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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-12815
CHICAGO BRIDGE & IRON COMPANY N.V.
Incorporated in The Netherlands IRS Identification Number: Not Applicable
Polarisavenue 31
2132 JH Hoofddorp
The Netherlands
31-23-568-5660
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
The number of shares outstanding of a single class of common stock as of
September 30, 1998 - 11,659,609
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
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Consolidated Financial Statements
Statements of Income
Three and Nine Months Ended September 30, 1998 and 1997 3
Balance Sheets
September 30, 1998 and December 31, 1997 4
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Results of Operations and Financial Condition 8 - 11
PART II. OTHER INFORMATION 12
SIGNATURE PAGE 13
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
Revenues $ 204,965 $ 166,755 $ 576,654 $ 477,500
Cost of revenues 186,835 158,204 524,098 434,082
---------- ---------- ---------- ----------
Gross profit 18,130 8,551 52,556 43,418
Selling and administrative expenses 11,589 11,096 35,344 33,436
Management Plan charge - - - 16,662
Other operating income, net 21 (4,053) (643) (4,356)
---------- ---------- ---------- ----------
Income (loss) from operations 6,520 1,508 17,855 (2,324)
Interest expense (857) (506) (2,806) (3,131)
Other income 473 369 1,232 1,233
---------- ---------- ---------- ----------
Income (loss) before taxes and 6,136 1,371 16,281 (4,222)
minority interest
Income tax (expense) benefit (1,717) (384) (4,558) 2,990
---------- ---------- ---------- ----------
Income (loss) before minority
interest 4,419 987 11,723 (1,232)
Minority interest in (income) loss 219 125 192 143
---------- ---------- ---------- ----------
Net income (loss) $ 4,638 $ 1,112 $ 11,915 $ (1,089)
========== ========== ========== ==========
Net income (loss) per common
share (1)
Basic and Diluted $ 0.38 $ 0.09 $ 0.97 $ (0.09)
Weighted average common shares
outstanding (1)
Basic 12,258,132 12,517,552 12,315,087 12,517,552
Diluted 12,281,942 12,517,552 12,323,111 12,517,552
Dividends on common shares
Amount $ 738 $ 751 $ 2,211 $ 1,502
Per share $ 0.06 $ 0.06 $ 0.18 $ 0.12
(1) Net income (loss) per common share and the weighted average common shares
outstanding for 1997 are presented as if the Offering and the
Reorganization had occurred at the beginning of the year.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1998 1997
ASSETS
Current assets
Cash and cash equivalents $ 12,474 $ 10,240
Accounts receivable, net of allowance for doubtful
accounts of $1,072 in 1998 and $1,909 in 1997 156,430 157,785
Contracts in progress with earned revenues
exceeding related progress billings 51,641 63,172
Other current assets 10,938 17,157
--------- ---------
Total current assets 231,483 248,354
--------- ---------
Property and equipment 113,368 121,798
Goodwill 18,070 18,539
Other non-current assets 11,244 11,959
--------- ---------
Total assets $374,165 $400,650
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,540 $ 1,158
Accounts payable 46,435 52,904
Accrued liabilities 51,369 46,518
Contracts in progress with progress billings
exceeding related earned revenues 73,683 72,810
Income taxes payable 1,683 5,160
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TOTAL CURRENT LIABILITIES 175,710 178,550
--------- ---------
Long-term debt 27,000 44,000
Minority interest in subsidiaries 4,690 5,273
Other non-current liabilities 66,845 69,001
--------- ---------
TOTAL LIABILITIES 274,245 296,824
--------- ---------
Shareholders' equity
Common stock; nlg .01 par value, 50,000,000 authorized
shares issued: 12,517,552 in 1998 and 1997;
outstanding: 11,659,609 in 1998 and 12,517,552
in 1997 74 74
Additional paid-in capital 93,831 93,691
Retained earnings 24,374 14,712
Treasury stock, at cost: 857,943 shares in 1998 (10,370) -
Cumulative translation adjustment (7,989) (4,651)
--------- ---------
Total shareholders' equity 99,920 103,826
--------- ---------
Total liabilities and shareholders' equity $374,165 $400,650
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
Cash flows from operating activities
Net income (loss) $ 11,915 $ (1,089)
Adjustments to reconcile net income to net cash provided by
operating activities
Management Plan charge - 16,662
Depreciation and amortization 13,248 12,882
Increase/(decrease) in deferred income taxes 1,041 (7,061)
Gain on sale of fixed assets (643) (1,095)
Change in operating assets and liabilities (see below) 6,332 22,514
--------- ---------
Net cash provided by operating activities 31,893 42,813
--------- ---------
Cash flows from capital investment activities
Proceeds from sale of fixed assets and assets held for sale 6,798 11,030
Capital expenditures (8,216) (26,717)
--------- ---------
Net cash used in capital investment activities (1,418) (15,687)
--------- ---------
Cash flows from financing activities
Payment to former Parent Company - (6,008)
Increase/(decrease) in notes payable 1,382 (1,822)
Net (repayment) of debt to former Parent Company - (53,907)
Net (repayment)/borrowing under Revolving Credit Facility (17,000) 42,000
Purchase of common stock (10,860) -
Sale of common stock 448 -
Dividends paid (2,211) (1,502)
--------- ---------
Net cash used in financing activities (28,241) (21,239)
--------- ---------
Increase in cash and cash equivalents 2,234 5,887
Cash and cash equivalents, beginning of the year 10,240 11,864
--------- ---------
Cash and cash equivalents, end of the period $ 12,474 $ 17,751
========= =========
Change in operating assets and liabilities
(Increase)/decrease in receivables, net $ 1,355 $(30,250)
Decrease in contracts in progress, net 12,404 46,941
Decrease in other current assets 2,140 188
(Decrease)/increase in accounts payable & accrued liabilities (1,618) 11,419
Decrease in income taxes payable (3,477) (1,548)
Other, net (4,472) (4,236)
--------- ---------
Total $ 6,332 $ 22,514
========= =========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for Chicago Bridge
& Iron Company N.V. and Subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the 1997
Annual Report on Form 10-K of the Company.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and cash
flows for the period then ended have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
2. SIGNIFICANT ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for fiscal years
beginning after June 15, 1999. SFAS 133 requires all derivative instruments be
recorded on the balance sheet at their fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company has not yet determined the
impact that the adoption of SFAS 133 will have on its earnings or statement of
financial position. However, the Company anticipates that, due to its limited
use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on its results of operations or its financial position.
3. LONG-TERM DEBT
The weighted average interest rate on $27,000 of borrowings under the Company's
revolving credit facility was 6.13% at September 30, 1998.
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4. COMPREHENSIVE INCOME
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Net income (loss) $ 4,638 $ 1,112 $ 11,915 $ (1,089)
Other comprehensive income, net of tax:
Cumulative translation adjustment (1,143) (1,215) (3,338) (2,279)
--------- --------- --------- ---------
Comprehensive income (loss) $ 3,495 $ (103) $ 8,577 $ (3,368)
========= ========= ========= =========
5. EMPLOYEE STOCK PLANS
Under the Company's Long-Term Incentive Plan, the following were granted during
the third quarter:
Stock Options - 156,500 non-qualified stock options, with an exercise price of
$13.125. The options vest over a four-year period at a rate of one-fourth each
year beginning July 1999.
Performance Shares - 51,500 performance shares. The shares are targeted to vest
one-third each year over a three-year period beginning February 1999, subject
to achievement of specific Company performance goals.
Restricted Stock Units - 97,800 restricted stock units were granted. The units
vest one-fourth each year over a four-year period beginning September 1999.
6. PER SHARE COMPUTATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Net income (loss) - Basic and Diluted $4,638 $ 1,112 $ 11,915 $ (1,089)
========== ========== ========== ==========
Weighted average shares outstanding - Basic 12,258,132 12,517,552 12,315,087 12,517,552
Effect of Restricted Stock Units 23,397 - 7,885 -
Effect of Directors Deferred Fee Shares 413 - 139 -
---------- ---------- ---------- ----------
Weighted average shares outstanding - Diluted 12,281,942 12,517,552 12,323,111 12,517,552
========== ========== ========== ==========
Net income (loss) per share - Basic and Diluted $ 0.38 $ 0.09 $ 0.97 $(0.09)
========== ========== ========== ==========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
For the three months ended September 30, 1998, new business taken was $162.3
million compared with $173.0 million in the third quarter of 1997. For the nine
months ended September 30, 1998, new business taken increased to $577.0 million
from $561.1 million reported in the comparable 1997 period. More than 60% of
the new business taken during the nine months was for contracts awarded outside
of North America. For the first three quarters of 1998, new business taken
increased 53% in the Europe, Africa, Middle East (EAME) area, increased 45% in
the Central and South America (CSA) area, declined 49% in the Asia Pacific (AP)
area and was even in North America. In spite of lower oil prices and the Asian
economic downturn, a solid level of new business during the first three quarters
of 1998 was secured through CB&I's focused marketing approach and from expanding
the traditional work scope on existing projects. The nine-month new business
total is the highest in recent years. Backlog at September 30, 1998, was $522.4
million compared with a $559.0 million backlog reported at September 30, 1997,
and a $555.0 million backlog at year-end 1997.
Revenues for the third quarter of 1998 rose 23% to $205.0 million, compared
with $166.8 million in the third quarter of 1997. The increase was due
primarily to a significantly greater amount of work put in place in the EAME
area and higher revenues at CB&I Constructors, a part of the Company's North
American operations. Revenues for the first nine months of 1998 increased 21%
to $576.7 million compared with $477.5 million for the first nine months of
1997.
Gross profit for the three months ended September 30, 1998, amounted to $18.1
million, or 8.8% of revenues, compared with $8.6 million, or 5.1% of revenues,
in the prior year quarter. Gross profit for the nine-month period of 1998 was
$52.6 million, or 9.1% of revenues, compared with $43.4 million, or 9.1% of
revenues, for the first nine months of 1997. For the 1998 year-to-date period,
an improved gross profit percentage in North American operations was offset by
lower gross profit percentages in the AP and CSA regions.
Selling and administrative expenses for the 1998 third quarter were $11.6
million and decreased to 5.7% of revenues compared with $11.1 million or 6.7%
of revenues for the prior year quarter. For the first nine months of 1998,
selling and administrative expenses of $35.3 million or 6.1% of revenues
compared with $33.4 million or 7.0% of revenues in the 1997 period.
Income from operations for the third quarter of 1998 was $6.5 million compared
with $1.5 million for the third quarter of 1997. Third quarter 1997 income
from operations was negatively affected by an operating loss at CB&I
Constructors, which was partially offset by $4.1 million of other operating
income. Third quarter 1998 operating income was boosted by strong results in
the EAME area, which more than offset improving but still significantly below
planned results in CSA. Income from operations for the first nine months of
1998 was $17.9 million compared with operating income of $14.3 million in the
1997 period, excluding the one-time, non-cash
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Management Plan charge. Including the one-time, non-cash Management Plan
charge, the Company reported an operating loss of $2.3 million in the first
nine months of 1997.
Interest expense was $0.9 million for the third quarter of 1998 compared with
$0.5 million in the comparable period of 1997. While debt levels continue to
be reduced worldwide, third quarter 1998 interest expense was affected by the
higher cost of short-term borrowings outside the U.S. Interest expense for the
third quarter 1997 included a $0.4 million reduction due to capitalized
interest. For the nine-month period, interest expense was $2.8 million in 1998
compared with $3.1 million in 1997. Long-term debt decreased to $27 million
from $44 million at year-end 1997 and $39 million at June 30, 1998. Cash and
cash equivalents at September 30, 1998 were $12.5 million. Other income
consisted primarily of interest earned on cash balances at foreign
subsidiaries.
For the nine months ended September 30, 1998, income tax expense was $4.6
million or an effective income tax rate of 28.0% compared to a net income tax
benefit of $3.0 million in the comparable period of the prior year. The 1997
income tax benefit was mainly attributable to the one-time, non-cash Management
Plan charge. Excluding the Management Plan charge, income tax expense would
have been $3.6 million or an effective income tax rate of 29.0% for the first
nine months of 1997.
Net income for the three months ended September 30, 1998 was $4.6 million or
$0.38 per share, compared with net income of $1.1 million or $0.09 per share
for the same period in 1997. Net income for the first nine months of 1998 was
$11.9 million or $0.97 per share compared with net income of $9.0 million or
$0.72 per share for the first nine months of 1997, excluding the effect of a
one-time, non-cash Management Plan charge of $16.7 million ($10.1 million after
tax) related to the contribution of common shares to a management compensation
program in connection with the Company's initial public offering in 1997.
Including the one-time, non-cash Management Plan charge, the Company reported a
net loss of $1.1 million or $0.09 per share in the first nine months of 1997.
FINANCIAL CONDITION
For the three months ended September 30, 1998, the Company generated cash from
operations of $11.9 million, bringing the year-to-date total to $31.9 million,
compared with $42.8 million for the nine months of 1997. Capital expenditures
during the third quarter of 1998 were $1.9 million, bringing the year-to-date
total to $8.2 million, compared with $26.7 million for the first nine months of
1997 (which included $12.5 million of modifications to the North American
fabrication facility). The Company has acquired 737,000 shares of CB&I stock
under the recently approved stock repurchase program.
As previously reported, the Company continues to be impacted by the Tuban
project in Indonesia, where work remains suspended. At September 30, 1998, the
Company's backlog related to this project was approximately $50 million and the
Company and its affiliates had approximately $35 million of net receivables
outstanding. Similar to other major contractors involved in the project, the
Company has received approval to redeploy certain material purchased for this
project in order to reduce its costs. While the Company believes the Tuban
project is viable, it is expected that permanent financing for the project will
not be secured until the political and economic situation in Indonesia
improves. The Company believes work on the
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Tuban project ultimately will resume, but not until 1999 at the earliest, and
no assurances can be given that this will happen.
Management anticipates that by utilizing cash generated from operations and
funds provided under the Revolving Credit Facility, the Company will be able to
meet its working capital and capital expenditure needs for at least the next 24
months.
YEAR 2000
The Company continues to execute its plan to address the effect of Year 2000
issues on its worldwide businesses. The plan consists of two primary phases:
Assessment (consisting of identification, business criticality ranking and
impact analysis, and remediation planning) and Remediation (consisting of
repair, testing, implementation, certification and contingency plans). This
plan involves representatives of the Company from all operational and
geographical areas and encompasses information technology (IT) systems,
embedded (non-IT) systems and suppliers.
Assessment has been completed on all of the Company's identified North American
IT systems. Assessment continues on the Company's international IT systems,
primarily payroll systems, and is scheduled to be completed by the end of 1998.
As of September 30, 1998, 52% of the Remediation phase for the Company's IT
systems was completed. The Remediation phase is scheduled to be completed by
June 1999.
Assessment of North American non-IT systems is complete, and the Remediation
phase is scheduled for completion by the end of 1998. Non-IT systems include
building and mechanical systems (such as telecommunication systems, HVAC and
security systems) and fabrication and field construction equipment. Assessment
of non-IT systems outside North America continues on building and mechanical
systems with completion scheduled by the end of 1998. The Remediation phase is
scheduled to be completed by mid-1999. The Company's assessment and remediation
of its fabrication and field construction equipment throughout the world has
been completed.
The Company has identified key material suppliers and service providers
("suppliers"), and has initiated discussions and mailed correspondence to these
suppliers to survey their state of readiness on Year 2000 issues. Completion of
this assessment is dependent upon their cooperation. Responses have been
received from 80% of the North American inquiries and 55% of the non-North
American inquiries. The Company continues to work to get responses from
suppliers. At this point, it is not possible to forecast whether there will be
any significant disruption due to supplier failure to remediate their own Year
2000 issues. The Company, as part of the Remediation phase, is formulating a
contingency plan. This plan includes the Company's continuous communication
with suppliers to assure that they are able to continue to perform without
disruption. Due to the continual change of geographic location and type of
projects on which the Company is executing work, the Company is familiar with
reassessing and reestablishing its supplier chain through the use of
alternative sourcing of materials and services to meet its business needs.
The Company estimates that the cost to remediate its Year 2000 issues is $2.5
million, of which 25% was incurred through September 30, 1998. Approximately
$0.7 million of the total cost will
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be capitalized for the accelerated purchase of desktop hardware. The cost
estimate excludes the direct costs of the ongoing J.D. Edwards implementation
(which is a Year 2000 compliant system), the costs of which are being
capitalized. The decision to implement this new information system was made
independent of the Company's Year 2000 compliance efforts. The J.D. Edwards
system implementation is scheduled to be completed by August 31, 1999.
The Company has targeted internal compliance with Year 2000 issues for all
critical areas, excluding the ongoing J.D. Edwards implementation, by the
second quarter of 1999. The Company believes that the current efforts to
address and resolve the issues associated with Year 2000 are adequate. However,
the Company cannot guarantee that all Year 2000 issues will be anticipated and
corrected, and there can be no assurance that the systems of any third party on
which the Company's systems and operations rely will be timely converted. It is
too soon to determine whether the Company will experience disruption to
transportation, communication, electric power or other energy systems due to
Year 2000 issues that affect the public infrastructure in the locations where
it executes projects. The inability of the Company, its suppliers or the
public infrastructure to effectuate solutions to their respective Year 2000
issues on a timely and cost effective basis may have a material adverse effect
on the Company.
Because of the uncertainties the Company faces with regard to Year 2000 issues,
it is developing contingency plans to provide for continuation of its critical
operations in spite of possible Year 2000 disruptions. Development of
contingency plans are forecast to be complete by the end of first quarter 1999.
If the Company is unsuccessful in implementing the J.D. Edwards system at
remaining locations by the Year 2000, the cost of implementing the J.D. Edwards
contingency plan would not be material to the Company.
This discussion and analysis contains certain forward-looking statements that
involve a number of risks and uncertainties. Actual events or results may
differ materially from the Company's expectations. In addition to matters
described herein, including the Tuban project and Year 2000 issues, operating
risks, risks associated with fixed price contracts, risks associated with
percentage of completion accounting, fluctuating revenues and cash flow,
dependence on the petroleum and petrochemical industries and competitive
conditions, as well as risk factors listed from time to time in the Company's
reports filed with the Securities and Exchange Commission (including, but not
limited to its Registration Statement on Form S-1 [File No.333-18065], as
amended), may affect the actual results achieved by the Company.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in the legal proceedings as described
in Note 7 of the Notes to Consolidated Financial Statements submitted with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.3 The Company's Long-Term Incentive Plan
As amended September 1, 1998
10.16 The Company's Supervisory Board of Directors Fee Payment Plan
10.17 The Company's Supervisory Board of Directors Stock Purchase
Plan
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a current report on Form 8-K during the
three months ended September 30, 1998.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chicago Bridge & Iron Company N.V.
/s/ Timothy J. Wiggins
---------------------------------------
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
Timothy J. Wiggins
Managing Director
(Principal Financial Officer)
Date: November 12, 1998
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