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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
Form 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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)
Oregon 93-0549963
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6060 South Willow Drive,
Greenwood Village, CO 80111-5142
(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 X No ___
As of March 31, 2000, the registrant had 29,535,430 shares of common stock,
$.01 par value per share, issued and outstanding.
CH2M HILL COMPANIES, LTD.
March 31, 2000
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Consolidated Condensed Financial Statements:
Balance Sheets as of December 31, 1999 and
March 31, 2000....................................... 2
Statements of Income for the Three-Month Period Ended
March 31, 1999 and 2000.............................. 3
Statements of Cash Flows for the Three-Month Period
Ended March 31, 1999 and 2000........................ 4
Notes to Consolidated Condensed Financial Statements.. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................... 13
1
CH2M HILL COMPANIES, LTD.
Consolidated Condensed Balance Sheets
(Dollars in thousands)
December 31, March 31,
1999 2000
------------ ----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash & cash equivalents $ 12,557 $ 17,936
Receivables, net -
Client accounts 164,914 164,644
Unbilled revenue 96,610 97,019
Other 4,930 8,180
Prepaid expenses & other 7,912 7,431
------------ ----------
Total current assets 286,923 295,210
PROPERTY, PLANT & EQUIPMENT, net 14,274 15,884
OTHER ASSETS, net 55,958 54,483
------------ ----------
TOTAL ASSETS $ 357,155 $ 365,577
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
& notes payable to former
shareholders $ 6,375 $ 5,375
Accounts payable 60,107 49,914
Billings in excess of revenues 49,143 54,301
Accrued incentive compensation 13,330 9,024
Employee related liabilities 43,100 52,284
Other accrued liabilities 13,278 17,015
Current deferred income taxes 26,907 30,914
------------ ----------
Total current liabilities 212,240 218,827
OTHER LONG-TERM LIABILITIES 32,902 34,413
LONG-TERM DEBT 313 384
NOTES PAYABLE TO FORMER SHAREHOLDERS 14,608 13,720
------------ ----------
Total liabilities 260,063 267,344
------------ ----------
COMMITMENTS AND CONTINGENCIES (See Notes)
TEMPORARY SHAREHOLDERS' EQUITY
Preferred stock, Class A $.02
par value, 50,000,000 shares
authorized; 12,095,220 issued and
outstanding at December 31, 1999;
redeemable for $52,130 at December
31, 1999 242 -
Common stock, $.01 par value,
100,000,000 shares authorized;
17,234,170 issued and outstanding
at December 31, 1999; redeemable for
$74,279 at December 31, 1999 172 -
Additional paid-in capital 29,234 -
Retained earnings 69,774 -
Accumulated other comprehensive loss (2,330) -
------------ ----------
Total temporary shareholders'
equity 97,092 -
------------ ----------
PERMANENT SHAREHOLDERS' EQUITY
Common stock, $.01 par value,
100,000,000 shares authorized;
29,535,430 issued and outstanding
at March 31, 2000 - 295
Additional paid-in capital - 26,535
Retained earnings - 74,392
Accumulated other comprehensive loss - (2,989)
------------ ----------
Total permanent shareholders'
equity - 98,233
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 357,155 $ 365,577
============ ==========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
CH2M HILL COMPANIES, LTD.
Consolidated Condensed Statements of Income
(Dollars in thousands except per share)
Three-Month Period Three-Month Period
Ended March 31, 1999 Ended March 31, 2000
--------------------- --------------------
(unaudited) (unaudited)
Gross revenue $ 273,436 $ 366,515
Equity in earnings of joint
ventures and affiliated
companies 740 5,706
--------------------- --------------------
Total revenues 274,176 372,221
Operating expenses:
Direct cost of services and
overhead (198,611) (279,227)
General and administrative (71,636) (83,450)
---------------------- --------------------
Operating income 3,929 9,544
Other income (expense):
Interest income 224 1,044
Interest expense (476) (217)
--------------------- --------------------
Income before provision
for income taxes 3,677 10,371
Provision for income taxes (1,798) (5,186)
--------------------- --------------------
Net income $ 1,879 $ 5,185
===================== ====================
Net income per common share:
Basic $ 0.07 $ 0.18
Diluted $ 0.07 $ 0.17
Weighted average number of
common shares:
Basic 28,340,840 29,604,280
Diluted 28,340,840 30,200,172
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
CH2M HILL COMPANIES, LTD.
Consolidated Condensed Statements of Cash Flows
(Dollars in thousands)
Three-Month Period Three-Month Period
Ended March 31, 1999 Ended March 31, 2000
-------------------- --------------------
(unaudited) (unaudited)
NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES $ (17,656) $ 18,688
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from the sale of
assets 332 -
Capital expenditures (1,341) (2,151)
-------------------- --------------------
Net cash used in
investing activities (1,009) (2,151)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on long-term debt 32 -
Net increase in short-term
borrowing on line of credit 9,300 -
Principal payments on notes
payable to former shareholders (337) (888)
Principal payments on long-term
debt (1,005) (929)
Purchases and retirements of
stock (25) (9,545)
-------------------- --------------------
Net cash provided by (used in)
financing activities 7,965 (11,362)
CASH EFFECT OF CUMULATIVE
TRANSLATION ADJUSTMENT 159 204
-------------------- --------------------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (10,541) 5,379
CASH AND CASH EQUIVALENTS,
beginning of period 16,595 12,557
-------------------- --------------------
CASH AND CASH EQUIVALENTS,
end of period $ 6,054 $ 17,936
==================== ====================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial information has been prepared in accordance with
the interim reporting rules and regulations of the Securities and Exchange
Commission, and therefore does not necessarily include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingencies at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Estimates have been prepared on the basis of the most
current and best available information and actual results could differ from
those estimates.
In the opinion of CH2M HILL's management, the accompanying unaudited
consolidated condensed financial statements of the interim period contain all
adjustments necessary to present fairly the financial position of CH2M HILL as
of March 31, 2000 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The
results of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
Shareholders' Equity
On November 6, 1998, the Board of Directors approved a new ownership program
for CH2M HILL and certain resolutions that were subsequently ratified by a
vote of the shareholders on December 18, 1998. Such resolutions were
effective January 1, 2000 and included, but were not limited to, adopting
amendments to the Restated Bylaws and Articles of Incorporation which provide
for the:
* authorization to convert all outstanding Class A preferred stock
into shares of common stock on a one-for-one basis,
* increase in the authorized shares of common stock to 100,000,000,
par value $.01 per share, and Class A preferred stock to 50,000,000,
par value $.02 per share,
* authorization of a ten-for-one stock split on CH2M HILL's common
stock and Class A preferred stock,
* imposition of certain restrictions on the stock including, but not
limited to, the right but not the obligation to repurchase shares
upon termination of employment or affiliation, the right of first
refusal, and ownership limits.
As a result of the above changes, the temporary shareholders' equity is now
classified as permanent shareholders' equity. Common and preferred stock
amounts, equivalent share amounts and per share amounts have been adjusted
retroactively to give effect to the stock split.
5
The significant changes in shareholders' equity for the three-month period
ended March 31, 2000 is as follows:
Shares Amount
--------- --------
Temporary Shareholders' Equity,
December 31, 1999 29,329,390 $ 97,092
Net Income - 5,185
Shares Issued 1,174,882 6,160
Shares Redeemed (968,842) (9,545)
Foreign Currency Translation
Adjustment - (659)
----------- -------------
Permanent Shareholders' Equity,
March 31, 2000 29,535,430 $ 98,233
============ =============
New Accounting Standard
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes fair value
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of SFAS No. 133 was deferred until January 1,
2001 by the issuance of SFAS No. 137. CH2M HILL will adopt SFAS No. 133 in
the first quarter of fiscal 2001. CH2M HILL is currently assessing the effect
of adoption, if any, on its financial position, results of operations, and
cash flows.
(2) SEGMENT INFORMATION
Certain financial information relating to the three-month period ended March
31, 1999 and 2000 for each segment is provided below:
FINANCIAL
Three-month period ended STATEMENT
March 31, 1999 EE&I WATER INDUSTRIAL OTHER BALANCES
------------------------ ----- ----- ---------- ------ ---------
Revenues from external
customers $ 118,801 $ 104,395 $ 50,240 $ - $ 273,436
Intersegment sales 7,571 2,516 1,004 (11,091) -
Equity in earnings of
investees accounted for
by the equity method 472 334 (66) - 740
Segment profit 2,595 2,748 3 (1,669) 3,677
FINANCIAL
Three-month period ended STATEMENT
March 31, 2000 EE&I WATER INDUSTRIAL OTHER BALANCES
------------------------ ----- ----- ---------- ------ ---------
Revenues from external
customers $198,478 $115,722 $ 52,315 $ - $ 366,515
Intersegment sales 9,490 3,409 462 (13,361) -
Equity in earnings of
investees accounted for
by the equity method 5,795 (180) 91 - 5,706
Segment profit 7,001 5,187 664 (2,481) 10,371
(3) COMPREHENSIVE INCOME
Comprehensive income for the three-month period ended March 31, 1999 and 2000
is as follows:
Three-Month Period Ended
March 31,
--------------------------
1999 2000
------------ -----------
Net income $ 1,879 $ 5,185
Foreign currency
translation adjustment (513) (659)
------------ ----------
Comprehensive income $ 1,366 $ 4,526
============ ==========
6
(4) EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding during the year. Diluted income per share
is based on the weighted average number of common shares outstanding during
the year and, to the extent dilutive, common stock equivalents consisting of
stock options. The difference between the basic and diluted shares at March
31, 2000 consists of 3,299,360 stock options outstanding at the end of the
period. At March 31, 1999, CH2M HILL did not have any dilutive securities
outstanding.
(5) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
CH2M HILL has the following investments in affiliated companies that are 50%
or less owned, which are accounted for under the equity method:
% of Ownership
Domestic:
Kaiser-Hill Company, LLC ("Kaiser-Hill")...... 50%
MK/IDC (PSI).................................. 50%
Foreign:
CH2M Gore and Storrie Limited................. 49%
CH2M HILL/CSA................................. 50%
Sembawang-IDC................................. 25%
CH2M HILL BECA, Ltd........................... 50%
TDC International of Israel................... 50%
As of December 31, 1999 and March 31, 2000, the total investments in these
material unconsolidated affiliates were approximately $5,763 and $5,222,
respectively, and are included in other assets in the accompanying
consolidated condensed balance sheets.
Summarized financial information for the three-month periods ended March 31,
1999 and 2000, for these affiliates is as follows:
Three-Month Period Ended
March 31,
-------------------------
1999 2000
----------- --------
RESULTS OF OPERATIONS:
Revenues $ 144,129 $ 195,808
Direct costs 138,200 178,842
General and administrative
expenses 3,713 6,207
----------- ---------
Operating income 2,216 10,759
Other income (expense) (748) (412)
----------- ---------
Net income $ 1,468 $ 10,347
============ ===========
(6) CONTINGENCIES
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which may involve claims for substantial sums. Damages
assessed in connection with and the cost of defending any such actions could
be substantial. CH2M HILL's management believes that the levels of insurance
coverage (after retentions and deductibles) are generally adequate to cover
CH2M HILL's liabilities, if any, with regard to such claims. Any amounts that
are probable of payment by CH2M HILL related to retentions and deductibles are
accrued when such amounts are estimable.
7
CH2M HILL COMPANIES, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis explains our general financial
condition, changes in financial condition and results of operations for CH2M
HILL as a whole and each of our operating segments including:
* Factors affecting our business
* Our revenues and profits
* Where our revenues and profits came from
* Why those revenues and profits were different from period to period
* Where our cash came from and how it was used
* How these factors affect our overall financial condition
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from the results anticipated in the forward-
looking statements.
As you read this section, you should also refer to our consolidated condensed
financial statements and the accompanying notes. These consolidated condensed
financial statements provide additional information regarding our financial
activities and condition.
This analysis may be important to you in making decisions about your
investments in CH2M HILL.
Introduction
The engineering and construction industry has been undergoing substantial
change as public and private clients privatize and outsource many of the
services that were formerly provided internally. Numerous mergers and
acquisitions in the industry have resulted in a group of larger firms that
offer a full complement of single-source services including studies, design,
construction, operation, maintenance and in some instances, facility
ownership. Included in the current trend is the movement towards longer-term
contracts for the expanded array of services, e.g., 5 to 20 year contracts for
facility operations. These larger, longer contracts require us to have
substantially greater financial capital, than has historically been necessary,
to remain competitive.
We believe we provide our clients with innovative project delivery using cost-
effective approaches and advanced technologies. We continuously monitor
acquisition and investment opportunities that will expand our portfolio of
services, add value to the projects undertaken for clients, or enhance capital
strength. We believe that we are well positioned geographically, technically
and financially to compete worldwide in the markets we have elected to pursue
and clients we serve.
Overall
Net income after tax for the three-month period ending March 31, 2000 was $5.2
million compared with $1.9 million in the same period of 1999. Our diluted
earnings per share in 2000 was $0.17, compared with $0.07 in 1999. Revenues
and pre-tax profit for the three-month periods ending March 31, 2000 and 1999
by operating segment were as follows:
8
For the three-month period For the three-month period
ended March 31, 2000 ended March 31, 1999
--------------------------- --------------------------
(in millions) Pre-Tax Pre-Tax
Revenues Profit Revenues Profit
--------- -------- -------- ----------
EE&I $ 204.3 55% $ 7.0 $ 119.3 44% $ 2.6
Water 115.5 31% 5.2 104.7 38% 2.7
Industrial 52.4 14% 0.7 50.2 18% -
Corporate - - (2.5) - - (1.6)
------ ---- ----- ------ ----- -----
Total $ 372.2 100% $10.4 $ 274.2 100% $ 3.7
------ ---- ----- ------ ----- -----
Results of Operations for the Three-Month Period Ended March 31, 2000
Compared to the Same Period of 1999
Revenues for the three-month period ended March 31, 2000 were $372.2 million
compared to $274.2 million for the same period in 1999. The increase of $98.0
million or 35.7% is comprised of an acquisition and improvements in the
Environmental, Energy & Infrastructure ("EE&I") segment of $85.0 million, and
improvements in the Water segment of $10.8 million, and the Industrial segment
of $2.2 million.
Pre-tax profit for the three-month period ended March 31, 2000 was $10.4
million compared to $3.7 million in the same period of 1999. The increase of
$6.7 million was comprised of increases in the EE&I segment of $4.4 million,
the Water segment of $2.5 million, and the Industrial segment of $0.7 million.
Corporate expenses increased by $0.9 million.
Environmental, Energy and Infrastructure
Revenues in the EE&I segment for the three-month period ended March 31, 2000
were $204.3 million compared to $119.3 million for the same period in 1999.
This increase of $85.0 million or 71.2% was primarily attributable to the
acquisition of the Lockheed Martin Hanford Corporation in December 1999, which
aligns with the nuclear business. Subsequently changed to CH2M HILL Hanford
Group, Inc., this entity provides engineering, design and technical services
to support decontamination, decommissioning and remedial activities at the
U.S. Department of Energy's Hanford Reservation in Richland, Washington. We
also experienced growth in both our telecommunications and traditional
environmental businesses in 2000. Clients are continuing to build or upgrade
new infrastructure to keep pace with advances in technology in the
telecommunications business.
During the first quarter of 2000, we also reported increased revenues in the
transportation markets. This increase came from market-driven demand and
added delivery capacity. The market demand is primarily the result of the
Transportation Equity Act for the 21st Century (TEA-21) which was adopted by
Congress in 1998. TEA-21 provides federal funding to the various states for
transportation infrastructure improvement projects for highways, highway
safety, and transit for the six-year period from 1998 to 2003.
Pre-tax profit for the EE&I segment was $7.0 million for the three-month
period ended March 31, 2000 compared to $2.6 million in the same period of
1999. Pre-tax profit as a percent of revenue for the same period in 2000 was
3.4% compared to 2.2% for 1999. The most significant impact on profits was
from the Kaiser-Hill joint venture, which is attributable to the nuclear
business and is more fully discussed in the "Joint Ventures" section below.
The environmental business had a net decrease of $1.1 million due to an
adjustment to the carrying value of the receivable on a large, energy
efficiency modification project, for which negotiations with the client are
ongoing, offset by the revenue increase mentioned above. The nuclear business
achieved increased profits for the first quarter of 2000 versus the same
9
period in 1999 due to CH2M HILL Hanford Group, Inc. reporting its first full
quarter of operations in 2000. EE&I also had an increase in pre-tax profit
from the transportation business due to growth and indirect cost control,
offset by negative performance on a fixed price telecommunications project
resulting from the withdrawal of a major subcontractor, for a net decrease in
profit of $0.4 million.
Water
The Water segment reported revenues of $115.5 million for the three-month
period ended March 31, 2000 compared to revenues of $104.7 million in the same
period of 1999. This increase of $10.8 million or 10.3% was attributable to
growth in several areas. Revenues from operations and maintenance services
increased by $5.4 million from the initiation of several new contracts
subsequent to March 31, 1999. Design build revenues were $1.5 million lower
than the same period in 1999 due to the delay in the start up of some larger
design build contracts in 2000. Traditional engineering consulting revenues
were $7.4 million higher than the first three months of 1999, propelled by
prior business development investment in domestic operations as well as the
strong domestic economy.
The Water segment reported $5.2 million of pre-tax profit for the three-month
period ending March 31, 2000 compared to $2.7 million of pre-tax profit for
the same period of 1999. Pre-tax profit as a percent of revenues was 4.5%
compared to 2.6% in the same period of 1999. The pre-tax profit increase of
$2.5 million was attributable to revenue growth as well as improving margins
within domestic traditional engineering and design build businesses.
Industrial
The Industrial segment reported revenues of $52.4 million for the three-month
period ended March 31, 2000, of which $32.6 was generated from the
microelectronics industry. The revenues for the same period of 1999 were $50.2
million, of which $33.4 was generated from the microelectronics industry. The
increase of $2.2 million was comprised of a net increase in revenues of $3.0
from other industries, including food, biopharmaceutical, fine chemical, and
facility services, offset by a $0.8 million decrease in revenues from the
microelectronics industry. The revenue mix between construction costs versus
services for engineering and construction management also changed
significantly in 2000 versus 1999. The construction cost component of
revenues decreased from $28.7 million, which was 57.2% of 1999 revenues, to
$22.7 million, which was 43.3% of 2000 revenues. This $6.0 million decrease
in construction revenues was offset by an increase in service revenues, which
went from $21.5 million in 1999 to $29.7 million in 2000. The construction
revenue decrease was due to two significant construction projects that were
started in first quarter 1999 but were near completion by first quarter 2000.
The Industrial segment reported $0.7 million pre-tax profit for the three-
month period ended March 31, 2000 versus virtually no profit for the same
period 1999. Profit, as a percent of revenues for 2000 was 1.3%. This profit
increase was primarily due to an increase in the volume of self-performed
services provided during 2000. Direct project costs, as a percentage of
revenues, decreased 7.4% in 2000 versus 1999. This decrease in direct project
costs resulted from the decrease in construction revenues. The combination of
a decrease in direct project costs coupled with an increase in service
revenues in 2000 results in an increase in project margins. Indirect labor
expenses, which are made up of salaries and benefits of all administrative
personnel, plus salaries and benefits of technical personnel for hours not
working on billable client services, decreased. Indirect labor costs
decreased, as a percent of the services portion of gross revenues, 26.2% in
2000 versus 1999, due to the increase in staff utilization. Other overhead,
general and administrative costs were approximately the same in 2000 versus
1999.
10
Joint Ventures
We routinely enter into joint ventures to service the needs of our clients.
Such arrangements are customary in the engineering and construction industry
and generally are for one specific project. Our largest joint venture is
Kaiser-Hill Company, LLC ("Kaiser-Hill"), in which we own a 50% interest.
This joint venture is in our EE&I operating segment. The earnings from this
joint venture are reported as equity in earnings of investees accounted for
under the equity method, along with other joint ventures that are individually
insignificant.
For the three-month period ended March 31, 2000, we reported equity in
earnings of investees accounted for under the equity method of $5.7 million
compared to $0.7 million in the same period of 1999. Our equity in earnings
from the Kaiser-Hill joint venture for the first quarter of 2000 were $4.8
million compared to $0.5 million for 1999. This increase was primarily
attributable to performance fees earned under the old contract, which expired
on January 31, 2000, for achieving milestones such as the demolition of a
significant building at the Rocky Flats site. The first quarter results also
include two months of fees under the new contract, which was effective
February 1, 2000.
Effective February 1, 2000, the U.S. Department of Energy extended Kaiser-
Hill's Rocky Flats contract. Although the new contract is a closure contract
and does not have a defined term, we anticipate closure of the site in 2006.
Under the new contract, Kaiser-Hill is compensated through a base fee
affected, up or down, by its performance against the agreed site target
closure costs. Outside of a negotiated range, for every dollar that the U.S.
Department of Energy saves with earlier cleanup, Kaiser-Hill receives a 30
cent increase in fee. At the same time, for every dollar the cleanup is over
budget, the fee is reduced by 30 cents down to an agreed minimum. The
ultimate fee will also be impacted by the schedule to achieve site closure and
the safety of our performance. Until the results of the performance measures
become more estimable, earnings are expected to be comparable from quarter to
quarter.
Corporate Expenses
Corporate expenses for the three-month period ended March 31, 2000 were $2.5
million compared to $1.6 million for the same period of 1999. During the
first quarter of 2000, we incurred expenses to buy out a supplemental
retirement plan associated with the old key employee program and to accrete
the value of certain equity instruments related to our compensation plans to
the current stock price. Corporate expenses represent centralized management
costs that are not allocable to individual operating segments and primarily
include expenses associated with administrative compliance functions such as
legal, treasury, accounting, tax and general business development efforts.
Income Taxes
The income tax provision for the three-month period ended March 31, 2000 was
$5.2 million, or an effective tax rate of 49.9%, compared to $1.8 million, or
an effective tax rate of 48.9%, for the same period of 1999. Our effective
tax rate continues to be higher than the U.S. statutory income tax rate of
35.0% due to the effect of state income taxes, disallowed portions of meals
and entertainment expenses and non-deductible foreign net operating losses.
Liquidity and Capital Resources
Cash Flows from Operating Activities
For the three-month period ended March 31, 2000, operations provided $18.7
million of cash primarily due to growth in our operations. Working capital
changes included a decrease of $10.2 million in accounts payable as we no
longer incurred pass-through costs for two significant construction projects.
A comparable decrease in accounts receivable due to the completion of these
projects is offset by an increase in accounts receivable and billings in
excess of revenues as a result of
11
improved operations, providing a net increase in cash of $5.2 million. The
remaining net increase in working capital is primarily due to the increase in
employee related and other accrued liabilities due to the improvement in
operations and due to the accrual of payroll and related benefit expenses.
During the first quarter of 1999, we used $17.7 million of cash. During this
period, our receivables and payables increased due to the pass-through of
revenues and expenses related to new, large construction projects. Offsetting
this net increase was the reduction of accrued incentive compensation and the
settlement of accrued liabilities.
Cash Flows from Financing Activities
For the first quarter of 2000, we used $11.4 million of cash in financing
activities, of which $9.5 million was used to purchase stock presented on the
internal market. CH2M HILL purchased $3.3 million of stock on the internal
market to fund its Employee Stock Plan and exercised its right to purchase the
remaining $6.2 million in order to provide liquidity to its employees by
clearing the internal market. These transactions were funded by cash flows
from operations. During the first quarter of 2000, our net borrowings were
negligible compared to the first quarter of 1999, in which we had a net
increase of $9.3 million against our line of credit to fund operations.
Derivatives and Financial Instruments
We occasionally enter into forward contracts in order to hedge our foreign
currency risks and not for speculative purposes. At March 31, 2000 and 1999,
there were no significant forward contracts outstanding. Generally, we do not
hold derivative type instruments.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. We manage our market risk by matching projected cash inflows
from operations, financing activities and investing activities with projected
cash outflows to fund debt payments, capital expenditures and other cash
requirements. We may utilize debt or equity financing for general corporate
purposes and acquisitions. Historically, we have used short-term variable
rate borrowings under our unsecured revolving credit agreement although we do
have $1.0 million currently outstanding on a term note to be repaid by June
30, 2000. Our earnings and cash flows are affected by changes in interest
rates affecting our variable rate borrowings under our bank credit facility.
During the first quarter of 2000 there were no significant amounts outstanding
on the bank credit facility. The interest rates on CH2M HILL's short-term and
long-term borrowings approximate fair value.
New Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes fair value
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of SFAS No. 133 was deferred until January 1,
2001 by the issuance of SFAS No. 137. We will adopt SFAS No. 133 in the first
quarter of 2001. We are currently assessing the effect of adoption, if any,
on our financial position, results of operations, and cash flows.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12
27 Financial Data Schedule
(b) Reports on Form 8-K
Report filed on Form 8-K/A for March 3, 2000--
Item 2, Acquisition: Acquisition of Lockheed Martin Hanford
Corporation on December 22, 1999.
Item 7, Financial Statements: Lockheed Martin Hanford
Corporation audited financial statements as of September 30,
1999. CH2M HILL Companies, Ltd. and subsidiaries unaudited
proforma condensed consolidating financial statements as of
September 30, 1999.
13
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: May 12, 2000 /s/ Samuel H. Iapalucci
____________________________
Samuel H. Iapalucci
Vice President and Chief Financial Officer