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8-K - 8-K - CH2M HILL COMPANIES LTDa16-15727_18k.htm

Exhibit 99.1

 

News Release

 

CH2M Denver, U.S.

9191 S. Jamaica St.

Englewood, CO 80112

www.ch2m.com

 

Lorrie Paul Crum

CH2M Corporate Communications

lorrie.crum@ch2m.com

Land      +1 720 286 0255

Mobile   +1 303 525 2916

 

CH2M Reports Results for the Second Quarter of 2016

·      Second-quarter revenue falls to $1.25 billion on depressed oil and gas market

·      Charges on two fixed-price projects drive $62 million net loss; ($2.53) per diluted share

·      Base business holds steady with flat revenue year-to-date compared with a year ago

·      Backlog rises 22 percent to $9.34 billion versus a year ago

 

DENVER, Colo.: Aug. 1, 2016—CH2M today reported results for the second quarter ended June 24, 2016 as revenue fell six percent to $1.25 billion, versus $1.32 billion a year ago. The decline reflects the negative effect of prolonged weakness in the oil and gas market, which significantly constrained the energy business, as well as environmental permitting work for oil and gas clients and, to a lesser extent, the water and transportation businesses, particularly in oil-dependent geographies. These declines more than offset organic growth from a multi-year environmental project commenced late in 2015. The firm recorded a second-quarter net loss of $62 million, or ($2.53) per diluted share, reflecting charges for two fixed-price engineer-procure-construct (EPC) projects. This compares with $16 million, or $0.59 per diluted share, earned a year ago.

 

In line with its Form 8-K filing dated June 6, 2016, the firm recorded a charge of $95 million for its share of estimated cost increases on a joint-venture, fixed-priced EPC power plant project that is part of a liquefied natural gas (LNG) facility in Australia. The cost increases are a result of client delays, other client driven factors, and related lower-than-expected construction labor productivity.  This is the only remaining project in the fixed-price power EPC business that CH2M announced it was exiting in the third quarter of 2014.

 

CH2M also recorded a $60 million charge for higher cost estimates on a fixed-price design build transportation project in the southwestern U.S. as a result of client-caused delays, including limited daytime access to portions of the site, in addition to severe weather due to record rainfall and production shortfalls resulting from differing site conditions and engineering rework. These factors caused estimated costs to increase for subcontractor labor and expenses, construction material quantities and delivery acceleration.

 

Neither of the charges for these two fixed-price projects include any recoveries from significant outstanding change orders and claims, which CH2M is pursuing aggressively.

 

“When we took steps to eliminate the most risk-prone pursuits from our portfolio, we promised to finish those projects we’d already started,” said CH2M Chairman and CEO Jacque Hinman.  “That left us with these two fixed-price projects, and unfortunately both required charges that eroded profitability this

 

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quarter.  We’re using every lever we have to contain costs and recover time and cost claims to which we’re entitled and get these legacy projects behind us.”

 

Hinman continued, “Our client-centric growth strategy is moving us to a higher-value portfolio, and we’re building solid backlog. As our commercial and industrial clients shift their priorities in certain markets and geographies around the world, we’re adjusting our resources and operations accordingly.  These improvements should only strengthen our service to clients.”

 

CH2M secured a number of wins in the quarter, which boosted gross backlog to $9.34 billion, up 22 percent from $7.63 billion a year ago.  Among them were new and renewed contracts for nuclear decommissioning, port improvements, airport expansions, surface transportation, water and industrial facility management services.

 

The firm used $118 million in cash from operations for the six-months ended June 2016, compared with $33 million generated for the same period of last year, primarily as a result of lower earnings.

 

Business segments and operating results

 

In the first quarter of this year, CH2M simplified its business from five to four ongoing segments:

 

1.              Environment and Nuclear;

2.              Water;

3.              Transportation; and

4.              Energy and Industrial.

 

To provide consistent comparison with the current year, the firm revised prior-year results for these four segments, and will continue to report results separately for the Power EPC unit being exited.

 

The Environment and Nuclear segment increased revenue by 37 percent to $543 million in the quarter, earning $22 million in operating income. Despite organic growth from a large, multi-year nuclear consulting project, operating income declined nine percent, primarily reflecting reduced oil and gas environmental activity in Canada and related cancelled environmental contracts.

 

Revenue in the Water segment fell 16 percent to $302 million in the second quarter, as a result of a decline in activity on two large projects in the U.S., a program management project in the Middle East, decreases in revenue due to economic conditions in Puerto Rico and reduced activity on projects related to the oil and gas industry. As a result, the business realized $20 million in operating income during the quarter, down 30 percent from last year.

 

Transportation segment revenue declined six percent to $225 million during the quarter, reflecting decreased revenue on the fixed-price design-build project in the southwestern U.S. discussed above. As a result of increased estimated costs to complete the project, the business recorded an operating loss of $60 million, compared to an operating loss of $31 million in the second quarter of 2015.

 

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The Energy and Industrial segment recorded $221 million in second-quarter revenue, down 24 percent, while operating income declined to $4 million, reflecting the effects of depressed volumes, client pricing concessions and production suspensions in the oil and gas industry.

 

In the Power EPC business the firm is exiting, CH2M recorded an operating loss of $192 million for the consolidated joint venture caused by increased costs to complete the above-referenced fixed-price EPC project in Australia.  CH2M’s share of the project loss was $95 million.

 

Outlook

 

For the full-year 2016 outlook, CH2M currently expects flat revenue and lower earnings compared with the prior year’s results.

 

Selected financial data providing comparative second-quarter and year-to-date results follow.

 

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Consolidated Statements of Operations

CH2M and subsidiaries, unaudited

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

Six Months Ended

 

 

 

June 24,

 

June 26,

 

June 24,

 

June 26,

 

 

 

2016

 

2015

 

2016

 

2015

 

Gross revenue

 

$

1,250,283

 

$

1,324,048

 

$

2,593,691

 

$

2,588,034

 

Equity in earnings of joint ventures and affiliated companies

 

8,717

 

10,668

 

17,770

 

22,018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Direct cost of services

 

(1,227,770

)

(1,077,982

)

(2,308,090

)

(2,080,431

)

Selling, general and administrative

 

(236,350

)

(227,351

)

(467,625

)

(459,373

)

Operating (loss) income

 

(205,120

)

29,383

 

(164,254

)

70,248

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

110

 

61

 

170

 

102

 

Interest expense

 

(2,879

)

(4,484

)

(6,146

)

(8,380

)

(Loss) income before provision for income taxes

 

(207,889

)

24,960

 

(170,230

)

61,970

 

Provision for income taxes

 

53,699

 

(9,326

)

39,764

 

(18,831

)

Net (loss) income

 

(154,190

)

15,634

 

(130,466

)

43,139

 

Less: loss (income) attributable to noncontrolling interests

 

92,148

 

644

 

93,003

 

(3,363

)

Net (loss) income attributable to CH2M

 

$

(62,042

)

$

16,278

 

$

(37,463

)

$

39,776

 

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

 

 

 

 

 

 

 

 

 

Basic

 

$

(2.53

)

$

0.59

 

$

(1.67

)

$

1.45

 

Diluted

 

$

(2.53

)

$

0.59

 

$

(1.67

)

$

1.45

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

Basic

 

25,993,448

 

27,340,328

 

26,064,581

 

27,351,912

 

Diluted

 

25,993,448

 

27,364,202

 

26,064,581

 

27,382,949

 

 

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Business Segment Financial Review

CH2M and subsidiaries, unaudited

(Dollars in thousands)

 

 

 

Three Months Ended June 24, 2016

 

Three Months Ended June 26, 2015

 

 

 

Gross

 

Operating

 

Gross

 

Operating

 

($ in thousands) 

 

Revenue

 

Income (Loss)

 

Revenue

 

Income (Loss)

 

Energy and Industrial

 

$

221,376

 

$

  4,325

 

$

  292,827

 

$

  11,699

 

Environment and Nuclear

 

542,615

 

21,589

 

396,241

 

23,622

 

Transportation

 

224,907

 

(59,585

)

240,205

 

(30,962

)

Water

 

302,067

 

20,142

 

359,279

 

28,816

 

Power EPC

 

(40,682

)

(191,591

)

35,496

 

(3,792

)

Total

 

$

1,250,283

 

$

(205,120

)

$

1,324,048

 

$

29,383

 

 

 

 

Six Months Ended June 24, 2016

 

Six Months Ended June 26, 2015

 

 

 

Gross

 

Operating

 

Gross

 

Operating

 

($ in thousands) 

 

Revenue

 

Income (Loss)

 

Revenue

 

Income (Loss)

 

Energy and Industrial

 

$

462,017

 

$

 4,786

 

$

  591,880

 

$

  20,410

 

Environment and Nuclear

 

1,045,980

 

39,786

 

755,201

 

40,903

 

Transportation

 

470,670

 

(56,470

)

475,605

 

(37,079

)

Water

 

599,308

 

39,915

 

694,221

 

48,912

 

Power EPC

 

15,716

 

(192,271

)

71,127

 

(2,898

)

Total

 

$

2,593,691

 

$

(164,254

)

$

2,588,034

 

$

70,248

 

 

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Selected Balance Sheet Items

CH2M and subsidiaries, unaudited

(Dollars in thousands)

 

 

 

June 24,

 

December 25,

 

 

 

2016

 

2015

 

Cash and cash equivalents

 

$

157,383

 

$

197,021

 

Total current assets

 

1,589,184

 

1,671,191

 

Total assets

 

2,895,026

 

2,861,299

 

Total short-term debt

 

2,221

 

2,069

 

Total current liabilities

 

1,438,549

 

1,476,325

 

Long-term debt

 

392,804

 

299,593

 

Stockholders’ equity

 

 

352,771

 

 

  377,331

 

 

Selected Statement of Cash Flow Items

CH2M and subsidiaries, unaudited

(Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

June 24,

 

June 26,

 

 

 

2016

 

2015

 

Net (loss) income

 

$

(130,466

)

$

43,139

 

Net cash (used in) provided by operating activities

 

(117,554

)

32,631

 

Net cash (used in) provided by investing activities

 

(88,151

)

3,241

 

Net cash provided by financing activities

 

165,048

 

27,828

 

Effect of exchange rate changes to cash

 

1,019

 

(3,941

)

(Decrease) increase in cash and cash equivalents

 

(39,638

)

59,759

 

Cash and cash equivalents, beginning of period

 

197,021

 

131,477

 

Cash and cash equivalents, end of period

 

$

157,383

 

$

191,236

 

 

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure

 

To supplement our consolidated financial statements, which are presented in accordance with U.S. generally accepted accounting principles (GAAP), we provide additional measures of net (loss) income attributable to CH2M and net (loss) income per diluted common share attributable to CH2M adjusted to exclude or deduct certain costs, charges or expenses. CH2M management believes these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. CH2M management also believes that these non-GAAP financial measures enhance the ability of investors to analyze CH2M’s business trends and to understand CH2M’s performance. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP follows:

 

 

 

Three Months Ended June 24, 2016

 

 

 

As Reported

 

Adjustment (A)

 

Non-GAAP

 

 

 

(In millions, except per share amounts)

 

Revenue

 

$

1,250

 

$

41

 

$

1,291

 

Net (loss) income attributable to CH2M

 

$

(62

)

$

66

 

$

4

 

Net (loss) income per diluted common share

 

$

(2.53

)

$

2.53

 

$

0.00

 

 


(A)                               Adjustments relate to 1) revenue from our Power business of ($41 million), and 2) after-tax loss from our Power business of $66 million (or $2.53 per diluted share).

 

 

 

Three Months Ended June 26, 2015

 

 

 

As Reported

 

Adjustment (A)

 

Non-GAAP

 

 

 

(In millions, except per share amounts)

 

Revenue

 

$

1,324

 

$

(35

)

$

1,289

 

Net income attributable to CH2M

 

$

16

 

$

6

 

$

22

 

Net income per diluted common share

 

$

0.59

 

$

0.26

 

$

0.85

 

 


(A)                               Adjustments relate to 1) revenue from our Power business of $35 million, and 2) costs incurred in connection with activities resulting from our restructuring plan announced in the third quarter of 2014 and include after-tax restructuring charges of $6 million (or $0.26 per diluted share).

 

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CH2M HILL COMPANIES, LTD. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure (con’t)

 

 

 

Six Months Ended June 24, 2016

 

 

 

As Reported

 

Adjustment (A)

 

Non-GAAP

 

 

 

(In millions, except per share amounts)

 

Revenue

 

$

2,594

 

$

(16

)

$

2,578

 

Net (loss) income attributable to CH2M

 

$

(37

)

$

64

 

$

27

 

Net (loss) income per diluted common share

 

$

(1.67

)

$

2.37

 

$

0.70

 

 


(A)                               Adjustments relate to 1) revenue from our Power business of $16 million, and 2) after-tax loss from our Power business of $64 million (or $2.37 per diluted share).

 

 

 

Six Months Ended June 26, 2015

 

 

 

As Reported

 

Adjustment (A)

 

Non-GAAP

 

 

 

(In millions, except per share amounts)

 

Revenue

 

$

2,588

 

$

(71

)

$

2,517

 

Net income attributable to CH2M

 

$

40

 

$

13

 

$

53

 

Net income per diluted common share

 

$

1.45

 

$

0.48

 

$

1.93

 

 


(A)                               Adjustments relate to 1) revenue from our Power business of $71 million, and 2) costs incurred in connection with activities resulting from our restructuring plan announced in the third quarter of 2014 and include after-tax restructuring charges of $12 million (or $0.44 per diluted share); and after-tax losses from our Power business of $1 million (or $0.04 per diluted share).

 

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Conference Call

 

As previously announced on the company’s investor website, CH2M will host the Second Quarter 2016 Stockholder Call today,  August 1, 2016, from 1:30 p.m. until 2:30 p.m. U.S. Mountain Daylight Time, providing an update on firm performance and the stock program.  Details can be found at ir.ch2m.com.

 

About CH2M

 

CH2M leads the professional services industry delivering sustainable solutions benefiting societal, environmental and economic outcomes with the development of infrastructure and industry. In this way, CH2Mers make a positive difference providing consulting, design, engineering and management services for clients in water; environment and nuclear; transportation; energy and industrial markets, from iconic infrastructure to global programs like the Olympic Games. Ranked among the World’s Most Ethical Companies and top firms in environmental consulting and program management, CH2M in 2016 became the first professional services firm honored with the World Environment Center Gold Medal Award for efforts advancing sustainable development. Connect with CH2M at www.ch2m.com; LinkedIn; Twitter; and Facebook.

 

Cautionary Statement

 

This report contains “forward-looking statements,” as that term is defined in U.S. Federal and certain foreign securities regulations, including information related to our anticipated future operational and financial results, business strategies, client market segment concerns, capital structure plans, and growth opportunities. Although CH2M’s management believes that its expectations are based on reasonable assumptions, these assumptions are subject to a wide range of economic, business, regulatory, technical, legal, and other unforeseen risks which may cause actual results to differ materially from those stated or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, among others, our ability to manage the costs associated with our fixed-price contracts, our ability to maintain the liquidity necessary for our operations, difficulties or delays incurred in the execution of our contracts and changes in the level of activity in the hydrocarbon industry.

 

This communication should be read in conjunction with all the other information included in our most current Prospectus and European Prospectus, which are filed with the U.S. Securities and Exchange Commission (SEC) and the U.K. Financial Conduct Authority (FCA), respectively, and, for our stockholders outside of the U.S. and the European Union, similar documents filed with local securities regulators, where required. You should also read our Annual Report on Form 10-K and quarterly reports on Form 10-Q, which include a more comprehensive list of factors that could cause actual operational and financial results to differ from those expected. All documents required to be filed with the SEC and other regulators are available via the investor relations website at ir.ch2m.com and on the SEC’s website at www.sec.gov.

 

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