liquidity, such as the issuance of debt and equity instruments, will be sufficient to finance capital expenditures, the settlement of earnout obligations, the settlement of commitments and contingencies (as fully described in Note 9 of the Notes to the Consolidated Financial Statements) and working capital needs for the foreseeable future. However, there can be no assurance that such funding will be available, as our ability to generate cash flows from operations and our ability to access funding under the revolving credit facilities may be impacted by a variety of business, economic, legislative, financial and other factors which may be outside of our control. Additionally, while we currently have a significant, uncommitted bonding facility, primarily to support various commercial provisions in our engineering and construction contracts, a termination or reduction of the bonding facility could result in the utilization of letters of credit in lieu of performance bonds, thereby reducing our available capacity under the revolving credit facilities. Although we do not anticipate a reduction or termination of the bonding facility, there can be no assurance that such a facility will be available at reasonable terms to service our ordinary course obligations.

Off-Balance Sheet Arrangements

We use operating leases for facilities and equipment when they make economic sense. In 2001, we entered into a sale (for approximately $14.0 million) and leaseback transaction of our Plainfield, Illinois administrative office with a lease term of 20 years. The leaseback structure’s future payments are accounted for as an operating lease. Rentals under this and all other lease commitments are reflected in rental expense.

We have no other off-balance sheet arrangements.

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New Accounting Standards

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated assets’ retirement costs. Our adoption of this statement effective January 1, 2003 did not have a significant impact on our financial statements as of that date.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces Issue 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Our adoption of this statement effective January 1, 2003 did not have a significant impact on our financial statements as of that date.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.” This standard permits two additional transition methods for entities that adopt the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure requirements in both annual and interim financial statements. We will continue to apply Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for stock options. The amended interim disclosure requirements of SFAS No. 148 have been incorporated into Note 1 of our Consolidated Financial Statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN 46”) which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” The interpretation states that certain variable interest entities may be required to be consolidated into the results of operations and financial position of the entity that is the primary beneficiary. The change may be made prospectively with a cumulative-effect adjustment in the period first applied or by restating previously issued financial statements. Our adoption of this interpretation effective July 1, 2003 did not have a significant impact on our financial statements as of that date.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 provides clarification on financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. This statement is effective for contracts entered into or modified after June 30, 2003 and will be applied prospectively. Our adoption of this statement effective July 1, 2003 did not have a significant impact on our financial statements as of that date.

Critical Accounting Policies

In general, there have been no significant changes in our critical accounting policies since December 31, 2002. For a detailed discussion of these policies, please see Item 7 of our annual report on Form 10-K for the year ended December 31, 2002.

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Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. You should read carefully any statements containing the words “expect,” “believe,” “anticipate,” “project,” “estimate,” “predict,” “intend,” “should,” “could,” “may,” “might,” or similar expressions or the negative of any of these terms.

Forward-looking statements involve known and unknown risks and uncertainties. Various factors may cause our actual results, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. Among the factors that could cause our results to differ are the following:

	•		our ability to realize cost savings from our expected execution performance of contracts;
	•		the uncertain timing and the funding of new contract awards, and project cancellations and operations risks;
	•		the expected growth in our primary end markets does not occur;
	•		cost overruns on fixed price contracts, and risks associated with percentage of completion accounting;
	•		increased competition;
	•		lack of necessary liquidity to finance expenditures prior to the receipt of payment for the performance of contracts and to provide bid and performance bonds and letters of credit securing our obligations under our bids and contracts;
	•		risks inherent in our acquisition strategy and our ability to obtain financing for proposed acquisitions;
	•		adverse outcomes of pending claims or litigation or the possibility of new claims or litigation;
	•		proposed revisions to U.S. tax laws that seek to increase income taxes payable by certain international companies;
	•		a continued downturn in the economy in general; and
	•		disruptions caused by war in the Middle East or terrorist attacks in the United States or other countries in which we operate.