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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2002
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
----- -----
The number of shares outstanding of a single class of common stock as of
July 31, 2002 - 22,122,592
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Consolidated Financial Statements
Statements of Income
Three and Six Months Ended June 30, 2002 and 2001 3
Balance Sheets
June 30, 2002 and December 31, 2001 4
Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6 - 12
Management's Discussion and Analysis of
Results of Operations and Financial Condition 13 - 17
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
Revenues $ 284,686 $ 263,857 $ 543,958 $ 499,225
Cost of revenues 246,548 231,200 470,730 438,273
--------- --------- --------- ---------
Gross profit 38,138 32,657 73,228 60,952
Selling and administrative expenses 16,915 16,663 34,822 32,531
Intangibles amortization 588 1,321 1,214 2,510
Other operating income, net (104) (7) (523) (266)
Special charges (Note 3) 1,115 1,480 2,274 2,252
--------- --------- --------- ---------
Income from operations 19,624 13,200 35,441 23,925
Interest expense (1,829) (2,133) (3,642) (4,493)
Interest income 338 448 684 951
--------- --------- --------- ---------
Income before taxes and minority interest 18,133 11,515 32,483 20,383
Income tax expense (5,077) (3,499) (9,095) (6,032)
--------- --------- --------- ---------
Income before minority interest 13,056 8,016 23,388 14,351
Minority interest in income (662) (810) (736) (1,740)
--------- --------- --------- ---------
Income from continuing operations 12,394 7,206 22,652 12,611
Discontinued operations (Note 4):
Loss from discontinued operations,
net of taxes - (382) - (2,321)
Loss on disposal of discontinued operations,
net of taxes - (9,898) - (9,898)
--------- --------- --------- ---------
Net income (loss) $ 12,394 ($ 3,074) $ 22,652 $ 392
========= ========= ========= =========
Net income (loss) per share
Basic:
Income from continuing operations $ 0.59 $ 0.31 $ 1.08 $ 0.57
Loss from discontinued operations - (0.44) - (0.55)
--------- --------- --------- ---------
Net income (loss) $ 0.59 ($ 0.13) $ 1.08 $ 0.02
========= ========= ========= =========
Diluted:
Income from continuing operations $ 0.56 $ 0.30 $ 1.04 $ 0.55
Loss from discontinued operations - (0.43) - (0.53)
--------- --------- --------- ---------
Net income (loss) $ 0.56 ($ 0.13) $ 1.04 $ 0.02
========= ========= ========= =========
Weighted average shares outstanding
Basic 21,101 23,068 21,058 22,054
Diluted 21,977 24,039 21,878 22,805
Dividends on shares
Amount $ 1,267 $ 1,285 $ 2,529 $ 2,688
Per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
3
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
ASSETS 2002 2001
(unaudited)
Current assets
Cash and cash equivalents $ 35,360 $ 50,478
Accounts receivable, net of allowance for doubtful
accounts of $1,806 in 2002 and $1,256 in 2001 153,175 144,625
Contracts in progress with earned revenues
exceeding related progress billings 85,713 71,549
Deferred income taxes 15,294 20,526
Assets held for sale 1,958 1,958
Other current assets 16,185 17,917
--------- ---------
Total current assets 307,685 307,053
--------- ---------
Property and equipment, net 107,221 105,998
Long-term receivable 19,785 19,785
Deferred income taxes 22,421 21,475
Goodwill and other intangibles, net 183,178 173,953
Other non-current assets 23,026 20,001
--------- ---------
Total assets $ 663,316 $ 648,265
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 480 $ 155
Current maturity of long-term debt - 5,700
Accounts payable 64,660 73,636
Accrued liabilities 67,015 69,320
Contracts in progress with progress billings
exceeding related earned revenues 112,581 99,306
Income taxes payable 4,030 9,154
--------- ---------
Total current liabilities 248,766 257,271
--------- ---------
Long-term debt 75,000 75,000
Other non-current liabilities 73,330 69,343
Minority interest in subsidiaries 33,118 34,428
--------- ---------
Total liabilities 430,214 436,042
--------- ---------
Shareholders' equity
Common stock, Euro .01 par value;
authorized: 35,000,000 in 2002 and 2001;
issued: 22,282,586 in 2002 and 2001;
outstanding: 21,108,905 in 2002 and 20,979,821 in 2001 210 210
Additional paid-in capital 239,942 241,559
Retained earnings 43,225 23,102
Stock held in Trust (13,763) (14,301)
Treasury stock, at cost: 1,173,681 in 2002 and 1,302,765 in 2001 (22,552) (25,279)
Accumulated other comprehensive loss (Note 5) (13,960) (13,068)
--------- ---------
Total shareholders' equity 233,102 212,223
--------- ---------
--------- ---------
Total liabilities and shareholders' equity $ 663,316 $ 648,265
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
4
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
2002 2001
Cash flows from operating activities
Net income $ 22,652 $ 392
Adjustments to reconcile net income to net cash provided by
operating activities
Special charges, net of deferred income taxes of $773 and $766 1,501 1,486
Payments related to special charges (3,578) (10,489)
Depreciation and amortization 9,893 12,078
Gain on sale of property and equipment (523) (266)
Loss on discontinued operations - 12,219
Change in operating assets and liabilities (see below) (24,039) 20,896
-------- --------
Net cash provided by continuing operating activities 5,906 36,316
-------- --------
Net cash provided by discontinued operating activities - 296
-------- --------
Net cash provided by operating activities 5,906 36,612
-------- --------
Cash flows from investing activities
Cost of business acquisition, net of cash acquired (4,658) (5,030)
Capital expenditures (12,618) (3,837)
Proceeds from sale of assets held for sale - 13,992
Proceeds from sale of property and equipment 2,931 1,551
-------- --------
Net cash (used in)/provided by continuing investing activities (14,345) 6,676
-------- --------
Net cash used in discontinued investing activities - (716)
-------- --------
Net cash (used in)/provided by investing activities (14,345) 5,960
-------- --------
Cash flows from financing activities
Decrease in notes payable and current maturity of long-term debt (5,375) (251)
Net repayment under Revolving Credit Facility - (100)
Purchase of treasury stock (323) (35,401)
Issuance of treasury stock 2,095 1,672
Issuance of common stock - 13,963
Dividends paid (2,529) (2,688)
Other (547) -
-------- --------
Net cash used in financing activities (6,679) (22,805)
-------- --------
(Decrease)/increase in cash and cash equivalents (15,118) 19,767
Cash and cash equivalents, beginning of the year 50,478 7,451
-------- --------
Cash and cash equivalents, end of the period $ 35,360 $ 27,218
======== ========
Change in operating assets and liabilities
(Increase)/decrease in receivables, net ($7,116) $ 2,488
(Increase)/decrease in contracts in progress, net (889) 43,084
Decrease in accounts payable (9,063) (24,181)
-------- --------
Change in contract capital (17,068) 21,391
Decrease/(increase) in other current assets 2,054 (844)
Increase in income taxes payable 267 1,566
(Decrease)/increase in accrued and other non-current liabilities (4,698) 519
Increase in other (4,594) (1,736)
-------- --------
Total ($24,039) $ 20,896
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
5
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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 (the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. 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 are adequate to make the information presented not misleading. The
accompanying unaudited interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the 2001 Annual Report on Form 10-K/A of the Company.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and cash
flows for the period then ended have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
Forward Contracts - Although the Company does not engage in currency
speculation, it periodically uses forward contracts to hedge currency
transactions. Gains or losses on forward contracts are included in income. These
forward contracts hedged intercompany loans utilized to finance non-U.S.
subsidiaries and matured within five days after quarter end. Also, the Company
had $341 and $525 of outstanding foreign currency exchange contracts to sell
Euros and South African Rand, respectively. These forward contracts hedge
foreign denominated revenues and costs and mature within the next seven months.
The counterparties to the Company's forward contracts are major financial
institutions, which the Company continually evaluates as to their
creditworthiness. The Company has never experienced, nor does it anticipate,
nonperformance by any of its counterparties.
The following table summarizes the Company's foreign currency hedge forward
contracts for intercompany loans at June 30, 2002:
Weighted Average
Currency Sold Currency Purchased Contract Amount Contract Rate
- -------------------------------------------------------------------------------
Singapore Dollars U.S. Dollars $5,153 1.79
Euros U.S. Dollars 4,256 1.05
British Pounds U.S. Dollars 1,596 0.69
Canadian Dollars U.S. Dollars 1,238 1.53
U.S. Dollars Australian Dollars 6,710 1.74
- -------------------------------------------------------------------------------
6
New Accounting Standards - In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS NO. 142"). These pronouncements change the accounting
for business combinations, goodwill and intangible assets. SFAS No. 141
eliminates the pooling-of-interests method of accounting for business
combinations and further clarifies the criteria to recognize intangible assets
separately from goodwill. The requirements of SFAS No. 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001. SFAS No. 142 states goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually for
impairment. The amortization of existing goodwill and indefinite-lived
intangible assets at June 30, 2001 has ceased at January 1, 2002. Goodwill on
acquisitions completed subsequent to June 30, 2001, is not amortized, but
instead will be reviewed annually for impairment. In connection with the
adoption of these statements during the first quarter of 2002, the Company
completed its goodwill impairment assessment and concluded that no transitional
impairment charge was necessary.
The following table provides comparative second quarter and year-to-date results
for the effects resulting from the Company's adoption of SFAS 142:
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Net income (loss) $ 12,394 ($3,074) $ 22,652 $ 392
Add back: Goodwill amortization
(Net of taxes of $344 and $661) - 699 - 1,342
-------- ------- -------- -------
Pro forma net income (loss) $ 12,394 ($2,375) $ 22,652 $ 1,734
======== ======= ======== =======
Net income per share
Basic:
Net income (loss) $ 0.59 ($0.13) $ 1.08 $ 0.02
Goodwill amortization, net of taxes - 0.03 - 0.06
-------- ------- -------- -------
Pro forma net income (loss) $ 0.59 ($0.10) $ 1.08 $ 0.08
======== ======= ======== =======
Diluted:
Net income (loss) $ 0.56 ($0.13) $ 1.04 $ 0.02
Goodwill amortization, net of taxes - 0.03 - 0.06
-------- ------- -------- -------
Pro forma net income (loss) $ 0.56 ($0.10) $ 1.04 $ 0.08
======== ======= ======== =======
In August 2001, the FASB issued 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. The new standard will be effective
beginning January 1, 2003, and the Company is currently reviewing and
evaluating the effects this standard will have on its future financial
condition and results of operations.
7
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment and/or disposal of long-lived assets. The
Company adopted this statement effective January 1, 2002, and determined that it
did not have any significant impact on its financial statements as of that date.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." The purpose
of this statement is to update, clarify and simplify existing accounting
standards. The Company adopted this statement effective April 1, 2002, and
determined that it did not have any significant impact on its 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. This statement is effective for
our fiscal year beginning January 1, 2003.
2. ACQUISITIONS
On February 5, 2002, the Company purchased the assets and assumed certain
liabilities of TPA, Inc. for approximately $4.7 million. The acquired business,
which now operates as TPA Howe-Baker, Ltd., is a full-service
engineer/procure/construct company specializing in sulfur removal and recovery
technologies for the refining, gas processing and chemical manufacturing
industries.
The purchase price was allocated to the net assets acquired based upon their
estimated fair market values at the date of acquisition. Pro forma financial
information has not been presented as this acquisition is not significant.
The balances included in the Consolidated Balance Sheets related to acquisitions
completed in the last year 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.
8
3. SPECIAL CHARGES
The following table sets forth the accrual balances and 2002 activity relating
to special charges as of June 30, 2002.
Personnel Costs Facilities Integration Total
December 31, 2001 $ 4,811 $ 1,284 $ - $ 6,095
Special charges 1,813 388 433 2,634
Cash payments (3,117) (28) (433) (3,578)
Non-cash activities - (360) - (360)
------- ------- ------- -------
June 30, 2002 $ 3,507 $ 1,284 $ - $ 4,791
======= ======= ======= =======
Personnel costs include the voluntary resignation offer (from the fourth quarter
of 2000), and severance and personal moving expenses associated with the
closure, downsizing or relocation of offices. The 2002 charges and payments
relate primarily to moving-related and severance expenses associated with the
relocation of the Company's administrative office from Illinois to Texas.
The facilities category includes charges related to the sale, closure,
downsizing or relocation of facilities. As previously disclosed, in the fourth
quarter of 2001, the Company recorded a non-cash charge of $1,600 for the
anticipated sale of its XL Technology Systems, Inc. subsidiary ("XL") to
management employees. The sale of XL, which was completed in the first quarter
of 2002, resulted in a $360 reversal of the original charge.
The integration category relates to initiatives associated with the integration
of the Company's recent acquisitions. Although the integration of the Company's
acquisitions is largely complete, the Company anticipates these costs will
continue during the remainder of 2002.
The Company expects to incur less than $1,000 in additional special charges
during the remainder of 2002, consisting mainly of moving-related and severance
expenses associated with the aforementioned administrative office relocation.
4. DISCONTINUED OPERATIONS
During the second quarter of 2001, the Company decided to exit its high purity
piping business, UltraPure Systems, due primarily to continuing weak market
conditions in the microelectronics industry. The losses from discontinued
operations were $382 and $2,321 (net of tax benefit of $84 and $355) for the
three and six months ended June 30, 2001, respectively. The loss from disposal
of $9,898 in the prior year quarter is net of a $2,338 tax benefit and included
a write-down of equipment (net of estimated proceeds), lease terminations,
severance and relocation costs, and estimated losses during the phase out
period. Revenues for these operations were $6,545 and $14,653 for the three and
six months ended June 30, 2001, respectively.
9
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three and six months ended June 30, 2002 and
2001 is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Net income (loss) $ 12,394 ($3,074) $ 22,652 $ 392
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment 279 401 (946) (351)
Cash flow hedge of debt issuance 27 (521) 53 (521)
-------- ------- -------- ------
Comprehensive income (loss) $ 12,700 ($3,194) $ 21,759 ($480)
======== ======= ======== ======
Accumulated other comprehensive income (loss) reported on the Company's balance
sheet at June 30, 2002 includes ($13,420) of cumulative translation adjustment,
($420) of unrealized loss on debt securities and ($120) of minimum pension
liability adjustments.
6. PER SHARE COMPUTATIONS
(shares in thousands) Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
Income from continuing operations $ 12,394 $ 7,206 $ 22,652 $ 12,611
(Loss) from discontinued operations - (10,280) - (12,219)
-------- -------- -------- --------
Net income (loss) $ 12,394 ($3,074) $ 22,652 $ 392
======== ======== ======== ========
Weighted average shares outstanding - Basic 21,101 23,068 21,058 22,054
Effect of stock options 852 931 789 681
Effect of restricted stock units - 19 9 14
Effect of directors deferred fee shares 24 21 22 19
Effect of warrants - - - 37
-------- -------- -------- --------
Weighted average shares outstanding - Diluted 21,977 24,039 21,878 22,805
======== ======== ======== ========
Net income (loss) per share
Basic:
Income from continuing operations $ 0.59 $ 0.31 $ 1.08 $ 0.57
Loss from discontinued operations - (0.44) - (0.55)
-------- -------- -------- --------
Net (loss) income per share $ 0.59 ($0.13) $ 1.08 $ 0.02
======== ======== ======== ========
Diluted:
Income from continuing operations $ 0.56 $ 0.30 $ 1.04 $ 0.55
Loss from discontinued operations - (0.43) - (0.53)
-------- -------- -------- --------
Net (loss) income per share $ 0.56 ($0.13) $ 1.04 $ 0.02
======== ======== ======== ========
10
7. SEGMENT INFORMATION
The Company manages its 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. Each segment's performance reflects the allocation of corporate
costs, which were based primarily on revenues. Intersegment revenues are not
material.
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
New Business Taken
North America $ 236,901 $ 240,572 $ 442,637 $ 447,489
Europe, Africa & Middle East 62,347 12,514 221,348 29,300
Asia Pacific 53,330 10,905 96,643 15,931
Central & South America 58,756 38,233 74,947 118,233
--------- --------- --------- ---------
Total $ 411,334 $ 302,224 $ 835,575 $ 610,953
========= ========= ========= =========
Revenues
North America $ 201,277 $ 178,368 $ 396,576 $ 326,401
Europe, Africa & Middle East 32,275 29,239 55,595 64,472
Asia Pacific 20,771 8,043 31,771 16,140
Central & South America 30,363 48,207 60,016 92,212
--------- --------- --------- ---------
Total $ 284,686 $ 263,857 $ 543,958 $ 499,225
========= ========= ========= =========
Income (Loss) From Operations
Excluding Special Charges
North America $ 12,734 $ 9,691 $ 23,252 $ 17,634
Europe, Africa & Middle East 501 (785) 849 (710)
Asia Pacific 269 (208) (192) (387)
Central & South America 7,235 5,982 13,806 9,640
--------- --------- --------- ---------
Total $ 20,739 $ 14,680 $ 37,715 $ 26,177
========= ========= ========= =========
Income (Loss) From Operations
North America $ 11,930 $ 8,849 $ 21,706 $ 16,633
Europe, Africa & Middle East 383 (1,056) 495 (1,349)
Asia Pacific 189 (253) (321) (467)
Central & South America 7,122 5,660 13,561 9,108
--------- --------- --------- ---------
Total $ 19,624 $ 13,200 $ 35,441 $ 23,925
========= ========= ========= =========
11
8. SUBSEQUENT EVENT
On July 1, 2002 the Company successfully priced a public offering of just over 3
million shares of its common stock. The offering consisted of 2.1 million
secondary shares, for which the Company received no proceeds, and 1.005 million
primary shares. The Company intends to use the proceeds from the primary shares
of $25.5 million for general corporate purposes.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
The 2001 results included the Pitt-Des Moines, Inc. (PDM) Water and Engineered
Construction Divisions as of their effective acquisition date of February 1,
2001.
For the three months ended June 30, 2002, new business taken increased 36% to
$411 million compared with $302 million in 2001. The most significant new
contracts in the quarter were the previously announced hydrotreater project in
Australia of approximately $50 million and a nuclear waste treatment facility in
Washington of approximately $40 million. In another example of synergy from the
Company's acquisition of Howe-Baker International, CB&I and Howe-Baker Engineers
were jointly awarded a natural gas project in Trinidad during the quarter. New
business taken for the first half of 2002 was $836 million compared with $611
million in 2001. Backlog at June 30, 2002 was $1.1 billion compared with $870
million at the end of the second quarter 2001 and $835 million at year-end 2001.
Revenues for the second quarter of 2002 grew 8% to $284.7 million compared with
$263.9 million in 2001. Revenues were higher in the North America,
Europe/Africa/Middle East (EAME) and Asia Pacific (AP) areas, but were lower in
the Central and South America (CSA) region, as several large contracts neared
completion in Venezuela. Revenues for the first half of 2002 increased 9% to
$544.0 million compared with $499.2 million in 2001. The Company's revenues
fluctuate based on the changing project mix and are dependent on the level and
timing of customer releases of new business, and on other matters such as
project schedules.
Gross profit for the three months ended June 30, 2002 was $38.1 million or 13.4%
of revenues compared with $32.7 million or 12.4% of revenues in 2001. The
improvement in gross margin was due primarily to a mix of higher margin work,
ongoing cost reduction and continuing improvements in project execution. Gross
profit for the first half of 2002 was $73.2 million or 13.5 % of revenues
compared with $61.0 million or 12.2% of revenues in the comparable 2001 period.
Selling and administrative expenses for the three months ended June 30, 2002
were $16.9 million, or 5.9% of revenues compared with $16.7 million, or 6.3% of
revenues in the comparable 2001 period. The lower percent of revenues reflects
the impact of ongoing cost reduction programs. Selling and administrative
expenses for the first half of 2002 were $34.8 million, or 6.4% compared with
$32.5 million, or 6.5% of revenues in the comparable 2001 period. The increase
relates to the impact of acquired operations and higher incentive compensation
program costs.
During the second quarter of 2002 CB&I incurred previously announced special
charges of $1.1 million, consisting primarily of moving-related and severance
costs in conjunction with the
13
relocation of the Company's administrative office. Special charges through June
30, 2002 totaled $2.3 million, comparable to the amount in the prior year
period. The Company expects to incur additional special charges of less than $1
million for the remainder of the year.
Excluding special charges, second quarter 2002 income from operations increased
41% to $20.7 million compared with $14.7 million in the prior-year quarter.
North American results increased primarily due to higher volume and project cost
savings in U.S. operations. Modestly higher revenues in EAME, combined with cost
control and strong project execution, enabled the region to post improved
operating income. Higher volumes in the AP region produced an operating profit
versus a year-earlier loss, and new business taken has improved, mainly in
Australia. The CSA region continued to be profitable due to the existing backlog
of work and recognition of project cost savings. The Company's adoption of SFAS
No. 142, as more fully described in Note 1 to the Consolidated Financial
Statements, benefited second quarter and the first half of 2002 income from
operations by $0.9 million and $1.8 million, respectively. For the first six
months of 2002, income from operations excluding special charges was $37.7
million compared with $26.2 million for the first half of 2001.
Net income for the second quarter of 2002 was $12.4 million or $0.56 per diluted
share, compared with a net loss of $3.1 million or $0.13 per diluted share in
the prior year period. The 2001 period included a $10.3 million loss (net of
tax) related to discontinued operations. Net income for the first six months of
2002 was $22.7 million or $1.04 per diluted share, compared with net income of
$0.4 million or $0.02 per diluted share for the comparable 2001 period.
FINANCIAL CONDITION
For the six months ended June 30, 2002 the Company generated $5.9 million of
cash from operating activities, primarily attributable to net income. Cash
utilized for operating activities included an increased investment in contract
capital of $17.1 million, which related to completing large projects in CSA, and
to a lesser extent, some volume related growth in North America. Changes in
contract capital vary from year to year and are affected by the mix, stage of
completion and commercial terms of contracts. Also included in cash flows
utilized for operations was a $4.7 million decrease in other accrued liabilities
due to the funding of certain incentive compensation and employee benefit
programs.
Capital expenditures through June 30, 2002 were $12.6 million compared with $3.8
million in the prior year and included $7.1 million for the initial land
acquisition and development costs of the Company's new administrative office in
Texas. The Company also reported proceeds of $2.9 million related to the sale of
property and equipment. Additionally, the Company utilized $4.7 million for
business acquisitions, attributable to the purchase of TPA, Inc. (see Note 2 to
the Consolidated Financial Statements).
At June 30, 2002 and December 31, 2001 the Company's long-term debt stood at
$75.0 million. Net debt (total debt less cash and cash equivalents) was $40.1
million at June 30, 2002, up from $30.4 million at year-end 2001. Cash and cash
equivalents totaled $35.4 million at the end of the second quarter compared with
$50.5 million at year-end 2001. Cash usage during the first half of 2002
included the payment of a $5.7 million note assumed with the Howe-Baker
acquisition. The Company anticipates that by utilizing cash generated from
operations and funds provided under its revolving credit facilities, the Company
will be able to meet its contract capital and capital expenditure needs for at
least 24 months. The Company cannot give assurances that such funding
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will be available, as its ability to generate cash flows from operations and
its ability to access funding under its revolving credit facilities may be
impacted by a variety of business, economic, legislative, financial and other
factors, which may be outside the Company's control. The Company also has a
significant uncommitted bonding facility, primarily to support project-related
obligations. A bonding facility termination or reduction could result in the
Company utilizing letters of credit in place of performance bonds, thereby
reducing available capacity under the revolving credit facilities. Although the
Company does not anticipate a reduction or termination of the facility, there is
no guarantee that it will continue to maintain such a facility to service its
ordinary course obligations at reasonable terms.
On July 1, 2002 the Company successfully priced a public offering of just over 3
million shares of its common stock. The offering consisted of 2.1 million
secondary shares, for which the Company received no proceeds, and 1.005 million
primary shares. The Company intends to use the proceeds from the primary shares
of $25.5 million for general corporate purposes.
On October 25, 2001, the U.S. Federal Trade Commission ("FTC") announced its
decision to file an administrative complaint (the "Complaint") challenging the
Company's February 2001 acquisition of certain assets of the Engineered
Construction Division of PDM. The Complaint alleges that the acquisition
violated Federal antitrust laws by substantially lessening competition in
certain field erected specialty industrial storage tank product lines in the
United States: LNG tanks, LPG tanks, LIN/LOX/LAR tanks, and thermal vacuum
chambers. The FTC is seeking various remedies, including an order that would
require the Company to divest sufficient assets and personnel to re-establish
two distinct and separate viable competing businesses engaged in the design,
engineering, fabrication, construction and sale of the relevant product lines.
The Company believes the complaint is without merit and on February 4, 2002
filed a formal answer denying the substantive allegations of the Complaint. The
Company expects the impact of the FTC proceeding on its earnings will be minimal
in 2002. However, the Company is unable to assess the ultimate outcome of the
litigation or potential effect of any divestiture order or other remedy on its
business, financial condition and results of operations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company uses operating leases for facilities and equipment when they make
economic sense. In 2001, the Company entered into a sale (for approximately
$14.0 million) and leaseback transaction of its Plainfield, Illinois
administrative office with a lease term of 20 years. The Company has no other
off-balance sheet arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange
rates, which may adversely affect its results of operations and financial
condition. The Company seeks to minimize the risks from these foreign currency
exchange rate fluctuations through its regular operating and financing
activities and, when deemed appropriate, through its limited use of foreign
currency forward contracts. The fair value of these forward contracts
approximated their carrying value at June 30, 2002. The Company's exposure to
changes in foreign currency exchange rates arises from receivables, payables and
firm commitments from international transactions, as well as intercompany loans
used to finance non-U.S. subsidiaries denominated in currencies different than
the transacting entity's functional currency. The Company does not use financial
instruments for trading or speculative purposes.
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NEW ACCOUNTING STANDARDS
As indicated in the Notes to the Consolidated Financial Statements, in June
2001, the Financial Accounting Standards Board issued SFAS No. 141 and SFAS No.
142. These pronouncements change the accounting for business combinations,
goodwill and intangible assets. SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and further clarifies the
criteria to recognize intangible assets separately from goodwill. The
requirements of SFAS No. 141 are effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001. SFAS
No. 142 states goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed for impairment at least annually. The amortization of
existing goodwill and indefinite-lived intangible assets at June 30, 2001 has
ceased at January 1, 2002. Goodwill on acquisitions completed subsequent to June
30, 2001 is not amortized, but instead will be reviewed annually for impairment.
In connection with the adoption of these statements during the first quarter of
2002, the Company completed its goodwill impairment assessment and concluded
that no transitional impairment charge was necessary. See Note 1 to the
Consolidated Financial Statements for a more detailed discussion on the impact
of adopting these standards.
In August 2001, the FASB issued 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. The new standard will be effective
beginning January 1, 2003, and the Company is currently reviewing and
evaluating the effects this standard will have on its future financial
condition and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment and/or disposal of long-lived assets. The
Company adopted this statement effective January 1, 2002, and determined that it
did not have any significant impact on its financial statements as of that date.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." The purpose
of this statement is to update, clarify and simplify existing accounting
standards. The Company adopted this statement effective April 1, 2002, and
determined that it did not have any significant impact on its 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. This statement is effective for
our fiscal year beginning January 1, 2003.
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CRITICAL ACCOUNTING POLICIES
The Company recognizes revenues using the percentage of completion method.
Contract revenues are accrued based generally on the percentage that
costs-to-date bear to total estimated costs. The Company follows the guidance of
the Statement of Position 81-1, "Accounting for Performance of Construction-Type
and Certain Production-Type Contracts" ("SOP 81-1") for accounting policy
relating to the Company's use of the percentage of completion method, estimating
costs, revenue recognition and claim recognition. The use of estimated cost to
complete each contract is a significant variable in the process of determining
income earned and is a significant factor in the accounting for contracts. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the period in which these changes become known. Contract
revenue reflects the original contract price adjusted for agreed upon change
orders and estimated minimum recoveries of claims. Although successful, this
contracting model has inherent risks. Losses expected to be incurred on
contracts in progress are charged to income as soon as such losses are known. A
significant portion of the Company's work is performed on a fixed price or lump
sum basis. The balance of projects is primarily performed on variations of cost
reimbursable and target price approaches. The Company has a history of proven
success in estimating and bidding lump sum, fixed price contracts. However, due
to the various estimates inherent in the Company's contract accounting, actual
results could differ from those estimates.
FORWARD LOOKING STATEMENTS
Any statements contained herein that are not based on historical fact are
forward-looking statements and represent management's best judgment as to what
may occur in the future. The actual outcome and results are not guaranteed, are
subject to risks, uncertainties and assumptions and may differ materially from
what is expressed. A variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements including, but not limited to, the Company's ability to realize cost
savings from its expected execution performance of contracts; the uncertain
timing and the funding of new contract awards, and project cancellations and
operations risks; cost overruns on fixed priced contracts; increased
competition; fluctuating revenues resulting from a number of factors, including
the cyclic nature of the individual markets in which the Company's customers
operate; lower than expected activity in the hydrocarbon industry, demand from
which is the largest component of the Company's revenue, or lower than expected
growth in the Company's other primary end markets; the Company's ability to
integrate and successfully operate acquired businesses and the risks associated
with those businesses; and the ultimate outcome or effect of the FTC proceeding
on the Company's business, financial condition and results of operations.
Additional factors which could cause actual results to differ from such
forward-looking statements are set forth in the Company's Form S-3 Registration
Statement No. 333-86960 filed with the SEC on June 17, 2002. The Company does
not undertake to update any forward-looking statements contained herein, whether
as a result of new information, future events or otherwise.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the legal proceedings as described
in Note 11 of the Notes to Consolidated Financial Statements submitted with the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Amended Articles of Association of the Company (English
Translation)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K
The Company did not file a current report on Form 8-K
during the three months ended June 30, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chicago Bridge & Iron Company N.V.
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
/s/ Richard E. Goodrich
---------------------------------------
Richard E. Goodrich
Managing Director
(Principal Financial Officer)
Date: August 14, 2002
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