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EX-31.1 - EX-31.1 - CH2M HILL COMPANIES LTDchm-20150925ex31199c60e.htm
EX-10.1 - EX-10.1 - CH2M HILL COMPANIES LTDchm-20150925ex101fc0748.htm
EX-32.2 - EX-32.2 - CH2M HILL COMPANIES LTDchm-20150925ex322d54850.htm
EX-31.2 - EX-31.2 - CH2M HILL COMPANIES LTDchm-20150925ex312b98552.htm
EX-32.1 - EX-32.1 - CH2M HILL COMPANIES LTDchm-20150925ex321f3611b.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

Form 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 25, 2015

 

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 000-27261

 

CH2M HILL Companies, Ltd.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

93-0549963

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

 

 

9191 South Jamaica Street,

 

 

Englewood, CO

 

80112-5946

(Address of principal executive offices)

 

(Zip Code)

 

(303) 771-0900

(Registrant’s telephone number, including area code)

 


 

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  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if a

 

 

smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

 

The number of shares outstanding of the registrant’s common stock as of October 29, 2015 was 26,702,376.

 

 

 

 


 

 

.

CH2M HILL COMPANIES, LTD.

TABLE OF CONTENTS

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.

FINANCIAL STATEMENTS

 

 

Consolidated Balance Sheets as of September 25, 2015 and December 31, 2014 (unaudited)

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 25, 2015 and September 30, 2014 (unaudited)

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 25, 2015 and September 30, 2014 (unaudited)

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 25, 2015 and September 30, 2014 (unaudited)

 

Notes to Consolidated Financial Statements (unaudited)

Item 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

23 

Item 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

35 

Item 4. 

CONTROLS AND PROCEDURES

36 

 

PART II. OTHER INFORMATION

 

Item 1. 

LEGAL PROCEEDINGS

36 

Item 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

37 

Item 6. 

EXHIBITS

38 

SIGNATURES 

 

39 

 

2


 

 

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

(Unaudited)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

    

September 25,

    

December 31,

 

 

2015

 

2014

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

154,938

 

$

131,477

Receivables, net—

 

 

 

 

 

 

Client accounts

 

 

673,799

 

 

697,168

Unbilled revenue

 

 

618,874

 

 

660,227

Other

 

 

16,512

 

 

22,447

Income tax receivable

 

 

 —

 

 

31,369

Deferred income taxes

 

 

17,583

 

 

5,968

Prepaid expenses and other current assets

 

 

78,182

 

 

74,413

Total current assets

 

 

1,559,888

 

 

1,623,069

Investments in unconsolidated affiliates

 

 

89,430

 

 

94,340

Property, plant and equipment, net

 

 

204,275

 

 

258,160

Goodwill

 

 

520,851

 

 

533,975

Intangible assets, net

 

 

66,126

 

 

91,379

Deferred income taxes

 

 

268,483

 

 

250,055

Employee benefit plan assets and other

 

 

73,054

 

 

90,324

Total assets

 

$

2,782,107

 

$

2,941,302

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

2,653

 

$

5,028

Accounts payable and accrued subcontractor costs

 

 

476,342

 

 

530,822

Billings in excess of revenue

 

 

269,404

 

 

336,063

Accrued payroll and employee related liabilities

 

 

351,478

 

 

289,330

Income tax payable

 

 

28,867

 

 

 —

Other accrued liabilities

 

 

304,487

 

 

406,991

Total current liabilities

 

 

1,433,231

 

 

1,568,234

Long-term employee related liabilities

 

 

628,874

 

 

671,581

Long-term debt

 

 

266,865

 

 

508,021

Other long-term liabilities

 

 

76,212

 

 

105,898

Total liabilities

 

 

2,405,182

 

 

2,853,734

Commitments and contingencies (Note 14)  

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized of which 10,000,000 are designated as Series A; 3,214,400 issued and outstanding at September 25, 2015 and none issued or outstanding as of December 31, 2014

 

 

32

 

 

 —

Common stock, $0.01 par value, 100,000,000 shares authorized; 26,720,340 and 27,323,570 issued and outstanding at September 25, 2015 and December 31, 2014, respectively

 

 

267

 

 

273

Additional paid-in capital

 

 

166,135

 

 

 —

Retained earnings

 

 

561,798

 

 

484,842

Accumulated other comprehensive loss

 

 

(294,676)

 

 

(272,357)

Total CH2M common stockholders’ equity

 

 

433,556

 

 

212,758

Noncontrolling interests

 

 

(56,631)

 

 

(125,190)

Total stockholders' equity

 

 

376,925

 

 

87,568

Total liabilities and stockholders’ equity

 

$

2,782,107

 

$

2,941,302

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


 

 

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

 

Consolidated Statements of Operations

 

(Unaudited)

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 25,

 

September 30,

 

September 25,

 

September 30,

 

    

2015

    

2014

    

2015

    

2014

Gross revenue

 

$

1,365,877

 

$

1,422,537

 

$

3,953,911

 

$

4,104,434

Equity in earnings of joint ventures and affiliated companies

 

 

14,890

 

 

11,909

 

 

36,908

 

 

47,086

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Direct cost of services

 

 

(1,094,161)

 

 

(1,336,770)

 

 

(3,174,592)

 

 

(3,506,969)

Selling, general and administrative

 

 

(220,246)

 

 

(259,267)

 

 

(679,619)

 

 

(796,113)

Impairment losses on goodwill and intangibles

 

 

 —

 

 

(73,312)

 

 

 —

 

 

(73,312)

Operating income (loss)

 

 

66,360

 

 

(234,903)

 

 

136,608

 

 

(224,874)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

56

 

 

131

 

 

158

 

 

626

Interest expense

 

 

(3,041)

 

 

(4,792)

 

 

(11,421)

 

 

(11,547)

Income before provision for income taxes

 

 

63,375

 

 

(239,564)

 

 

125,345

 

 

(235,795)

(Provision) benefit for income taxes

 

 

(13,104)

 

 

25,827

 

 

(31,935)

 

 

25,339

Net income (loss)

 

 

50,271

 

 

(213,737)

 

 

93,410

 

 

(210,456)

Less: (income) loss attributable to noncontrolling interests

 

 

(9,060)

 

 

82,495

 

 

(12,423)

 

 

84,572

Net income (loss) attributable to CH2M

 

$

41,211

 

$

(131,242)

 

$

80,987

 

$

(125,884)

Net income (loss) attributable to CH2M per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.42

 

$

(4.69)

 

$

2.87

 

$

(4.43)

Diluted

 

$

1.16

 

$

(4.69)

 

$

2.69

 

$

(4.43)

Weighted-average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,139,832

 

 

27,973,502

 

 

27,281,219

 

 

28,429,394

Diluted

 

 

31,321,113

 

 

27,973,502

 

 

28,716,940

 

 

28,429,394

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

CH2M HILL COMPANIES, LTD.

 

Consolidated Statements of Comprehensive Income (Loss)

 

(Unaudited)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 25,

 

September 30,

 

September 25,

 

September 30,

 

    

2015

    

2014

    

2015

    

2014

Net income (loss)

 

$

50,271

 

 

(213,737)

 

$

93,410

 

 

(210,456)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(17,365)

 

 

(12,070)

 

 

(30,253)

 

 

(7,023)

Benefit plan adjustments, net of tax

 

 

2,657

 

 

1,005

 

 

7,935

 

 

2,844

Unrealized gain on available-for-sale securities and other, net of tax

 

 

 —

 

 

(89)

 

 

 —

 

 

(27)

Less: reclassification adjustment for gains included in net income, net of tax

 

 

 —

 

 

(185)

 

 

 —

 

 

(185)

Other comprehensive loss:

 

 

(14,708)

 

 

(11,339)

 

 

(22,318)

 

 

(4,391)

Comprehensive income (loss)

 

 

35,563

 

 

(225,076)

 

 

71,092

 

 

(214,847)

Less: comprehensive income (loss) attributable to noncontrolling interests

 

 

9,060

 

 

(82,495)

 

 

12,423

 

 

(84,572)

Comprehensive income (loss) attributable to CH2M

 

$

26,503

 

$

(142,581)

 

$

58,669

 

$

(130,275)

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

 

(Unaudited)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 25,

 

September 30,

 

    

2015

    

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

93,410

 

$

(210,456)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

55,580

 

 

67,278

Stock-based employee compensation

 

 

25,005

 

 

44,492

Gain on disposal of property, plant and equipment

 

 

(3,647)

 

 

(143)

Loss on goodwill and intangible impairment

 

 

 —

 

 

73,312

Allowance for uncollectible accounts

 

 

1,646

 

 

1,337

Deferred income taxes

 

 

(31,628)

 

 

(52,781)

Undistributed earnings from unconsolidated affiliates

 

 

(36,908)

 

 

(47,086)

Distributions of income from unconsolidated affiliates

 

 

39,948

 

 

42,572

Contributions to defined benefit pension plans

 

 

(29,459)

 

 

(28,601)

Change in assets and liabilities:

 

 

 

 

 

 

Receivables and unbilled revenue

 

 

45,431

 

 

(19,270)

Prepaid expenses and other

 

 

11,469

 

 

(7,531)

Accounts payable and accrued subcontractor costs

 

 

(50,511)

 

 

55,954

Billings in excess of revenue

 

 

(61,221)

 

 

(33,876)

Accrued payroll and employee related liabilities

 

 

67,414

 

 

(12,016)

Other accrued liabilities

 

 

(91,694)

 

 

140,398

Current income taxes

 

 

58,540

 

 

(3,006)

Long-term employee related liabilities and other

 

 

(23,241)

 

 

16,580

Net cash provided by operating activities

 

 

70,134

 

 

27,157

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(21,506)

 

 

(58,738)

Acquisitions, net of cash acquired

 

 

 —

 

 

(87,607)

Investments in unconsolidated affiliates

 

 

(23,897)

 

 

(9,549)

Distributions of capital from unconsolidated affiliates

 

 

20,855

 

 

10,079

Gain on sales of investments

 

 

 —

 

 

(261)

Proceeds from sale of operating assets

 

 

39,878

 

 

2,203

Net cash provided by (used in) investing activities

 

 

15,330

 

 

(143,873)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on long-term debt

 

 

1,718,769

 

 

1,343,583

Payments on long-term debt

 

 

(1,962,730)

 

 

(1,215,477)

Repurchases and retirements of common stock

 

 

(58,483)

 

 

(136,014)

Proceeds from the issuance of preferred stock, net of issuance costs

 

 

191,677

 

 

 —

Excess tax benefits from stock-based compensation

 

 

3,931

 

 

7,541

Net distributions from (to) noncontrolling interests

 

 

56,136

 

 

(1,469)

Net cash used in financing activities

 

 

(50,700)

 

 

(1,836)

Effect of exchange rate changes on cash

 

 

(11,303)

 

 

3,146

Increase (decrease) in cash and cash equivalents

 

 

23,461

 

 

(115,406)

Cash and cash equivalents, beginning of period

 

 

131,477

 

 

294,261

Cash and cash equivalents, end of period

 

$

154,938

 

$

178,855

Supplemental disclosures:

 

 

 

 

 

 

Cash paid for interest

 

$

11,171

 

$

11,713

Cash paid for income taxes

 

$

16,637

 

$

21,939

 

The accompanying notes are an integral part of these consolidated financial statements.

6


 

 

CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

September 25, 2015

 

(Unaudited)

 

(1) Summary of Business and Significant Accounting Policies

 

Summary of Business

 

CH2M Hill Companies, Ltd. and subsidiaries (“We”, “Our”, “CH2M” or the “Company”) is a project delivery firm founded in 1946. We are an employee-controlled professional engineering services firm providing engineering, construction, consulting, design, design build, procurement, engineering procurement construction (“EPC”), operations and maintenance, program management and technical services to U.S. federal, state, municipal and local government agencies, national governments, as well as private industry and utilities, around the world. A substantial portion of our professional fees are derived from projects that are funded directly or indirectly by government entities.

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and according to instructions to Form 10-Q and the provisions of Article 10 of Regulation S-X that are applicable to interim financial statements. Accordingly, these statements do not include all of the information required by GAAP or the Securities and Exchange Commission (“SEC”) rules and regulations for annual audited financial statements. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions have been prepared on the basis of the most current and best available information. Actual results could differ from those estimates.

 

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Change in Fiscal Year End

 

On March 30, 2015, in order to accommodate our financial accounting systems and the timely gathering and reporting of financial information, we changed our reporting period from a calendar year ending on December 31 of each year to a fiscal year ending on the last Friday of December of each year.  Our fiscal quarters will also end on the last Friday of March, June, and September.  This change has been retroactively applied as if it was adopted as of January 1, 2015.  The change in fiscal year-end did not have a material effect on the comparability of the periods presented.

 

Revenue Recognition

 

We earn revenue from different types of services performed under various types of contracts, including cost-plus, fixed-price and time-and-materials. We evaluate contractual arrangements to determine how to recognize revenue. We primarily perform engineering and construction related services and recognize revenue for these contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contract. In making such

7


 

estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, and achievement of contract performance standards. We record the cumulative effect of changes in contract revenue and cost at completion in the period in which the changed estimates are determined to be reliably estimable.

 

Below is a description of the basic types of contracts from which we may earn revenue:

 

Cost-Plus Contracts.  Cost-plus contracts can be cost plus a fixed fee or rate, or cost plus an award fee. Under these types of contracts, we charge our clients for our costs, including both direct and indirect costs, with an additional fixed negotiated fee or award fee. We generally recognize revenue based on the actual labor costs and non-labor costs we incur, plus the portion of the fixed fee or award fee we have earned to date. 

 

Included in the total contract value for cost-plus fee arrangements is the portion of the fee for which receipt is determined to be probable.  Award fees are influenced by the achievement of contract milestones, cost savings and other factors.

 

Fixed-Price Contracts.  Under fixed-price contracts, our clients pay us an agreed amount negotiated in advance for a specified scope of work. For engineering and construction contracts, we recognize revenue on fixed-price contracts using the percentage-of-completion method where direct costs incurred to date are compared to total projected direct costs at contract completion. Prior to completion, our recognized profit margins on any fixed-price contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the original estimated amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease, and we may realize a loss on a project.

 

Time-and-Materials Contracts.  Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients reimburse us for our actual out of pocket costs of materials and other direct expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with the negotiated billing rate and markup on other direct costs. Some of our time-and-materials contracts are subject to maximum contract values, and accordingly, revenue under these contracts is recognized under the percentage-of-completion method where costs incurred to date are compared to total projected costs at contract completion. Revenue on contracts that is not subject to maximum contract values is recognized based on the actual number of hours we spend on the projects plus any actual out of pocket costs of materials and other direct expenditures that we incur on the projects.

 

Operations and Maintenance Contracts.  A portion of our contracts are operations and maintenance type contracts.  Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once we have an arrangement, service has begun, the price is fixed or determinable and collectability is reasonably assured.

 

For all contract types noted above, change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and when the change order can be estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer’s written approval of such changes or separate documentation of change order costs that are identifiable.

 

Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

 

Unbilled Revenue and Billings in Excess of Revenue

 

Unbilled revenue represents the excess of contract revenue recognized over billings to date on contracts in process. These amounts become billable according to the contract terms, which usually consider the passage of time, achievement of certain milestones or completion of the project.

 

8


 

Billings in excess of revenue represent the excess of billings to date, per the contract terms, over revenue recognized on contracts in process.  A significant portion of our billings in excess balance relates to excess billings on design-build projects.  These projects often require us to order significant project materials and equipment in advance, and we request payment in advance from our clients to cover these costs.  As the projects near completion and our suppliers complete the construction of these components and we complete the installation, the billings in excess balance declines.

 

Fair Value Measurements

 

Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and liabilities are valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based on unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs utilize significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly; and valuations using Level 3 inputs are based on significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. There were no significant transfers between levels during the quarters ended September 25, 2015 and September 30, 2014.

 

Restructuring Related Costs

 

We account for costs associated with restructuring activities in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 420, Exit or Disposal Cost Obligations.  An exit activity includes but is not limited to a restructuring, such as a sale or termination of a line of business, the closure of business activities in a particular location, the relocation of business activities from one location to another, changes in management structure, and a fundamental reorganization that affects the nature and focus of operations.  The Company recognizes a liability and the related expense for restructuring costs when the liability is incurred and can be measured.  Restructuring accruals are based upon management estimates at the time they are recorded and can change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded.  Nonretirement postemployment benefits offered as special termination benefits to employees, such as a voluntary early retirement program, are recognized as a liability and a loss when the employee accepts the offer and the amount can be reasonably estimated in accordance with ASC Topic 712, Compensation-Nonretirement Postemployment Benefits.

 

Goodwill

 

Goodwill represents the excess of costs over fair value of the assets of businesses we have acquired.  Goodwill acquired in a purchase business combination is not amortized, but instead, is tested for impairment at least annually in accordance with the provisions of ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”), as amended under Accounting Standards Update 2011-08 (“ASU 2011-08”).  Upon the occurrence of certain triggering events, we are also required to test for impairment at dates other than the annual impairment testing date.  In performing the impairment test, we evaluate our goodwill at the reporting unit level.  Under the guidance of ASC 350, we have the option to assess either quantitative or qualitative factors to determine whether it is more likely than not that the fair values of our reporting units are less than their carrying amounts.  If after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair values of our reporting units are less than their carrying amounts, then the next step of the impairment test is unnecessary.  If we conclude otherwise, then we are required to test goodwill for impairment under the two-step process. 

 

The two-step process involves comparing the estimated fair value of each reporting unit to the unit’s carrying value, including goodwill.  If the carrying value of a reporting unit does not exceed its fair value, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, we would then perform a second step to measure the amount of goodwill impairment loss to be recorded.  We determine the fair value of our reporting units using a combination of the income approach, the market approach, and the cost approach.  The income approach calculates the present value of future cash flows based on assumptions and estimates derived from a review of our expected revenue growth rates, profit margins, business plans, cost of capital and tax rates for the

9


 

reporting units.  Our market based valuation method estimates the fair value of our reporting units by the application of a multiple to our estimate of a cash flow metric for each business unit.  The cost approach estimates the fair value of a reporting unit as the fair value of its assets net of the fair value of its liabilities.

 

Intangible Assets

 

We may acquire other intangible assets in business combinations. Intangible assets are stated at fair value as of the date they are acquired in a business combination. We amortize intangible assets with finite lives on a straight-line basis over their expected useful lives, currently up to ten years.  We test our intangible assets for impairment in the period in which a triggering event or change in circumstance indicates that the carrying amount of the intangible asset may not be recoverable.  If the carrying amount of the intangible asset exceeds the fair value, an impairment loss will be recognized in the amount of the excess.  We determine the fair value of the intangible assets using a discounted cash flow approach.

 

Derivative Instruments

 

We primarily enter into derivative financial instruments to mitigate exposures to changing foreign currency exchange rates on our earnings and cash flows. We are primarily subject to this risk on long-term projects whereby the currency being paid by our client differs from the currency in which we incurred our costs, as well as intercompany trade balances among entities with differing currencies. We do not enter into derivative transactions for speculative or trading purposes. All derivatives are carried at fair value on the consolidated balance sheets in other receivables or accounts payable and accrued subcontractor costs as applicable. The periodic change in the fair value of the derivative instruments is recognized in earnings within general and administrative expense.

 

Retirement and Tax-Deferred Savings Plan

 

The Retirement and Tax Deferred Savings Plan is a retirement plan that includes a cash or deferred arrangement that is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code and provides benefits to eligible employees upon retirement. In September 2012, our Board of Directors approved the CH2M Companies, Ltd. Amended and Restated 401(k) Plan which became effective January 1, 2013 (“401(k) Plan”). The 401(k) Plan allows for matching contributions up to 6% of employee’s base compensation, although specific subsidiaries may have different limits on employer matching. The matching contributions may be made in both cash and/or stock.  Expenses related to matching contributions made in common stock for the 401(k) Plan for the three and nine months ended September 25, 2015 were $3.8 million and $16.3 million, respectively, as compared to $13.3 million and $37.0 million for the three and nine months ended September 30, 2014, respectively.

 

Recently Adopted Accounting Standards

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.  ASU 2015-04 provides a practical expedient for entities with defined benefit plan assets and obligations whose fiscal years and interim periods do not coincide with a month-end. The ASU allows these entities to use the month-end that is closest to the entity’s fiscal year-end or interim period-end for measuring the defined benefit plan assets and obligations if the practical expedient is applied consistently to all plans and each year.  However, if a contribution or significant event (such as a plan amendment, settlement, or curtailment that calls for a remeasurement in accordance with existing requirements) occurs between the month-end date used to measure defined benefit plan assets and obligations and an entity’s fiscal year-end or interim period-end, the entity should adjust the measurement of defined benefit plan assets and obligations to reflect the effects of those contributions or significant events. Entities are required to disclose the accounting policy election and the date used to measure the defined benefit plan assets and obligations.  ASU 2015-04 will be effective for financial statements issued for fiscal years beginning after December 15, 2015, with earlier election permitted, and the application of the amendment should be applied prospectively.  CH2M will early elect this ASU for our fiscal year ending December 25, 2015. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides updated consolidation guidance for reporting organizations that are

10


 

required to evaluate whether they should consolidate certain legal entities. This ASU requires that all legal entities be subject to reevaluation under the revised consolidation model. ASU 2015-02 will be effective for annual and interim periods beginning after December 15, 2015. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  The ASU requires that management evaluate for each annual and interim reporting period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued.  If there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, additional disclosures are required, even if the substantial doubt is alleviated as a result of consideration of management’s plans.  This ASU is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted.  We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive new revenue recognition model that is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  The ASU also requires additional quantitative and qualitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The FASB has deferred the effective date of this ASU for reporting periods beginning after December 15, 2017. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU.  CH2M is currently evaluating the impact of this ASU and the transition alternatives on its financial position and results of operations.

 

(2) Changes in Project-Related Estimates

 

During 2015, we experienced additional cost growth on a Transportation fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States.  The cost growth was primarily caused by resource and work constraints reducing work productivity rates, and delayed resolution with the client on movement of traffic.  Additionally, the project experienced delays from unexpected subsurface site conditions and from late delivery of a third party contractor’s design.  As a result of these changes in estimate, a $53.6 million charge to operations was incurred during the nine months ended September 25, 2015.  There was no charge to operations for the three months ended September 25, 2015.   In the three and nine months ended September 30, 2014, a charge of $38.7 million was incurred against operating income due to changes in estimate.  As of September 25, 2015, the project is approximately 50% complete.  Management is assessing the recovery of cost overruns and the impact of schedule delays and is pursuing cost recovery and schedule relief through the contractual claims process; however, at this time it is not possible to estimate these recoveries.  We may incur additional costs and losses if our cost estimation processes identify new costs not previously included in our total estimated loss or if our plans to meet our revised schedule are not achieved resulting in liquidated damages under our contract.  These potential changes in estimates could be materially adverse to the Company’s results of operations.

 

Within our Power segment, we are involved in a fixed-price project in Australia through a consolidated 50/50 joint venture partnership with an Australian construction contractor to engineer, procure, construct and start-up a combined cycle power plant that will supply power to a large liquefied natural gas facility in Australia.  As of September 25, 2015, the total contract value of the joint venture project was approximately $425.0 million, and the project was approximately 65% complete, with engineering and procurement nearing completion and construction activities ongoing.  Due to a variety of issues related to the joint venture scope of work identified, we recognized changes in estimated contract costs that resulted in charges to operations of $280.0 million during 2014, which represents the total expected loss of the joint venture project at completion.  Our portion of the loss, which was recorded in 2014, totaled $140.0 million.  Of the total expected loss at completion, $170.0 million was recorded during the three and nine months ended September 30, 2014, and our portion of that loss totaled $85.0 million.  No further cost growth has occurred in 2015 to date.  Management believes the project has suffered from substantial client interference related to numerous design changes, delays in providing timely access to site delivery facilities

11


 

and access to certain construction materials.  These items have resulted in a significant increase in the cost to complete the project as well as a delay in the start of construction activities and possibly the ultimate delivery of the power facility.  While management believes the current estimated cost to complete the project represents the best estimate at this time and management has been able to manage the project within the current estimate to complete as the work has progressed, there is a significant amount of work that still needs to be performed on the project before achieving substantial completion, and thus there can be no assurance that additional cost growth will not occur. Management is continuing to negotiate with the client to settle certain claims and to revise certain provisions of the contract.  In addition, management continues to vigorously pursue recovery of costs and schedule impacts with the assistance of external legal and commercial claims specialists.  Management believes it will gain a better understanding during the fourth quarter as to whether a settlement is possible, and, if so, how the terms of such settlement would impact the joint venture’s estimated costs at completion.  If an agreement is not reached with the client, management will continue to pursue recovery of costs through all means currently available under the existing contract and at law. In addition, if these recovery steps are not successful, we might not recover previously incurred or potential future cost overruns from the client, and the joint venture might be assessed liquidated damages in excess of amounts already included in the current estimated loss at completion, which could materially affect the company’s results of operations.

 

During 2014, we experienced significant cost growth on a fixed-price Power contract to design and construct a new power generation facility in the northeastern United States.  These increases in costs resulted from multiple sources including a substantial decline in union labor productivity, poor subcontractor performance and the impacts of schedule delays caused by the above items and severe weather in the northeastern United States.  The effect of these changes in estimates resulted in a charge to operations totaling $61.5 million in the nine months ended September 30, 2014.  There were no additional charges to operations in the nine months ended September 25, 2015 months as the project achieved substantial completion in 2014.  Management is seeking recovery of a portion of the total project loss from the client, including relief from a portion of the liquidated damages assessed by the client through the date of substantial completion due to client interference and other remedies under the terms of the contract.   During 2015, both CH2M and our client filed litigation against each other.   While our goal remains amicable settlement of the disputes, we intend to vigorously pursue our claim for cost recovery.  There can be no assurance we will be successful in obtaining such recoveries.

 

All reserves for project related losses are included in other current liabilities, which totaled $143.0 million and $222.4 million as of September 25, 2015 and December 31, 2014, respectively.  Of the amounts included in the September 25, 2015 and December 31, 2014 balances, $52.6 million and $91.8 million, respectively, relate to accrued project losses attributable to, and payable by, a noncontrolling joint venture partner.

 

(3) Segment Information

 

During 2014, we implemented certain significant organizational changes, including the manner in which our operations are managed through a matrix organization of business groups, geographic regions and service lines.  In the first quarter of 2015, we refined this matrix structure, and continued to reorganize our internal reporting structure by making changes to better facilitate our strategy for growth, client-centric service, and operational efficiency.  In connection with this refinement, we continued to reevaluate the manner in which our Chief Operating Decision Maker (“CODM”) reviews operating results and makes key business decisions.  Our CODM is our executive management committee that meets regularly to evaluate operating results and allocate our financial and operational resources.  As part of the reevaluation in 2015, we determined that our CODM primarily reviews financial operating results by business group, and as such, we have identified each of our five business groups as reportable operating segments: Environment and Nuclear; Industrial and Urban Environments (“IUE”); Oil, Gas and Chemicals; Transportation; and Water.  Additionally, although the Power group falls within the IUE business group, we have identified Power as a separate reportable operating segment as we are currently in the process of exiting the fixed-price EPC Power business and as such the results of this group are being monitored apart from the rest of the business group.

 

Certain financial information relating to the three and nine months ended September 25, 2015 and September 30, 2014 for each segment is provided below.  Costs for corporate general and administrative expenses, restructuring costs and amortization expense related to intangible assets have been allocated based upon the estimated allocation to each segment based on the benefits provided by corporate functions.  This allocation is

12


 

primarily based upon metrics that reflect the proportionate volume of project-related activity and employee labor costs within each segment.  Prior year amounts have been revised to conform to the current year presentation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 25, 2015

 

Three Months Ended September 30, 2014

 

 

Gross

 

Equity in

 

Operating

 

Gross

 

Equity in

 

Operating

($ in thousands) 

    

Revenue

    

Earnings

    

Income (Loss)

    

Revenue

    

Earnings

 

Income (Loss)

Environment and Nuclear

 

$

422,049

 

$

9,174

 

$

19,846

 

$

482,369

 

$

7,628

 

$

29,147

Industrial and Urban Environments

 

 

108,874

 

 

783

 

 

2,362

 

 

134,658

 

 

(587)

 

 

(31,018)

Oil, Gas and Chemicals

 

 

204,757

 

 

550

 

 

12,589

 

 

229,813

 

 

1,172

 

 

2,307

Transportation

 

 

251,228

 

 

2,563

 

 

8,837

 

 

237,297

 

 

1,717

 

 

(34,064)

Water

 

 

317,765

 

 

1,820

 

 

21,836

 

 

306,027

 

 

872

 

 

25,036

Power

 

 

61,204

 

 

 —

 

 

890

 

 

32,373

 

 

1,107

 

 

(226,311)

Total

 

$

1,365,877

 

$

14,890

 

$

66,360

 

$

1,422,537

 

$

11,909

 

$

(234,903)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 25, 2015

 

Nine Months Ended September 30, 2014

 

 

Gross

 

Equity in

 

Operating

 

Gross

 

Equity in

 

Operating

($ in thousands) 

    

Revenue

    

Earnings

    

Income (Loss)

    

Revenue

    

Earnings

 

Income (Loss)

Environment and Nuclear

 

$

1,177,552

 

$

23,850

 

$

58,740

 

$

1,254,177

 

$

30,788

 

$

52,488

Industrial and Urban Environments

 

 

353,923

 

 

2,383

 

 

9,958

 

 

369,623

 

 

738

 

 

(44,408)

Oil, Gas and Chemicals

 

 

619,837

 

 

808

 

 

27,401

 

 

644,390

 

 

1,598

 

 

4,167

Transportation

 

 

726,901

 

 

6,579

 

 

(24,812)

 

 

715,550

 

 

10,532

 

 

(20,747)

Water

 

 

943,384

 

 

3,288

 

 

68,506

 

 

926,745

 

 

2,323

 

 

69,307

Power

 

 

132,314

 

 

 —

 

 

(3,186)

 

 

193,949

 

 

1,107

 

 

(285,681)

Total

 

$

3,953,911

 

$

36,908

 

$

136,608

 

$

4,104,434

 

$

47,086

 

$

(224,874)

 

 

 

(4) Stockholders’ Equity

 

The changes in stockholders’ equity for the nine months ended September 25, 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Common

 

Preferred

 

 

 

 

    

Shares

 

Shares

    

Amount

Stockholders’ equity, December 31, 2014

 

27,324

 

 —

 

$

87,568

Shares purchased and retired

 

(1,113)

 

 —

 

 

(54,553)

Shares issued in connection with stock-based compensation and employee benefit plans

 

509

 

 —

 

 

25,005

Series A Preferred Stock, net of issuance costs

 

 

 

3,214

 

 

191,677

Net income attributable to CH2M

 

 —

 

 —

 

 

80,987

Other comprehensive loss, net of tax

 

 —

 

 —

 

 

(22,318)

Income attributable to noncontrolling interests

 

 —

 

 —

 

 

12,423

Net distributions from noncontrolling interests

 

 —

 

 —

 

 

56,136

Stockholders’ equity, September 25, 2015

 

26,720

 

3,214

 

$

376,925

 

Preferred Stock

 

As of September 25, 2015, the Company had 50,000,000 shares of preferred stock, $0.01 par value, authorized.  On June 22, 2015, the Company designated 10,000,000 shares as Series A Preferred Stock with an original issue price of $62.22 under the Certificate of Designation.  On June 24, 2015, the Company sold and issued an aggregate of 3,214,400 shares of Series A Preferred Stock for an aggregate purchase price of $200.0 million in a private placement to a subsidiary owned by investment funds affiliated with Apollo Global Management, LLC

13


 

(together with its subsidiaries, “Apollo”). Total proceeds from the preferred stock offering were $191.7 million, net of issuance costs of $8.3 million. The sale occurred in connection with the Initial Closing (“Initial Closing”) pursuant to the Subscription Agreement entered into by the Company and Apollo on May 27, 2015 (“Subscription Agreement”).  Subject to the conditions within the Subscription Agreement, Apollo will purchase an additional 1,607,200 shares of Series A Preferred Stock for an aggregate purchase price of approximately $100.0 million in a second closing which will occur on the one-year anniversary of the Initial Closing or upon the earlier election of the Company.

 

Dividends. Dividends on the Series A Preferred Stock are cumulative and accrue quarterly in arrears at the annual rate of 5.0% on the sum of the original issue price of $62.22 per share plus all accumulated and unpaid accruing dividends, regardless of whether or not declared by the Board.  After June 24, 2020 (the “Fifth Anniversary”), the rate at which dividends accrue may increase from 5.0% to 10.0% or 15.0% if there was a failure of the stockholders to approve certain other actions to facilitate an initial public offering as well as a failure to approve a sale of the Company.

 

Dividends accruing on shares of Series A Preferred Stock prior to the Fifth Anniversary are not paid in cash or in kind but are added to the liquidation preference of the Series A Preferred Stock.  After the Fifth Anniversary, dividends shall continue to accrue on shares of Series A Preferred Stock and will be payable in cash at the election of the Board.  However, if after the Fifth Anniversary if there was a failure of the stockholders to approve certain other actions to facilitate an initial public offering as well as a failure to approve a sale of the Company, dividends accrued on shares of Series A Preferred Stock will be payable in cash or in kind at the election of the holders of a majority of the outstanding shares of Series A Preferred Stock.  Additionally, if the Company declares certain dividends on the common stock, the Company is required to declare and pay a dividend on the outstanding shares of Series A Preferred Stock on a pro rata basis with the common stock, determined on an as-converted basis.

 

Liquidation PreferenceIn the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or any other transaction deemed a liquidation event pursuant to the Certificate of Designation for the Series A Preferred Stock (including a sale of the Company), each holder of outstanding shares of Series A Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to stockholders before any payment may be made to the holders of Common Stock.  Each holder would receive an amount equal to the number of outstanding Series A Preferred Stock shares held multiplied by $62.22 plus either accrued and unpaid dividends on such shares or, if the liquidation event occurs before the Firth Anniversary, an amount equal to all dividends that would have been accrued during the period from the date of issuance through the Fifth Anniversary, and any other dividends declared on such shares.  However, if the amount that the holders of Series A Preferred Stock would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock immediately prior to the liquidation event exceeded the amount discussed previously, the holders of Series A Preferred Stock will receive the greater amount.

 

Conversion. Each share of Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of Common Stock as is determined by dividing the original issue price of $62.22 per share by the conversion price which is initially $62.22. In the event that after the Fifth Anniversary Board of Directors recommends to the Company’s stockholders a sale of the company, but the Company’s stockholders do not approve the recommended sale, then the conversion price would be reduced to $52.65.  Additionally, if there was a failure of the stockholders to approve certain other actions to facilitate an initial public offering of the company’s Common Stock as well as a failure to approve a sale of the Company recommended by the Board of Directors, then the conversion price would be $47.86.  The conversion price is also subject to adjustments on a broad-based, weighted-average basis upon the issuance of shares of common stock or certain equivalent securities at a price per share less than conversion price of $62.22 or as then adjusted to date.

 

Mandatory conversion of the Series A Preferred Stock to Common Stock will occur immediately prior to the closing of any firm-commitment, underwritten public offering of the Company in which the aggregate proceeds to the Company exceed $200.0 million, before deduction of underwriters’ discounts and commissions, provided that the Common Stock is then listed on the New York Stock Exchange, its NYSE Mkt or the Nasdaq Stock Market (or any successor exchange) and provided that the Company sells on a primary basis in such offering at least certain required amounts of shares.  All outstanding Series A Preferred Stock, accrued and unpaid dividends accrued on such shares, or, in the event that the public offering occurs before the Firth Anniversary, dividends that would have

14


 

accrued during the period from the date of issuance through the Fifth Anniversary, as well as dividends declared and unpaid would be converted at the effective conversion price automatically.  Or, all outstanding shares of Series A Preferred Stock, plus accrued and unpaid dividends, and dividends declared and unpaid will automatically be converted into shares of Common Stock upon written notice delivered to the Company by the holders of at least a majority of the then outstanding shares of Series A Preferred Stock.

 

Voting Rights.  Each holder of outstanding shares of Series A Preferred Stock is entitled to vote with the holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company. Each outstanding share of Series A Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which it is convertible.

 

In addition, the Company may not take certain actions without first having obtained the affirmative vote or waiver of the holders of a majority of the outstanding shares of Series A Preferred Stock. These actions include, among other items, conducting certain liquidation events, entering into new lines of business, entering into agreements for certain acquisitions, joint ventures or investments involving amounts greater than $100.0 million and entering into agreements for certain firm, fixed-price or lump-sum design-build or EPC contracts.   In addition, among other things the Company is limited in certain additional amounts it may borrow, additional shares of certain securities that it may issue and the amounts of capital stock it can repurchase in excess of pre-approved amounts, in each case, without further approval from the holders of the Series A Preferred Stock.

 

Redemption. The Company may redeem all the shares of Series A Preferred Stock (and not fewer than all shares of Series A Preferred Stock) in one installment commencing at any time on or after June 24, 2018. The aggregate redemption price for the shares of Series A Preferred Stock will be equal to the greater of (i) certain guaranteed minimum prices of up to an aggregate of $600.0 million, and (ii) the fair value of the shares, as determined by a third-party appraisal, plus accrued and unpaid dividends, and any other dividends declared and unpaid on such shares. The Series A Preferred Stock is not redeemable upon the election of the holders of Series A Preferred Stock.

 

(5) Earnings Per Share

 

 Basic earnings per share (“EPS”) is calculated using the weighted-average number of common shares outstanding during the period and income available to common stockholders, which is calculated by deducting the dividends accumulated for the period on cumulative preferred stock (whether or not earned) and income allocated to preferred stockholders as calculated under the two-class method. The Company considers all series of the convertible preferred stock to be participating securities as the holders of the preferred stock are entitled contractually to receive a cumulative dividend. Diluted EPS is computed by giving effect to all potential shares of common stock including common stock issuable upon conversion of the convertible preferred stock, the related convertible dividends for the aggregate five year contractual obligation, and stock options. When calculating diluted EPS under the two-class method, the preferred stock dividends for convertible preferred stock are not deducted in the calculation for income available to common stockholders. Diluted EPS is computed by deducting income allocated to preferred stockholders based on the dilutive effect of our convertible preferred shares and weighted-average common stock and common stock equivalents outstanding. The denominator is calculated by using the weighted-average number of common shares and common stock equivalents outstanding during the period, assuming conversion at the beginning of the period or at the time of issuance if later. If outstanding preferred shares and accrued dividends were converted as of September 25, 2015, the result would be equivalent to 4,122,113 common shares. Common stock equivalents are only included in the diluted EPS calculation when their effect is dilutive.

 

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Reconciliations of basic and diluted EPS (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 25,

 

September 30,

 

September 25,

 

September 30,

 

    

2015

    

2014

    

2015

    

2014

Numerator - basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to CH2M

 

 

41,211

 

 

(131,242)

 

 

80,987

 

 

(125,884)

Less: income allocated to preferred stockholders - basic

 

 

57

 

 

 —

 

 

38

 

 

 —

Less: accrued dividends attributable to preferred stockholders

 

 

2,556

 

 

 —

 

 

2,556

 

 

 —

Income available to common stockholders - basic

 

$

38,598

 

$

(131,242)

 

$

78,393

 

$

(125,884)

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator -  diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to CH2M

 

 

41,211

 

 

(131,242)

 

 

80,987

 

 

(125,884)

Less: income allocated to preferred stockholders - diluted

 

 

4,793

 

 

 —

 

 

3,814

 

 

 —

Income available to common stockholders - diluted

 

$

36,418

 

$

(131,242)

 

$

77,173

 

$

(125,884)

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

 

27,140

 

 

27,974

 

 

27,281

 

 

28,429

Dilutive effect of common stock equivalents

 

 

4,181

 

 

 —

 

 

1,436

 

 

 —

Diluted adjusted weighted-average common shares outstanding, assuming conversion of common stock equivalents

 

 

31,321

 

 

27,974

 

 

28,717

 

 

28,429

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share

 

$

1.42

 

$

(4.69)

 

$

2.87

 

$

(4.43)

Diluted net income per common share

 

$

1.16

 

$

(4.69)

 

$

2.69

 

$

(4.43)

 

 

For the three and nine months ended September 25, 2015 and September 30, 2014, options to purchase 1.0 million and 0.5 million shares of common stock, respectively, were excluded from the dilutive EPS calculation as they were antidilutive.

 

(6) Variable Interest Entities and Equity Method Investments

 

We routinely enter into teaming arrangements, in the form of joint ventures, to perform projects for our clients. Such arrangements are customary in the engineering and construction industry and generally are project specific. The arrangements facilitate the completion of projects that are jointly contracted with our partners. These arrangements are formed to leverage the skills of the respective partners and include consulting, construction, design, design-build, program management and operations and maintenance contracts. The assets of a joint venture are restricted for use only for the particular joint venture and are not available for general operations of the Company.  Our risk of loss on these arrangements is usually shared with our partners. The liability of each partner is usually joint and several, which means that each partner may become liable for the entire risk of loss on the project. Furthermore, on some of our projects, CH2M has granted guarantees which may encumber both our contracting subsidiary company and CH2M for the entire risk of loss on the project.

 

Our financial statements include the accounts of our joint ventures when the joint ventures are variable interest entities (“VIE”) and we are the primary beneficiary or those joint ventures that are not VIEs yet we have a controlling interest. We perform a qualitative assessment to determine whether our company is the primary beneficiary once an entity is identified as a VIE. A qualitative assessment begins with an understanding of the nature of the risks associated with the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed, and the parties

16


 

involved in the design of the entity. All of the variable interests held by parties involved with the VIE are identified and a determination is made of which activities are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities. Most of the VIEs with which our Company is involved have relatively few variable interests and are primarily related to our equity investments, subordinated financial support, and subcontracting arrangements. We consolidate those VIEs in which we have both the power to direct the activities of the VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. As of September 25, 2015 and December 31, 2014, total assets of VIEs that were consolidated were $91.1 million and $99.9 million, respectively, and liabilities were $198.8 million and $344.8 million, respectively.  These assets and liabilities consist almost entirely of working capital accounts associated with the performance of single contracts.

 

In determining whether we have a controlling interest in a joint venture that is not a VIE and the requirement to consolidate the accounts of the entity, we consider factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partnership/members.

 

We held investments in unconsolidated joint ventures that are not VIEs of $89.4 million and $94.3 million at September 25, 2015 and December 31, 2014, respectively. Our proportionate share of net income or loss is included as equity in earnings of joint ventures and affiliated companies in the consolidated statements of operations. In general, the equity investment in our unconsolidated affiliates is equal to our current equity investment plus our portion of the entities’ undistributed earnings. We provide certain services, including engineering, construction management and computer and telecommunications support, to these unconsolidated entities. These services are billed to the joint ventures in accordance with the provisions of the agreements.

 

As of September 25, 2015 and December 31, 2014, the total assets of VIEs that were not consolidated were $382.5 million and $355.5 million, respectively, and total liabilities were $291.7 million and $282.7 million, respectively.  These assets and liabilities consist almost entirely of working capital accounts associated with the performance of single contracts. The maximum exposure to losses is limited to the funding of any future losses incurred by those entities under their respective contracts with the project company.

 

(7) Acquisitions

 

On April 4, 2014, we acquired certain agreed upon assets and liabilities of TERA Environmental Consultants (“TERA”) for consideration of $119.6 million.  TERA was an employee-owned environmental consulting firm headquartered in Canada specializing in environmental assessment, planning, siting, permitting, licensing, and related services for the pipeline, electrical transmission, and oil and gas industries. TERA’s operations are reported in the consolidated financial statements within the Environment and Nuclear business group and generated approximately $22.6 million of revenue and $4.3 million of operating income for the three month period ended September 25, 2015 and approximately $58.5 million of revenue and $8.7 million of operating income for the nine months ended September 25, 2015. TERA operations generated approximately $35.6 million of revenue and $5.8 million of operating income for the three months ended September 30, 2014 and approximately $54.4 million of revenue and $7.4 million of operating income for the nine months ended September 30, 2014

 

(8) Goodwill and Intangible Assets

 

The following table presents the changes in goodwill:

 

 

 

 

 

 

($ in thousands)

    

Goodwill

Balance at December 31, 2014

 

$

533,975

Foreign currency translation

 

 

(13,124)

Balance at September 25, 2015

 

$

520,851

 

17


 

Intangible assets with finite lives consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Accumulated

    

Net finite-lived

($ in thousands)

 

Cost

 

Amortization

 

intangible assets

September 25, 2015

 

 

 

 

 

 

 

 

 

Contracted backlog

 

$

87,574

 

$

(87,187)

 

$

387

Customer relationships

 

 

190,950

 

 

(125,381)

 

 

65,569

Tradename

 

 

4,615

 

 

(4,445)

 

 

170

Total finite-lived intangible assets

 

$

283,139

 

$

(217,013)

 

$

66,126

December 31, 2014

 

 

 

 

 

 

 

 

 

Contracted backlog

 

$

89,313

 

$

(84,349)

 

$

4,964

Customer relationships

 

 

197,910

 

 

(111,970)

 

 

85,940

Tradename

 

 

4,791

 

 

(4,316)

 

 

475

Total finite-lived intangible assets

 

$

292,014

 

$

(200,635)

 

$

91,379

 

All intangible assets are being amortized over their expected lives of between two year and ten years. The amortization expense reflected in the consolidated statements of operations for the three months ended September 25, 2015 and September 30, 2014 totaled $6.2 million and $15.3 million, respectively, and $19.7 million and $36.0 million for the nine months ended September 25, 2015 and September 30, 2014, respectively.  All intangible assets are expected to be fully amortized in 2024.

 

For the three and nine months ended September 30, 2014, we recorded a goodwill impairment charge of $64.2 million, of which $36.4 million related to our Power business group and $27.8 million related to the industrial and advanced technology business and urban programs business within our Industrial and Urban Environments business group. Additionally, we identified an impairment in our tradename intangibles of $9.1 million related to our Power business group.

 

(9) Property, Plant and Equipment

 

Property, plant and equipment consists of the following:

 

 

 

 

 

 

 

 

 

    

September 25,

    

December 31,

($ in thousands)

 

2015

 

2014

Land

 

$

5,021

 

$

21,044

Building and land improvements

 

 

67,492

 

 

98,972

Furniture and fixtures

 

 

25,898

 

 

27,531

Computer and office equipment

 

 

153,023

 

 

158,022

Field equipment

 

 

139,815

 

 

140,542

Leasehold improvements

 

 

72,686

 

 

80,871

 

 

 

463,935

 

 

526,982

Less: Accumulated depreciation

 

 

(259,660)

 

 

(268,822)

Net property, plant and equipment

 

$

204,275

 

$

258,160

 

Depreciation expense reflected in the consolidated statements of operations was $11.1 million and $11.1 million for the three months ended September 25, 2015 and September 30, 2014, respectively, and $35.9 million and $31.3 million for the nine months ended September 25, 2015 and September 30, 2014, respectively.

 

During the nine months ended September 25, 2015, we sold properties in the northwestern United States and in Canada, which had a combined net book value of $15.2 million at the time of disposal.  In addition, during the nine months ended September 25, 2015, we sold office buildings in our Europe region and in the northwestern United States with a combined net book value of $18.7 million at the time of disposal.  Both of these office buildings were subsequently leased back from the new owner under an operating lease arrangement.

 

 

18


 

(10) Fair Value of Financial Instruments

 

Cash and cash equivalents, client accounts receivables, unbilled revenue, accounts payable and accrued subcontractor costs and billings in excess of revenue are carried at cost, which approximates fair value due to their short maturities. The fair value of long-term debt, including the current portion, is estimated based on Level 2 inputs, except the amount outstanding on our revolving credit facility for which the carrying value approximates fair value. Fair value is determined by discounting future cash flows using interest rates available for issues with similar terms and average maturities. The estimated fair values of our financial instruments where carrying values do not approximate fair value are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 25, 2015

 

December 31, 2014

 

    

Carrying

    

Fair

    

Carrying

    

Fair

($ in thousands)

 

Amount

 

Value

 

Amount

 

Value

Mortgage notes payable

 

$

115

 

$

115

 

$

8,682

    

$

7,925

Equipment financing

 

 

9,505

 

 

8,425

 

 

11,392

 

 

10,747

 

We primarily enter into derivative financial instruments to mitigate exposures to changing foreign currency exchange rates. These currency derivative instruments are carried on the balance sheet at fair value and are based upon Level 2 inputs including third-party quotes. At September 25, 2015, we had forward foreign exchange contracts on major world currencies with varying durations, none of which extend beyond one year. As of September 25, 2015, we had $0.2 million of derivative assets, and the changes in derivative fair values resulted in a realized and unrealized losses of $6.2 million and $10.5 million for the three and nine months ended September 25, 2015, respectively. As of December 31, 2014, derivative assets and liabilities recorded were insignificant, and the periodic changes in the fair value of derivatives recorded in earnings were insignificant for the three and nine months ended September 30, 2014.

 

(11) Line of Credit and Long-Term Debt

 

On March 30, 2015, we entered into the Second Amendment to our Amended and Restated Credit Agreement (“Credit Agreement”).  The Credit Agreement provides for an unsecured revolving Credit Facility of $1.1 billion (“Credit Facility”) which matures on March 28, 2019 and retroactively amended the maximum consolidated leverage ratio effective January 1, 2015.  Under the terms of the Credit Agreement, we may be able to invite existing and new lenders to increase the amount available to be borrowed under the agreement by up to $350.0 million.  The Credit Agreement has a subfacility for the issuance of standby letters of credit in a face amount up to $750.0 million and a subfacility up to $300.0 million for multicurrency borrowings. Additionally, as discussed in Note 4, the Company sold and issued an aggregate of 3,214,400 shares of Series A Preferred Stock for an aggregate purchase price of $200.0 million in a private placement to a subsidiary owned by investment funds affiliated with Apollo on June 24, 2015.  As a result of the successful completion of our preferred stock offering, certain terms and conditions of our Credit Agreement as of September 25, 2015 are as follows:

 

·

The definition of consolidated adjusted EBITDA allows the add back of cash restructuring charges in 2015 of up to $40.0 million plus a carryover of $9.6 million for cash restructuring charges incurred in year 2014.

·

The maximum consolidated leverage ratio is 3.25x for the remainder of 2015 and 3.00x for 2016 and beyond.

·

Certain repurchases by CH2M of its common stock and preferred stock and payment of common stock dividends are limited to $120.0 million in 2015.  For 2016 and beyond, there is no limit on repurchases of common stock offered for sale on the internal market, and there is a $100.0 million limit for other repurchases of common stock, redemption of preferred stock and common dividends, subject to pro forma leverage of 2.75x.

·

Up to 50% of the proceeds from asset sales can be utilized to repurchase common or preferred stock, subject to pro forma financial covenant compliance.

 

The Credit Agreement contains customary representations and warranties and conditions to borrowing including customary affirmative and negative covenants, which include covenants that limit or restrict our ability to incur indebtedness and other obligations, grant liens to secure their obligations, make investments, merge or

19


 

consolidate, and dispose of assets outside the ordinary course of business, in each case subject to customary exceptions for credit facilities of this size and type.  As of September 25, 2015, we were in compliance with the covenants required by the Credit Agreement.

 

At September 25, 2015 and December 31, 2014, $259.6 million and $492.6 million in borrowings were outstanding on the Credit Facility, respectively. The average rate of interest charged on that balance was 1.73% as of September 25, 2015. At September 25, 2015 and December 31, 2014, company-wide issued and outstanding letters of credit and bank guarantee facilities were $153.8 million and $199.3 million, respectively.  The remaining unused borrowing capacity under the Credit Facility was $555.3 million as of September 25, 2015.

 

Our nonrecourse and other long-term debt consist of the following:

 

 

 

 

 

 

 

 

 

    

September 25,

    

December 31,

($ in thousands)

 

2015

 

2014

Revolving credit facility, average rate of interest of 1.734%

 

$

259,611

 

$

492,551

Mortgage note payable in monthly installments due December 2015, secured by real estate. This notes bears interest at 6.59%.

 

 

115

 

 

8,682

Equipment financing, due in monthly installments to September 2021, secured by equipment. These notes bear interest ranging from 0.22% to 8.84%

 

 

9,505

 

 

11,392

Other notes payable

 

 

287

 

 

424

Total debt

 

$

269,518

 

$

513,049

    Less: current portion of debt

 

 

2,653

 

 

5,028

Total long-term portion of debt

 

$

266,865

 

$

508,021

 

 

(12) Income Taxes

 

After adjusting for the impact of income attributable to noncontrolling interest, the effective tax rate on income attributable to CH2M for the three month period ended September 25, 2015 was 24.1% compared to 16.4% for the loss for the same period in the prior year. The effective tax rate on income attributable to CH2M for the nine months ended September 25, 2015 was 28.3% compared to 16.7% for the loss in the same period in the prior year. The 2015 effective tax rate for the three and nine month periods were higher than the effective tax rates in the same periods of 2014 primarily due to the negative impacts of certain 2014 nondeductible expenses such as goodwill impairment, the lack of a domestic production activities deduction, and other items which did not repeat in 2015. In addition, for the three months ended September 25, 2015, we recognized a positive impact on our effective tax rate from the settlement of the IRS exams for the years 2009 and 2010.  Our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses, and the disallowed portions of meals and entertainment expenses.

 

Estimated undistributed earnings of our foreign subsidiaries amounted to approximately $345.4 million and $331.2 million at September 25, 2015 and December 31, 2014, respectively. These earnings are considered to be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been made. Determining the tax liability that would arise if these earnings were repatriated is not practical.

 

As of September 25, 2015 and December 31, 2014, we had $21.9 million and $34.2 million, respectively, recorded as a liability for uncertain tax positions.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.  Included in the amounts discussed above are approximately $4.7 million and $7.0 million of accrued interest and penalties related to uncertain tax positions, as of September 25, 2015 and December 31, 2014, respectively.

 

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, United Kingdom and Canada. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities in major tax jurisdictions for years before 2007.

 

20


 

(13) Restructuring and Related Charges

 

In September 2014, we commenced certain restructuring activities in order to achieve important business objectives, including reducing overhead costs, enhancing client service, improving efficiency, reducing risk, and creating more opportunity for profitable growth.  These restructuring activities include such items as a voluntary retirement program, workforce reductions, facilities consolidations and evaluation of certain lines of business.

 

During the three and nine months ended September 25, 2015, we incurred $8.2 million and $25.8 million of costs for these restructuring activities, respectively, which have been included in general and administration expense on the consolidated statements of operations.  During the three and nine months ended September 30, 2014, we incurred $3.1 million for restructuring activities related primarily to employee severance and termination benefits. Overall, as of September 25, 2015, we have incurred aggregated costs of $96.2 million for restructuring activities, and we expect to incur up to approximately $25.0 million in additional restructuring charges during the remainder of 2015 related to these activities. 

 

The changes in the provision for restructuring activities for the nine months ended September 25, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Severance

 

 

 

 

 

 

 

 

and Termination

 

 

 

 

 

 

($ in thousands)

 

Benefits

 

Facilities Cost

 

Other

 

Total

Balance at December 31, 2014

    

$

1,060

    

$

15,000

    

$

420

    

$

16,480

Provision

 

 

12,712

 

 

3,500

 

 

9,548

 

 

25,760

Cash payments

 

 

(13,772)

 

 

(2,650)

 

 

(9,968)

 

 

(26,390)

Non-cash settlements

 

 

 —

 

 

(1,623)

 

 

 —

 

 

(1,623)

Balance at September 25, 2015

 

$

 —

 

$

14,227

 

$

 —

 

$

14,227

 

The accruals for facilities costs will be paid over the remaining term of the leases which we have exited and therefore will extend through 2028.

 

(14) Commitments and Contingencies

 

We are party to various legal actions arising in the normal course of business. Because a large portion of our business comes from U.S. federal, state and municipal sources, our procurement and certain other practices at times are subject to review and investigation by various agencies of the U.S. government and state attorneys’ offices. Such state and U.S. government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties or could lead to suspension or debarment from future U.S. government contracting. These investigations often take years to complete and many result in no adverse action or alternatively could result in settlement. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings and legal actions are often difficult to predict, management believes that proceedings and legal actions currently pending would not result in a material adverse effect on our results of operations or financial condition even if the final outcome is adverse to our company.

 

Many claims that are currently pending against us are covered by our professional liability insurance. Management estimates that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover our liabilities, if any, with regard to such claims. Any amounts that are probable of payment are accrued when such amounts are estimable.  As of September 25, 2015 and December 31, 2014, accruals for potential estimated claim liabilities were $14.2 million and $16.3 million, respectively.

 

In 2010, we were notified that the U.S. Attorney’s Office for the Eastern District of Washington was investigating overtime practices in connection with the U.S. Department of Energy Hanford tank farms management contract that we transitioned to another contractor in 2008. In 2011 and 2012, eight former CH2M Hanford Group (“CH2M Subsidiary”) employees pleaded guilty to felony charges related to time card fraud committed while working on the Hanford Tank Farm Project. As part of its investigation, the U.S. Attorney’s Office raised the

21


 

possibility of violations of the civil False Claims Act and criminal charges for possible violations of federal criminal statutes arising from CH2M Subsidiary’s overtime practices on the project. In September 2012, the government intervened in a civil False Claims Act case filed in the District Court for the Eastern District of Washington by one of the employees who plead guilty to time card fraud. In March 2013, we entered into a Non-Prosecution Agreement (“NPA”) concluding the criminal investigation so long as we comply with the terms of the NPA. The NPA requires us to comply with ongoing requirements for three years after the effective date. By a separate agreement, we obtained dismissal of the civil False Claims Act case. We paid $18.5 million in total under both agreements. As a result, no criminal charges were brought against CH2M Subsidiary or any CH2M entities, and the civil False Claims Act case was dismissed.

 

22


 

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

 

The following discussion and analysis is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations as a whole and for each of our operating segments and should be read in conjunction with our consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

In the following text, the terms, “CH2M,” “the Company,” “we,” “our,” and “us” may refer to CH2M HILL Companies, Ltd.

 

Certain statements throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward-looking and thus reflect our current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward looking statements. Words such as “believes,” “anticipates,” “expects,” “will,” “plans” and similar expressions are intended to identify forward-looking statements.

 

Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.

 

Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: the continuance of, and funding for certain governmental regulation and enforcement programs which create demand for our services; our ability to attract and perform large, longer-term projects; our ability to insure against or otherwise cover the liability risks inherent in our business including environmental liabilities and professional engineering liabilities; our ability to manage the risks inherent in the government contracting business and the delivery of lump sum projects; our ability to manage the costs associated with our fixed-price contracts; our ability to manage the risks inherent in international operations, including operations in war and conflict zones; our ability to identify and successfully integrate acquisitions; our ability to attract and retain professional personnel; changes in global business, economic, political and social conditions; intense competition in the global engineering, procurement and construction industry; civil unrest, security issues and other unforeseeable events in countries in which we do business; our failure to receive anticipated new contract awards; the affects, if any, of U.S. government budget constraints; difficulties or delays incurred in the execution of contracts; and other risks and uncertainties set forth under Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended December 31, 2014, as well as those risk factors contained herein in Section 1A and other risks and uncertainties set forth from time to time in the reports the Company files with the SEC. Consequently, forward-looking statements should not be regarded as representation or warranties by the Company that such matters will be realized.

 

Business Summary

 

Founded in 1946, we are a large employee-controlled professional engineering services firm providing engineering, construction, consulting, design, design-build, procurement, operations and maintenance, EPC, program management and technical services around the world. Including craft and hourly employees as well as certain populated joint ventures, we have approximately 25,000 employees worldwide.

 

We provide services to a diverse customer base including the U.S. federal and foreign governments and governmental authorities, various United States federal government agencies, provincial, state and local municipal governments, major oil and gas companies, refiners and pipeline operators, utilities, metal and mining manufacturers, automotive, food and beverage and consumer products manufacturers, microelectronics fabricators, pharmaceutical companies and biotechnology companies. We believe we provide our clients with innovative project

23


 

delivery using cost-effective approaches and advanced technologies.

 

Our revenue is dependent upon our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, execute existing contracts, and maintain existing client relationships. Moreover, as a professional services company, the quality of the work generated by our employees is integral to our revenue generation.

 

Preferred Stock Offering

 

On June 22, 2015, the Company designated 10,000,000 shares as Series A Preferred Stock with an original issue price of $62.22 under the Certificate of Designation.  On June 24, 2015, the Company sold and issued an aggregate of 3,214,400 shares of Series A Preferred Stock for an aggregate purchase price of  $200.0 million in a private placement to a subsidiary owned by investment funds affiliated with Apollo Global Management, LLC (together with its subsidiaries, “Apollo”). Total proceeds from the preferred stock offering were $191.7 million, net of issuance costs of $8.3 million. The sale occurred in connection with the Initial Closing (“Initial Closing”) pursuant to the Subscription Agreement entered into by the Company and Apollo on May 27, 2015 (“Subscription Agreement”).  Subject to the conditions within the Subscription Agreement, Apollo will purchase an additional 1,607,200 shares of Series A Preferred Stock for an aggregate purchase price of approximately $100.0 million in a second closing which will occur on the one-year anniversary of the Initial Closing or upon the earlier election of the CompanyFor a summary of the terms and conditions of the Series A Preferred Stock, see Note 4 of the consolidated financial statements.

 

Restructuring

 

In September 2014, we commenced certain restructuring activities in order to achieve important business objectives, including reducing overhead costs, enhancing client service, improving efficiency, reducing risk, and creating more opportunity for profitable growth.  These restructuring plans included such items as the evaluation of certain lines of business, voluntary and involuntary employee terminations, the closure of certain facilities and reduction of corporate overhead costsThese restructuring charges are included within general and administrative costs on our consolidated statements of operations.

 

The Company’s overall overhead cost structure has benefited from the restructuring activities as described in the Summary of Operations section below through the reduction of costs within the corporate overhead functions which are allocated to the business groups to arrive at segment operating profit as well as overhead costs within the business groups themselves.  A portion of these costs savings has been offset by the charges incurred in the three and nine months ended September 25, 2015 for restructuring efforts totaling $8.2 million and $25.8 million, respectively.  During the three and nine months ended September 30, 2014, we incurred $3.1 million for restructuring activities related primarily to employee severance and termination benefits.  We expect to incur up to approximately $25.0 million in additional restructuring charges during the remainder of 2015. Overall, as of September 25, 2015, we have incurred aggregated costs of $96.2 million for restructuring activities.  Once all restructuring activities are completed, we expect to benefit from annualized cost savings of greater than $120.0 million.

 

Acquisitions

 

We continuously monitor acquisition and investment opportunities that will expand our portfolio of services, provide local resources internationally to serve our customers, add value to the projects undertaken for clients, or enhance our capital strength.  On April 4, 2014, we acquired certain agreed upon assets and liabilities of TERA Environmental Consultants (“TERA”) for consideration of  $119.6 million.  TERA was an employee-owned environmental consulting firm headquartered in Canada specializing in providing environmental assessment, planning, siting, permitting, licensing, and related services for the pipeline, electrical transmission, and oil and gas industries.

 

Summary of Operations

 

During 2014, we implemented certain significant organizational changes, including the manner in which

24


 

our operations are managed through a matrix organization of business groups, geographic regions and service lines.  In the first quarter of 2015, we refined this matrix structure, and continued to reorganize our internal reporting structure by making changes to better facilitate our strategy for growth, client-centric service, and operational efficiency.  In connection with this refinement, we continued to reevaluate the manner in which our Chief Operating Decision Maker (“CODM”) reviews operating results and makes key business decisions.  Our CODM is our executive management committee that meets regularly to evaluate operating results and allocate our financial and operational resources.  As part of the reevaluation in 2015, we determined that our CODM primarily reviews financial operating results by business group, and as such, we have identified each of our five business groups as reportable operating segments: Environment and Nuclear; Industrial and Urban Environments (“IUE”); Oil, Gas and Chemicals; Transportation; and Water.  Additionally, although the Power group falls within the IUE business group, we have identified Power as a separate reportable operating segment as we are currently in the process of exiting the fixed-price EPC Power business and as such the results of this group are being monitored apart from the rest of the business group

 

Costs for corporate general and administrative expenses, restructuring costs and amortization expense related to intangible assets have been allocated based upon the estimated allocation to each segment based on the benefits provided by corporate functions.  This allocation is primarily based upon metrics that reflect the proportionate volume of project-related activity and employee labor costs within each segment. Prior year amounts have been revised to conform to the current year presentation.

 

Results of Operations for the three months ended September 25, 2015 and September 30, 2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

September 25, 2015

 

September 30, 2014

 

Change

 

 

Gross

 

Operating

 

Gross

 

Operating

 

Gross

 

Operating

($ in thousands) 

    

Revenue

    

Income (Loss)

    

Revenue

    

Income (Loss)

    

Revenue

    

Income (Loss)

Environment and Nuclear

 

$

422,049

 

$

19,846

 

$

482,369

 

$

29,147

 

$

(60,320)

 

$

(9,301)

Industrial and Urban Environments

 

 

108,874

 

 

2,362

 

 

134,658

 

 

(31,018)

 

 

(25,784)

 

 

33,380

Oil, Gas and Chemicals

 

 

204,757

 

 

12,589

 

 

229,813

 

 

2,307

 

 

(25,056)

 

 

10,282

Transportation

 

 

251,228

 

 

8,837

 

 

237,297

 

 

(34,064)

 

 

13,931

 

 

42,901

Water

 

 

317,765

 

 

21,836

 

 

306,027

 

 

25,036

 

 

11,738

 

 

(3,200)

Power

 

 

61,204

 

 

890

 

 

32,373

 

 

(226,311)

 

 

28,831

 

 

227,201

Total

 

$

1,365,877

 

$

66,360

 

$

1,422,537

 

$

(234,903)

 

$

(56,660)

 

$

301,263

 

On a consolidated basis, our gross revenue decreased by $56.7 million, or 4%, and our consolidated operating income improved $301.3 million for the quarter ended September 25, 2015 as compared to the quarter ended September 30, 2014.

 

Environment and Nuclear revenue declined $60.3 million, or 13%, for the three month period ended September 25, 2015 as compared to the three month period ended September 30, 2014.  Approximately $28.0 million of the decrease in revenue was attributable to decreased volumes related to a domestic design-build facility renovation project as the project approached substantial completion during 2015.  Additionally, the depressed oil and gas industry caused a $15.2 million revenue decline due to lower volumes of environmental consulting projects in Canada.  The remaining decrease in revenue was primarily related to an overall reduction in our design-build military and government facilities businesses, particularly within the federal sector.  For the three month period ended September 25, 2015 as compared to the three month period ended September 30, 2014, Environment and Nuclear experienced a net decrease in operating income of $9.3 million, which was primarily driven by the declines in revenue, as previously discussed, as well as a $5.3 million unfavorable claim settlement during the three months ended September 25, 2015.  These decreases were offset by improvements in reduced overhead costs from restructuring cost efficiencies in 2015.   TERA, which was acquired in the second quarter of 2014, contributed approximately $22.6 million of revenue and $4.3 million of operating income for the three month period ended September 25, 2015 and approximately $35.6 million of revenue and $5.8 million of operating income for the three months ended September 30, 2014.

 

25


 

Within Industrial and Urban Environments (“IUE”), revenue for the three months ended September 25, 2015 decreased by $25.8 million, or 19%, as compared to the three months ended September 30, 2014.  Approximately $13.8 million of the revenue decline was caused by three firm-fixed price contracts which achieved substantial completion prior to the third quarter of 2015.  Additionally, revenue from our urban environments and sports business declined by $7.4 million within the Middle East due to reduced deliverables required in 2015.  Operating income increased $33.4 million from an operating loss of $31.0 million during the three months ended September 30, 2014 to operating income of $2.4 million for the three months ended September 25, 2015.  The increase in operating income was primarily caused by a $27.8 million goodwill impairment charge recorded during the three months ended September 30, 2014 related to the industrial and advanced technology business and urban programs business within IUE.  The remaining growth in operating income was driven by a cost savings from efficiencies gained in 2015 related to the restructuring of the IUE business group.  

 

Oil, Gas and Chemicals experienced a net decrease of $25.1 million, or 11%, in revenue for the quarter ended September 25, 2015 as compared to the quarter ended September 30, 2014.  Contributing to the decrease in revenues were client concessions and a reduction in volume on consulting contracts and operations and maintenance contracts of approximately $39.5 million primarily within the United States and the Middle East due to continued pricing pressures within the oil and gas industry. This decrease was offset by approximately $15.4 million of increased revenue related to a gas construction contract in Alaska due to a significant increase in construction activity in the current year period. Operating income within Oil, Gas and Chemicals increased $10.3 million for the quarter ended September 25, 2015 as compared to the quarter ended September 30, 2014.  The increase in operating income was primarily related to cost reductions from restructuring activities in Canada and the United States as well as reduced business development costs with the depressed oil and gas industry.

 

Transportation revenue increased by $13.9 million, or 6%, in the quarter ended September 25, 2015 as compared to the quarter ended September 30, 2014 primarily due to increased activities in 2015 on a fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States.  Operating income within Transportation increased by $42.9 million for the three months ended September 25, 2015 as compared to the three months ended September 30, 2014.  The increase in operating income was driven by a $38.7 million charge in the third quarter of 2014 for the fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States.   The cost growth recognized in the third quarter of 2014 was primarily caused by resource and work constraints reducing work productivity rates, and delayed resolution with the client on movement of traffic.  Additionally, the project experienced delays from unexpected subsurface site conditions and from late delivery of a third party contractor’s design.  Management is assessing the recovery of cost overruns and schedule delays and is pursuing cost recovery through the contractual claims process; however, at this time it is not possible to estimate these recoveries.  We may incur additional costs and losses if our cost estimation processes identify new costs not previously included in our total estimated loss or if our plans to meet our revised schedule are not achieved resulting in liquidated damages under our contract.  These potential changes in estimates could be materially adverse to the Company’s results of operations.  The remaining growth in Transportation earnings was caused by cost benefits from restructuring initiatives.

 

Water experienced a net increase in revenue for the three months ended September 25, 2015 of  $11.7 million, or 4%, as compared to three months ended September 30, 2014.  The increase in revenue was primarily driven by a ramp up of activity on a design-build-operate contract for a water treatment facility in the western United States, resulting in increased revenue of approximately $17.8 million.  This increase was offset by a revenue decline of $4.5 million related to a project delay on a federal contract in the western United States.  Water’s operating income experienced a net decrease of  $3.2 million, or 13%, in the three months ended September 25, 2015 as compared to the three months ended September 30, 2014 due to a reduction in margin on the domestic portfolio of design-build projects which was partially offset by cost reductions related to restructuring activities.    

 

Power revenues increased  $28.8 million for the three months ended September 25, 2015 as compared to the three months ended September 30, 2014,  primarily due to an adjustment to revenue recorded in the third quarter of 2014 on an Australian fixed-price project being executed within a consolidated 50/50 joint venture. We reduced revenue by approximately $66.7 million due to a significant increase in estimated costs to complete the project resulting in a lower percent complete under cost-to-cost revenue recognition method. This adjustment was partially offset by $26.4 million of revenue recorded on the same project as significant construction progress due to major equipment construction and installation was achieved during the quarter ended September 30, 2014.  Additionally,  

26


 

two large scale domestic design-build power projects achieved substantial completion in 2014, causing revenue in the quarter ended September 30, 2014 to be $10.3 million greater than revenue in the quarter ended September 25, 2015For the three months ended September 25, 2015 as compared to the three months ended September 30, 2014, Power’s operating income increased by $227.2 million primarily as a result of recording a $170.0 million loss in the Australian joint venture for the three months ended September 30, 2014 due to the cost growth described. While management believes the current estimated cost to complete the project represents the best estimate at this time and management has been able to manage the project within the current estimate to complete as the work has progressed, the project is approximately 65% complete and there is a significant amount of work that still needs to be performed on the project before achieving substantial completion, and thus there can be no assurance that additional cost growth will not occur.  Management is continuing to negotiate with the client to settle certain claims and to revise certain provisions of the contract.  In addition, management continues to vigorously pursue recovery of costs and schedule impacts with the assistance of external legal and commercial claims specialists.  Management believes it will gain a better understanding during the fourth quarter as to whether a settlement is possible, and, if so, how the terms of such settlement would impact the joint venture’s estimated costs at completion.  If an agreement is not reached with the client, management will continue to pursue recovery of costs through all means currently available under the existing contract and at law. In addition, if these recovery steps are not successful, we might not recover previously incurred or potential future cost overruns from the client, and the joint venture might be assessed liquidated damages in excess of amounts already included in the current estimated loss at completion, which could materially affect the Company’s results of operations.

 

Additionally, within the Power results of operations, there was a $45.5 million goodwill and intangible asset impairment charge recorded during the three months ended September 30, 2014 related to restructuring efforts as the Company exited the fixed-price EPC Power business.

 

Results of Operations for the nine months ended September 25, 2015 and September 30, 2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

September 25, 2015

 

September 30, 2014

 

Change

 

 

Gross

 

Operating

 

Gross

 

Operating

 

Gross

 

Operating

($ in thousands) 

    

Revenue

    

Income (Loss)

    

Revenue

    

Income (Loss)

    

Revenue

    

Income (Loss)

Environment and Nuclear

 

$

1,177,552

 

$

58,740

 

$

1,254,177

 

$

52,488

 

$

(76,625)

 

$

6,252

Industrial and Urban Environments

 

 

353,923

 

 

9,958

 

 

369,623

 

 

(44,408)

 

 

(15,700)

 

 

54,366

Oil, Gas and Chemicals

 

 

619,837

 

 

27,401

 

 

644,390

 

 

4,167

 

 

(24,553)

 

 

23,234

Transportation

 

 

726,901

 

 

(24,812)

 

 

715,550

 

 

(20,747)

 

 

11,351

 

 

(4,065)

Water

 

 

943,384

 

 

68,506

 

 

926,745

 

 

69,307

 

 

16,639

 

 

(801)

Power

 

 

132,314

 

 

(3,186)

 

 

193,949

 

 

(285,681)

 

 

(61,635)

 

 

282,495

Total

 

$

3,953,911

 

$

136,608

 

$

4,104,434

 

$

(224,874)

 

$

(150,523)

 

$

361,482

 

On a consolidated basis, our gross revenue decreased by $150.5 million, or 4%, and our consolidated operating income improved $361.5 million for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.

 

Environment and Nuclear revenue declined $76.6 million, or 6%, for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  Approximately $37.0 million of the decrease in revenue was attributable to decreased volumes related to a domestic design-build facility renovation project as the project approached substantial completion.  Additionally, the depressed oil and gas industry caused a $22.9 million revenue decline due to lower volumes of environmental consulting projects in Canada.  The remaining decrease in revenue is related to an overall reduction in our design-build military and government facilities businesses, particularly within the federal sector. For the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014,  Environment and Nuclear experienced a net increase in operating income of $6.3 million, or 12%.  The increase in operating income was primary caused by improvements in reduced costs from restructuring cost efficiencies in 2015.  This increase was partially offset by the reductions in revenue as previously discussed as well as a $5.3 million unfavorable claim settlement during the nine months ended September 25, 2015

27


 

TERA, which was acquired in the second quarter of 2014, contributed approximately $58.5 million of revenue and $8.7 million of operating income for the nine month period ended September 25, 2015 and approximately $54.4 million of revenue and $7.4 million of operating income for the nine months ended September 30, 2014.

 

IUE revenue for the nine months ended September 25, 2015 experienced a net decrease of  $15.7 million, or 4%, as compared to the nine months ended September 30, 2014.  The decline in revenue was primarily driven by the substantial completion of several domestic consulting projects within the industrial and advanced technology business which were not replaced with similar large scale projects in 2015. This decline was partially offset by an increase in revenue related to a growth in the number of program management projects as well as activity in the existing program management projects within the Middle East in 2015.  IUE experienced a $54.4 million increase in operating income for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014 primarily caused by a $27.8 million goodwill impairment charge incurred during the nine months ended September 30, 2014 related to the industrial and advanced technology business and urban programs business within IUE.  Furthermore, there was a $17.8 million operating charge in the nine months ended September 30, 2014 related to an increase in the estimated costs to complete a communications installation project in our Europe regionSubsequently, in the nine months ended September 25, 2015, we agreed with the customer to terminate the contract resulting in a $4.5 million gain.  The remaining growth in operating income was predominantly driven by a cost savings from efficiencies gained in 2015 related to the restructuring of the IUE business group.

 

Oil, Gas and Chemicals had a net decrease in revenue of  $24.6 million, or 4%, for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  The business group experienced an approximate decrease in revenues of $90.0 million caused by a reduction in volume and client concessions on consulting contracts and operations and maintenance contracts primarily within the United States and the Middle East as a result of continued pricing pressures within the oil and gas industry. This decrease was offset by approximately $66.5 million of increased revenue related to a gas construction contract in Alaska due to a significant increase in construction activity in the current year period.  Operating income within Oil, Gas and Chemicals experienced a net increase of  $23.2 million for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  The increase in operating income was primarily related to cost reductions from restructuring activities in Canada and the United States as well as reduced business development costs with the depressed oil and gas industry. These increases in operating income were offset by a reduction in earnings from professional services and field services projects due to lower project volume in 2015 to date in the weaker oil and gas industry.

 

Transportation revenue experienced a net increase of  $11.4 million, or 2%, in the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014 primarily due to the strengthening of the U.S. dollar causing foreign currency fluctuations related to our operations in Canada and Europe partially offset by revenue growth related to increased activities in 2015 on a fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States.   Transportation’s operating loss increased by a net  $4.1 million for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  The decline in earnings was predominantly caused by an estimated additional cost growth of $53.6 million in the nine months ended September 25, 2015 for the fixed-price contract to design and construct roadway improvements on an expressway in the southwestern United States.  In the comparable period in 2014, we recorded a charge of $38.7 million related to the same project.  These increases in costs were primarily caused by resource and work constraints reducing work productivity rates, and delayed resolution with the client on movement of traffic.  Additionally, the project experienced delays from unexpected subsurface site conditions and from late delivery of a third party contractor’s design.  Management is assessing the recovery of cost overruns and schedule delays and is pursuing cost recovery through the contractual claims process; however, at this time it is not possible to estimate these recoveries.  We may incur additional costs and losses if our cost estimation processes identify new costs not previously included in our total estimated loss or if our plans to meet our revised schedule are not achieved resulting in liquidated damages under our contract.  These potential changes in estimates could be materially adverse to the Company’s results of operations.  Additionally, the decrease in earnings was partially offset by cost benefits from restructuring initiatives.

 

Water revenue for the nine months ended September 25, 2015 had a net increase of  $16.6 million, or 2%, as compared to nine months ended September 30, 2014.  The increase in revenue was primarily driven by a ramp up of activity on a design-build-operate contract for a water treatment facility in the western United States, resulting in an

28


 

increase in revenue of approximately $55.9 million.  This increase was offset by a decline in revenue of $16.5 million due to completion of two large domestic Water contracts in 2015 as well as a revenue decline of $20.5 million related to a project delays on a federal contract in the western United States and the ramping down of construction work on a domestic commercial contract.  Water experienced a slight decrease in operating income of  $0.8 million, or 1%, in the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014 primarily due to a $3.4 million reserve for project claims that were settled in 2015.  This reserve was partially offset by cost savings from restructuring activities. 

 

Power experienced a net decrease in revenue of  $61.6 million for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  In 2014, we decided to exit the fixed-price EPC Power business with the exception of projects under contract.  As a result, two large scale domestic design-build power projects achieved substantial completion in 2014, causing a decrease in revenue of $95.2 million.  Additionally, we recorded an adjustment to revenue recorded in the third quarter of 2014 on an Australian fixed-price project being executed with a consolidated 50/50 joint venture. This adjustment reduced revenue by approximately $66.7 million due to a significant increase in estimated costs to complete the project resulting in a lower percent complete under cost-to-cost revenue recognition method.  This adjustment was partially offset by $26.4 million of revenue recorded on the same project as significant construction progress due to major equipment construction and installation was achieved during the nine months ended September 30, 2014. 

 

For the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014, Power operating loss was reduced by  $282.5 million primarily as a result of recording the $170.0 million loss in our Australian joint venture during the nine months ended September 30, 2014 due to significant cost growth identified on the project. See additional discussion of this project above in the Results of Operations for the Three Months Ended September 30, 2015 and September 30, 2014. Additionally, a $52.5 million project loss was taken during the first half of 2014 related to a change in estimate for a fixed-price contract to design and construct a new power generation facility in the northeastern United States. The project experienced significant cost growth from multiple sources including a substantial decline in union labor productivity, poor subcontractor performance and the impacts of schedule delays caused by the above items and severe weather in the northeastern United States. There were no additional charges to operations in nine months ended September 25, 2015 as the project achieved substantial completion in 2014.  Management is seeking recovery of a portion of the total project loss from the client, including relief from a portion of the liquidated damages assessed by the client through the date of substantial completion due to client interference and other remedies under the terms of the contract.   During 2015, both CH2M and our client filed litigation against each other.   While our goal remains amicable settlement of the disputes, we intend to vigorously pursue our claim for cost recovery.  There can be no assurance we will be successful in obtaining such recoveries. Furthermore, there was a $45.5 million goodwill and intangible impairment charge incurred during the nine months ended September 30, 2014 related to the restructuring as the Company exited the fixed-price EPC Power business.

 

Income Taxes

 

After adjusting for the impact of income attributable to noncontrolling interest, the effective tax rate on the income for the three month period ended September 25, 2015 was 24.1% compared to 16.4% for the loss for the same period in the prior year.   The effective tax rate on income attributable to CH2M for the nine months ended September 25, 2015 was 28.3% compared to 16.7% for the loss in the same period in the prior year. The 2015 effective tax rates for the three and nine month periods were higher than the effective tax rates in the same periods of 2014 primarily due to the negative impacts of certain 2014 nondeductible expenses such as goodwill impairment, the lack of a domestic production activities deduction, and other items which did not repeat in 2015.  For the three months ended September 25, 2015, we recognized a positive impact on our effective tax rate from the settlement of the IRS exams for the years 2009 and 2010.  Our effective tax rate continues to be negatively impacted by the effect of state income taxes, non-deductible foreign net operating losses, and the disallowed portions of meals and entertainment expenses.

 

29


 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash flows from operations and borrowings under our unsecured revolving line of credit. Our primary uses of cash are working capital, acquisitions, capital expenditures and purchases of stock in our internal market. We maintain a domestic cash management system which provides for cash sufficient to satisfy financial obligations as they are submitted for payment and any excess cash in domestic bank accounts is applied against any outstanding swingline debt held under our credit facility described below. We maintain entities to do business in countries around the world and as a result hold cash in international bank accounts to fund the working capital requirements of those operations.  At September 25, 2015 and December 31, 2014, cash totaling $118.8 million and $99.2 million, respectively, was held in foreign bank accounts.

 

In addition, as is common within our industry, we partner with other engineering and construction firms on specific projects to leverage the skills of the respective partners and decrease our risk of loss. Often projects of this nature require significant cash contributions and the joint ventures created may retain cash earned while the project is being completed.  Cash and cash equivalents on our consolidated balance sheets include cash held within these consolidated joint venture entities which is used for operating activities of those joint ventures. As of September 25, 2015 and December 31, 2014, cash and cash equivalents held in our consolidated joint ventures and reflected on the consolidated balance sheets totaled $44.3 million and $45.4 million, respectively.

 

During the nine months ended September 25, 2015, cash provided by operations was $70.1 million, which was an increase of $42.9 million as compared to cash provided by operations of $27.2 million in the same period last year. The increase in cash flows from operations primarily resulted from an increase in earnings on our operations of $303.9 million offset by a decline in cash provided by changes in working capital of $181.0 millionThe primary reasons for the increase in our earnings is discussed within our results of operations above. 

 

Changes in our working capital requirements can vary significantly from period to period based primarily on the mix of our projects underway and the percentage of project work completed during the period.  Within working capital, we benefited primarily from an increase of $67.4 million in accrued payroll and employee related liabilities due to the timing of when the quarter ended and payroll was paid throughout the world as well as a  $45.4 million reduction in receivables and unbilled revenue in the nine months ended September 25, 2015.  This was offset by payments made of  $50.5 million on accounts payable and accrued subcontractor costs which was primarily caused by payments made for equipment on our joint venture power project in Australia, and a decline of $61.2 million in billings in excess of revenue due primarily to delayed issuance of invoices while management negotiations continue on the power project in Australia. Additionally, other accrued liabilities decreased by $91.7 million primarily due to a  $79.4 million reduction in project loss reserves from December 31, 2014 to September 25, 2015 as actual losses were realized with increased percentage of completion on loss projects. In the nine months ended September 30, 2014, cash flows from operations were most significantly affected by $137.2 million in changes in working capital, which was primarily driven by the $140.4 million increase in other accrued liabilities.  The increase in other accrued liabilities was primarily due to a $150.5 million increase in project loss reserves from December 31, 2013 to September 30, 2014.

 

Cash provided by investing activities was $15.3 million for the nine months ended September 25, 2015 as compared to cash used in investing activities of $143.9 million for the nine months ended September 30, 2014. A significant factor contributing to cash used in investing activities in the 2014 period was the $87.6 million cash used in acquisitions, primarily for the acquisition of TERA which occurred in the second quarter of 2014. There was no acquisition activity for the nine month period ended September 25, 2015. Additionally, due to the sale of certain previously owned land, office buildings, and operating facilities in the United Kingdom, Canada, and northwestern United States proceeds from the sale of operating assets increased by $37.7 million for the nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014.  Capital expenditures also decreased $37.2 million in nine months ended September 25, 2015 as compared to the nine months ended September 30, 2014 primarily due to the 2014 completion of the implementation of our enterprise resource planning system, improvements to our office facilities, and equipment purchases to support our Oil, Gas and Chemical projects on the North Slope of Alaska.  Furthermore, we periodically make working capital advances to certain of our unconsolidated joint ventures and, such advances are repaid to us from the joint ventures in the normal course of the joint venture activities.  During the nine months ended September 25, 2015, we received working capital repayments from our unconsolidated joint ventures of $20.9 million as compared to $10.1 million for the nine months ended

30


 

September 30, 2014.  These working capital repayments are offset by additional investments made in our unconsolidated joint ventures, which were $23.9 million and $9.5 million for the nine months ended September 25, 2015 and September 30, 2014, respectively.

 

Cash used in financing activities of $50.7 million in the nine months ended September 25, 2015 increased by $48.9 million from $1.8 million for the nine months ended September 30, 2014.  Although the company received $191.6 million in proceeds from the preferred stock issuance in the second quarter of 2015, the cash proceeds have currently been used to pay down the unsecured revolving credit facility, resulting in a net payment on long-term debt of $244.0 million for the 2015 as compared to a net borrowing of  $128.1 million for the nine months ended September 30, 2014. Management may subsequently re-borrow the proceeds to use for purposes that could include additional repurchases of common stock in the internal market, acquisitions, capital expenditures or other working capital purposes.  Additionally, beginning with the quarterly internal market trades in the third quarter of 2014, we have limited the amount expended to repurchase shares to balance the internal market.  As a result, repurchases of common stock for the nine months ended September 25, 2015 were $58.5 million, representing a $77.5 million decrease in cash used from financing activities as compared to the $136.0 million spent in the prior year period. 

 

On March 30, 2015, we entered into the Second Amendment to our Amended and Restated Credit Agreement (“Credit Agreement”).  The Credit Agreement provides for an unsecured revolving Credit Facility of $1.1 billion (“Credit Facility”) which matures on March 28, 2019 and retroactively amended the maximum consolidated leverage ratio effective January 1, 2015.  Under the terms of the Credit Agreement, we may be able to invite existing and new lenders to increase the amount available to be borrowed under the agreement by up to $350.0 million.  The Credit Agreement has a subfacility for the issuance of standby letters of credit in a face amount up to $750.0 million and a subfacility up to $300.0 million for multicurrency borrowings.  

 

As a result of the successful completion of our preferred stock offering, certain terms and conditions of our Credit Agreement are as follows:

 

·

The definition of consolidated adjusted EBITDA allows the add back of cash restructuring charges in 2015 of up to $40 million plus a carryover of $9.6 million for cash restructuring charges incurred in year 2014.

·

The maximum consolidated leverage ratio is 3.25x for the remainder of 2015 and 3.00x for 2016 and beyond.

·

Certain repurchases by CH2M of its common stock and preferred stock and payment of common stock dividends are limited to $120.0 million in 2015.  For 2016 and beyond, there is no limit on repurchases of common stock offered for sale on the internal market, and there is a $100 million limit for other repurchases of common stock, redemption of preferred stock and common dividends, subject to pro forma leverage of 2.75x.

·

Up to 50% of the proceeds from asset sales can be utilized to repurchase common or preferred stock, subject to pro forma financial covenant compliance.

 

As of September 25, 2015, we were in compliance with the covenants required by the Credit Agreement.  In the context of our current debt structure and projected cash needs, and assuming limited participation in our internal market to repurchase stock, we believe the combination of our current cash position, our credit capacity under our Credit Agreement, the cash anticipated from the second closing of the Series A Preferred Stock offering, and cash flows anticipated from operations are adequate to support our immediate business operations and plans. 

 

At September 25, 2015,  we had $259.6 million in outstanding borrowings on the Credit Facility, compared to $492.6 million at December 31, 2014. The average rate of interest charged on that balance was 1.73% as of September 25, 2015. At September 25, 2015, company-wide issued and outstanding letters of credit, and bank guarantee facilities of $153.8 million were outstanding, compared to $199.3 million at December 31, 2014.  Our borrowing capacity under the Credit Facility is limited by a maximum consolidated leverage ratio, which is based on a multiple of an adjusted earnings before interest, taxes, depreciation and amortization calculation, and other outstanding obligations of the Company.  As of September 25, 2015, the remaining unused borrowing capacity under the Credit Facility was approximately $555.3 million.

 

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Internal Market Trades 

 

CH2M’s common stock trades on an internal market four times per year. The next internal market trade date is expected to be on December 3, 2015.  CH2M determines whether to participate in the internal market on a quarterly basis. Prior to each quarterly trade date, we review the outstanding orders and any resulting imbalance between sell orders and buy orders and make a determination whether or not CH2M should participate in the internal market by buying shares in order to help balance the number of sell orders and buy orders. In making that determination, CH2M’s management and Board of Directors consider prevailing circumstances, including our financial condition and results of operations, our available cash and capital resources, including the limits that CH2M may spend on share repurchases and the borrowing capacity available pursuant to the terms of our existing unsecured revolving line of credit and other sources of liquidity, expected current and future needs for cash to fund our operations, anticipated contingencies and other factors.

 

CH2M experienced project losses and other adverse operating results in recent periods, which has constrained our cash flow and liquidity.  In addition, CH2M’s principal revolving credit facility includes a limitation on the amount CH2M may spend to repurchase its common stock in connection with its employee stock ownership program and to make legally required repurchases of common stock held in benefit plan accounts in the third and fourth quarters of 2014 and in 2015. CH2M’s management and Board of Directors could determine to limit the amount of money expended by the company to repurchase shares to balance the internal market, or not to participate in the internal market, either of which would result in proration of sell orders that stockholders may place for trades on the next trade date. In addition, CH2M’s Board of Directors could determine to suspend trading on the internal market in order to provide time to evaluate the ability to adequately provide for proration and to conserve the company’s cash reserves and available liquidity.  For the past five trade dates, CH2M has limited the amount expended to repurchase shares to help balance the internal market.  We expect that the amounts CH2M will be able to spend to clear sell orders for the December 2015 and future trade dates will continue to be restricted. CH2M’s Board of Directors and management anticipate that the internal market will only partially clear, and some sell orders will be only partially filled, on such trade dates.

 

For more information of the risks associated with the internal market, please see the risk factors set forth in the CH2M Annual Report on Form 10-K for the year ended December 31, 2014 under the heading Item 1A. Risk Factors, and the risk factors set out in Item 1A. Risk Factors in this report.

 

Off-Balance Sheet Arrangements

 

We have interests in multiple joint ventures, some of which are unconsolidated variable interest entities, to facilitate the completion of contracts that are jointly performed with our joint venture partners. These joint ventures are formed to leverage the skills of the respective partners and include consulting, construction, design, project management and operations and maintenance contracts. Our risk of loss on joint ventures is similar to what the risk of loss would be if the project was self-performed, other than the fact that the risk is shared with our partners.

 

There were no substantial changes to other off-balance sheet arrangements or contractual commitments in the nine months ended September 25, 2015, when compared to the disclosures provided in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Aggregate Contractual Commitments

 

We maintain a variety of commercial commitments that are generally made available to provide support for various provisions in engineering and construction contracts.  Letters of credit are provided to clients in the ordinary course of the contracting business in lieu of retention or for performance and completion guarantees on engineering and construction contracts. We post bid bonds and performance and payment bonds, which are contractual agreements issued by a surety, for the purpose of guaranteeing our performance on contracts and to protect owners and are subject to full or partial forfeiture for failure to perform obligations arising from a successful bid. We also carry substantial premium paid, traditional insurance for our business risks including professional liability and general casualty insurance and other coverage which is customary in our industry.

 

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Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect both the results of operations as well as the carrying values of our assets and liabilities. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities as of the date of the financial statements that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The accounting policies that we believe are most critical to the understanding of our financial condition and results of operations and require complex management judgment are summarized below. Further detail and information regarding our critical accounting policies and estimates are included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Revenue Recognition

 

We earn revenue from different types of services performed under various types of contracts, including cost-plus, fixed-price and time-and-materials. We evaluate contractual arrangements to determine how to recognize revenue. We primarily perform engineering and construction related services and recognize revenue for these contracts on the percentage-of-completion method where progress towards completion is measured by relating the actual cost of work performed to date to the current estimated total cost of the respective contract. In making such estimates, judgments are required to evaluate potential variances in schedule, the cost of materials and labor, productivity, liability claims, contract disputes, and achievement of contract performance standards. We record the cumulative effect of changes in contract revenue and cost at completion in the period in which the changed estimates are determined to be reliably estimable.

 

Below is a description of the basic types of contracts from which we may earn revenue:

 

Cost-Plus Contracts.  Cost-plus contracts can be cost plus a fixed fee or rate, or cost plus an award fee. Under these types of contracts, we charge our clients for our costs, including both direct and indirect costs, with an additional fixed negotiated fee or award fee. We generally recognize revenue based on the actual labor costs and non-labor costs we incur, plus the portion of the fixed fee or award fee we have earned to date.  

 

Included in the total contract value for cost-plus fee arrangements is the portion of the fee for which receipt is determined to be probable.  Award fees are influenced by the achievement of contract milestones, cost savings and other factors.

 

Fixed-Price Contracts.  Under fixed-price contracts, our clients pay us an agreed amount negotiated in advance for a specified scope of work. For engineering and construction contracts, we recognize revenue on fixed-price contracts using the percentage-of-completion method where direct costs incurred to date are compared to total projected direct costs at contract completion. Prior to completion, our recognized profit margins on any fixed-price contract depend on the accuracy of our estimates and will increase to the extent that our actual costs are below the original estimated amounts. Conversely, if our costs exceed these estimates, our profit margins will decrease, and we may realize a loss on a project.

 

Time-and-Materials Contracts.  Under our time-and-materials contracts, we negotiate hourly billing rates and charge our clients based on the actual time that we expend on a project. In addition, clients reimburse us for our actual out of pocket costs of materials and other direct expenditures that we incur in connection with our performance under the contract. Our profit margins on time-and-materials contracts fluctuate based on actual labor and overhead costs that we directly charge or allocate to contracts compared with the negotiated billing rate and markup on other direct costs. Some of our time-and-materials contracts are subject to maximum contract values, and accordingly, revenue under these contracts is recognized under the percentage-of-completion method where costs incurred to date are compared to total projected costs at contract completion. Revenue on contracts that is not subject

33


 

to maximum contract values is recognized based on the actual number of hours we spend on the projects plus any actual out of pocket costs of materials and other direct expenditures that we incur on the projects.

 

Operations and Maintenance Contracts.  A portion of our contracts are operations and maintenance type contracts.  Revenue is recognized on operations and maintenance contracts on a straight-line basis over the life of the contract once we have an arrangement, service has begun, the price is fixed or determinable and collectability is reasonably assured.

 

For all contract types noted above, change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to contract value and when the change order can be estimated. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the customer’s written approval of such changes or separate documentation of change order costs that are identifiable.

 

Losses on construction and engineering contracts in process are recognized in their entirety when the loss becomes evident and the amount of loss can be reasonably estimated.

 

Income Taxes

 

In determining net income for financial statement purposes, we must make estimates and judgments in the calculation of tax assets and liabilities and in the determination of the recoverability of the deferred tax assets. The tax assets and liabilities arise from temporary differences between the tax return and the financial statement recognition of revenue and expenses. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our tax provision by recording a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable.

 

In addition, the calculation of our income tax provision involves uncertainties in the application of complex tax regulations. For income tax benefits to be recognized, a tax position must be more likely than not to be sustained upon ultimate settlement. We record reserves for uncertain tax positions that do not meet this criterion.

 

Goodwill

Goodwill represents the excess of costs over fair value of the assets of businesses we have acquired.  Goodwill acquired in a purchase business combination is not amortized, but instead, is tested for impairment at least annually in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles-Goodwill and Other (“ASC 350”), as amended under Accounting Standards Update 2011-08 (“ASU 2011-08”).  Our annual goodwill impairment test is conducted as of October 1st of each year, however, upon the occurrence of certain triggering events, we are also required to test for impairment at dates other than the annual impairment testing date.    In performing the annual impairment test, we evaluate our goodwill at the reporting unit level.  Under the guidance of ASC 350, we have the option to assess either quantitative or qualitative factors to determine whether it is more likely than not that the fair values of our reporting units are less than their carrying amounts.  If after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair values of our reporting units are less than their carrying amounts, then the next step of the impairment test is unnecessary.  If we conclude otherwise, then we are required to test goodwill for impairment under the two-step process.  The two-step process involves comparing the estimated fair value of each reporting unit to the unit’s carrying value, including goodwill.  If the carrying value of a reporting unit does not exceed its fair value, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, we would then perform a second step to measure the amount of goodwill impairment loss to be recorded.  We determine the fair value of our reporting units using a combination of the income approach, the market approach, and the cost approach.  The income approach calculates the present value of future cash flows based on assumptions and estimates derived from a review of our expected revenue growth rates, profit margins, business plans, and cost of capital and tax rates for the reporting units.  Our market based valuation method estimates the fair value of our reporting units by the application of a multiple to our estimate of a cash flow metric for each business unit.  The cost approach estimates the fair value of a reporting unit as the net replacement cost using current market quotes.

34


 

 

Pension and Postretirement Employee Benefits

 

The unfunded or overfunded projected benefit obligation of our defined benefit pension plans and other postretirement benefits are recorded in our consolidated financial statements using actuarial valuations that are based on many assumptions. These assumptions primarily include discount rates, rates of compensation increases for participants, mortality rates, and long term rates of return on plan assets. We use judgment in selecting these assumptions each year because we have to consider not only the current economic environment in each host country, but also future market trends, changes in interest rates and equity market performance. Changes in these assumptions have an immaterial impact on our net periodic pension costs as most of our defined benefit arrangements have been closed to new entrants and ceased future accruals.  Under current accounting guidance, any increase in expense resulting from changes in assumptions is recognized over time.

 

We also use these assumptions as well as applicable regulatory requirements, tax deductibility, reporting considerations and other factors to determine the appropriate funding levels.

 

Recently Adopted Accounting Standards

 

See Note 1 of the Notes to Consolidated Financial Statements.

 

Commitments and Contingencies

 

See Note 14 of the Notes to Consolidated Financial Statements.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

In the ordinary course of our operations we are exposed to certain market risks, primarily changes in foreign currency exchange rates and interest rates. This risk is monitored to limit the effect of foreign currency exchange rate and interest rate fluctuations on earnings and cash flows.

 

Foreign currency exchange rates.  We operate in many countries around the world and as a result, are exposed to foreign currency exchange rate risk on transactions in numerous countries. We are subject to this risk on long-term projects whereby the currency being paid by our client differs from the currency in which we incurred our costs. In order to mitigate the risk that foreign currency fluctuations will adversely impact our earnings and cash flow, we enter into derivative financial instruments. We do not enter into derivative transactions for speculative or trading purposes. All derivatives are carried at fair value in the consolidated balance sheets and changes in the fair value of the derivative instruments are recognized in earnings. These currency derivative instruments are carried on the balance sheet at fair value and are based upon Level 2 inputs including third-party quotes. As of September 25, 2015,  we had  $0.2 million of derivative assets on outstanding foreign exchange contracts outstanding.

 

In addition, we are also subject to the impact of foreign currency fluctuation on the translation of our foreign entity balance sheets into US dollars, including long-term intercompany trade balances among our entities with differing currencies.  Foreign currency translation adjustments included in our comprehensive income (loss) were translation losses of $17.4 million and $12.1 million for the three months ended September 25, 2015 and September 30, 2014, respectively. There were translation losses of $30.3 million and $7.0 million for the nine months ended September 25, 2015 and September 30, 2014, respectively. The $5.3 million increase over the three month periods and the $23.3 million increase over the nine month periods  were driven by the strengthening of the U.S. Dollar against the Australian dollar, the British Pound, the Canadian Dollar, and the Euro. 

 

Interest rates.  Our interest rate exposure is generally limited to our unsecured revolving Credit Facility. As of September 25, 2015 the outstanding balance on the unsecured revolving Credit Facility was  $259.6 million. We have assessed the market risk exposure on this financial instrument and determined that any significant changes to the fair value of this instrument would not have a material impact on our consolidated results of operations, financial position or cash flows. Based upon the amount outstanding under the unsecured Credit Facility, a one percentage point change in the assumed interest rate would change our annual interest expense by approximately  $2.6 million.

 

35


 

Item 4.  Controls and Procedures

 

We carried out an evaluation as of the last day of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

There have been no changes in our internal control over financial reporting during the quarter ended September 25, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are party to various legal actions arising in the normal course of business. Because a large portion of our business comes from U.S. federal, state and municipal sources, our procurement and certain other practices at times are subject to review and investigation by various agencies of the U.S. government and state attorneys’ offices. Such state and U.S. government investigations, whether relating to government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties or could lead to suspension or debarment from future U.S. government contracting. These investigations often take years to complete and many result in no adverse action or alternatively could result in settlement. Damages assessed in connection with and the cost of defending any such actions could be substantial. While the outcomes of pending proceedings and legal actions are often difficult to predict, management believes that proceedings and legal actions currently pending would not result in a material adverse effect on our results of operations or financial condition even if the final outcome is adverse to our company.

 

Many claims that are currently pending against us are covered by our professional liability insurance. Management estimates that the levels of insurance coverage (after retentions and deductibles) are generally adequate to cover our liabilities, if any, with regard to such claims. Any amounts that are probable of payment are accrued when such amounts are estimable.

 

In 2010, we were notified that the U.S. Attorney’s Office for the Eastern District of Washington was investigating overtime practices in connection with the U.S. Department of Energy Hanford tank farms management contract which we transitioned to another contractor in 2008. In 2011 and 2012, eight former CH2M HILL Hanford Group (“CH2M Subsidiary”) employees pleaded guilty to felony charges related to time card fraud committed while working on the Hanford Tank Farm Project. As part of its investigation, the U.S. Attorney’s Office raised the possibility of violations of the civil False Claims Act and criminal charges for possible violations of federal criminal statutes arising from CH2M’s Subsidiary overtime practices on the project. In September 2012, the government intervened in a civil False Claims Act case filed in the District Court for the Eastern District of Washington by one of the employees who plead guilty to time card fraud. In March 2013, we entered into a Non-Prosecution Agreement (“NPA”) concluding the criminal investigation so long as we comply with the terms of the NPA. The NPA requires us to comply with ongoing requirements for three years after the effective date. By a separate agreement, we obtained dismissal of the civil False Claims Act case. We paid $18.5 million in total under both agreements. As a result, no criminal charges were brought against CH2M Subsidiary or any CH2M entities, and the civil False Claims Act case was dismissed.

 

36


 

In the nine months ended September 25, 2015, there have been no material developments to other proceedings and legal actions as compared to the legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities

 

The following table covers the purchases of our common shares by our company not previously reported during the nine months ended September 25, 2015.

 

\

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Total Number of Shares

    

Maximum Number of Shares

 

 

Total Number of

 

Average Price

 

Purchased as Part of Publicly

 

that May Yet Be Purchased

Period

 

Shares Purchased

 

Paid per Share

 

Announced Plans or Programs

 

Under the Plans or Programs

July (a)

 

347

 

$

53.64

 

 —

 

 —

August

 

 —

 

 

 —

 

 —

 

 —

September (b)

 

589,295

 

 

55.75

 

 —

 

 —

Total

 

589,642

 

$

55.75

 

 —

 

 —


(a)

Shares purchased by CH2M from terminated employees.

(b)

Shares purchased by CH2M in the Internal Market.

 

 

 

 

37


 

Item 6.  Exhibits

 

Exhibit Index

 

 

 

 

 

 

 

*10.1

 

Retirement Transition Agreement dated October 6, 2015 between CH2M HILL Companies, Ltd. and John Madia

*31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.1

 

Certification of Chief Executive Officer pursuant to the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)

*32.2

 

Certification of Chief Financial Officer pursuant to the requirements set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350)

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 


* Filed herewith

 

38


 

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.

 

 

 

 

CH2M HILL Companies, Ltd.

 

 

 

 

Date: November 2, 2015

/s/ GARY L. MCARTHUR

 

Gary L. McArthur

 

Chief Financial Officer

 

 

 

39