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, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-12815
CHICAGO BRIDGE & IRON COMPANY N.V.
Incorporated in The Netherlands IRS Identification Number: Not Applicable
Polarisavenue 31
2132 JH Hoofddorp
The Netherlands
31-23-5685660
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
The number of shares outstanding of a single class of common stock as of
September 30, 2001 - 21,336,706
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Consolidated Financial Statements
Statements of Income
Three and Nine Months Ended September 30, 2001 and 2000 3
Balance Sheets
September 30, 2001 and December 31, 2000 4
Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6 - 12
Management's Discussion and Analysis of
Results of Operations and Financial Condition 13 - 16
PART II. OTHER INFORMATION 17- 18
SIGNATURES 19
2
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2001 2000 2001 2000
Revenues $ 277,774 $ 149,552 $ 776,999 $ 457,155
Cost of revenues 243,759 134,194 682,032 408,134
--------- --------- --------- ---------
Gross profit 34,015 15,358 94,967 49,021
Selling and administrative expenses 15,159 10,085 47,690 31,106
Intangibles amortization 1,309 148 3,819 442
Other operating income, net (801) (297) (1,067) (2,366)
Special charges (Note 2) 5,288 473 7,540 1,991
--------- --------- --------- ---------
Income from operations 13,060 4,949 36,985 17,848
Interest expense (2,011) (1,338) (6,504) (3,775)
Interest income 517 64 1,468 329
--------- --------- --------- ---------
Income before taxes and minority interest 11,566 3,675 31,949 14,402
Income tax expense (2,920) (1,116) (8,952) (4,020)
--------- --------- --------- ---------
Income before minority interest 8,646 2,559 22,997 10,382
Minority interest in (income) loss (626) 231 (2,366) (636)
--------- --------- --------- ---------
Income from continuing operations 8,020 2,790 20,631 9,746
Discontinued operations (Note 3) :
(Loss) from discontinued operations,
net of taxes - (1,572) (2,321) (4,123)
(Loss) on disposal of discontinued operations,
net of taxes - - (9,898) -
--------- --------- --------- ---------
Net income $ 8,020 $ 1,218 $ 8,412 $ 5,623
========= ========= ========= =========
Net income per share Basic:
Income from continuing operations $ 0.38 $ 0.30 $ 0.95 $ 1.05
(Loss) from discontinued operations - (0.17) (0.56) (0.45)
--------- --------- --------- ---------
Net income $ 0.38 $ 0.13 $ 0.39 $ 0.60
========= ========= ========= =========
Diluted:
Income from continuing operations $ 0.36 $ 0.30 $ 0.91 $ 1.02
(Loss) from discontinued operations - (0.17) (0.54) (0.43)
--------- --------- --------- ---------
Net income $ 0.36 $ 0.13 $ 0.37 $ 0.59
========= ========= ========= =========
Weighted average shares outstanding
Basic 21,382 9,235 21,829 9,320
Diluted 22,295 9,432 22,634 9,563
Dividends on shares
Amount $ 1,280 $ 554 $ 3,968 $ 1,663
Per share $ 0.06 $ 0.06 $ 0.18 $ 0.18
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
3
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
Current assets
Cash and cash equivalents $ 35,936 $ 7,451
Accounts receivable, net of allowance for doubtful
accounts of $2,005 in 2001 and $1,340 in 2000 159,508 125,259
Contracts in progress with earned revenues
exceeding related progress billings 69,003 57,888
Deferred income taxes 11,233 14,417
Assets held for sale 1,958 13,391
Net assets of discontinued operations (Note 2) - 11,614
Other current assets 15,790 10,740
--------- ---------
Total current assets 293,428 240,760
--------- ---------
Property and equipment, net 105,129 98,723
Long-term receivable 19,785 19,785
Deferred income taxes 30,471 28,332
Goodwill and other intangibles, net 172,504 137,436
Other non-current assets 13,765 13,379
--------- ---------
Total assets $ 635,082 $ 538,415
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 286 $ 276
Current maturity of long-term debt (Note 4) 5,700 -
Accounts payable 60,495 62,934
Accrued liabilities 61,616 58,389
Contracts in progress with progress billings
exceeding related earned revenues 112,903 58,927
Net liabilities of discontinued operations (Note 2) 722 -
Income taxes payable 5,729 3,321
--------- ---------
Total current liabilities 247,451 183,847
--------- ---------
Long-term debt (Note 4) 75,000 101,800
Other non-current liabilities 67,765 63,794
Minority interest in subsidiaries 34,408 33,227
--------- ---------
Total liabilities 424,624 382,668
--------- ---------
Shareholders' equity
Common stock, Euro .01 par value;
authorized: 35,000,000 in 2001 and 2000;
issued: 22,282,586 in 2001 and 17,743,030 in 2000;
outstanding: 21,336,706 in 2001 and 17,729,108 in 2000 210 91
Additional paid-in capital 240,070 174,320
Retained earnings 13,070 8,626
Stock held in Trust (Note 5) (13,913) (17,193)
Treasury stock, at cost: 945,880 in 2001 and 13,922 in 2000 (17,201) (225)
Accumulated other comprehensive income (loss) (Note 6) (11,778) (9,872)
--------- ---------
Total shareholders' equity 210,458 155,747
--------- ---------
--------- ---------
Total liabilities and shareholders' equity $ 635,082 $ 538,415
========= =========
</Table>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
4
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER 30,
2001 2000
Cash flows from operating activities
Net income $ 8,412 $ 5,623
Adjustments to reconcile net income to net cash provided by
operating activities
Special charges, net of deferred income taxes of $2,564 and $677 4,976 1,314
Payments related to special charges (13,014) (1,931)
Depreciation and amortization 18,419 12,908
Gain on sale of property and equipment (1,067) (2,366)
Loss on discontinued operations 12,219 4,123
Change in operating assets and liabilities (see below) 39,639 (14,105)
-------- --------
Net cash provided by/(used in) continuing operating activities 69,584 5,566
-------- --------
Net cash provided by/(used in) discontinued operating activities (279) (9,543)
-------- --------
Net cash provided by/(used in) operating activities 69,305 (3,977)
-------- --------
Cash flows from investing activities
Cost of business acquisition, net of cash acquired (5,030) (9,745)
Capital expenditures (6,162) (5,106)
Proceeds from sale of assets held for sale 13,992 -
Proceeds from sale of property and equipment 2,438 4,598
-------- --------
Net cash provided by/(used in) continuing investing activities 5,238 (10,253)
-------- --------
Net cash (used in) discontinued investing activities 2,013 (7,180)
-------- --------
Net cash provided by/(used in) investing activities 7,251 (17,433)
-------- --------
Cash flows from financing activities
(Decrease)/increase in notes payable 10 (482)
Proceeds from Private Placement 75,000 -
Net (repayment)/borrowing under Revolving Credit Facility (96,100) 30,400
Purchase of treasury stock (38,691) (18,671)
Issuance of treasury stock 2,053 806
Issuance of common stock 13,585 -
Dividends paid (3,968) (1,663)
-------- --------
Net cash (used in)/provided by continuing financing activities (48,111) 10,390
-------- --------
Net cash provided by discontinued financing activities - 14
-------- --------
Net cash (used in)/provided by financing activities (48,111) 10,404
-------- --------
Increase/(decrease) in cash and cash equivalents 28,445 (11,006)
Change in cash and cash equivalents from discontinued operations 40 282
Cash and cash equivalents, beginning of the year 7,451 18,357
-------- --------
Cash and cash equivalents, end of the period $ 35,936 $ 7,633
======== ========
Change in operating assets and liabilities
Decrease in receivables, net $ 17,587 $ 13,316
Decrease/(increase) in contracts in progress, net 46,885 (6,508)
(Decrease) in accounts payable (29,604) (7,795)
-------- --------
Change in contract capital 34,868 (987)
(Increase) in other current assets (3,421) (1,519)
Increase/(decrease) in income taxes payable 6,234 (2,585)
Increase/(decrease) in accrued and other non-current liabilities 4,635 (7,056)
(Increase) in other (2,677) (1,958)
-------- --------
Total $ 39,639 $(14,105)
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
5
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited consolidated financial
statements for Chicago Bridge & Iron Company N.V. and Subsidiaries (the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. The
accompanying unaudited interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the 2000 Annual Report on Form 10-K/A of the Company.
In the opinion of the Company, all adjustments necessary to present fairly the
financial position of the Company and the results of its operations and cash
flows for the period then ended have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
Forward Contracts - Although the Company does not engage in currency
speculation, it periodically uses forward contracts to hedge currency
transactions. Gains or losses on forward contracts are included in income. At
September 30, 2001, the Company had $10,920 of outstanding foreign currency
exchange contracts to sell Dutch guilders, $7,648 of outstanding foreign
currency exchange contracts to buy Canadian dollars, $5,220 of outstanding
foreign currency exchange contracts to sell Singapore dollars, $4,427 of
outstanding foreign currency exchange contracts to buy Euros, $2,320 of
outstanding foreign currency exchange contracts to buy Australian dollars, $671
of outstanding foreign currency exchange contracts to sell British pounds and
$670 of outstanding foreign currency exchange contracts to buy Spanish pesetas.
These forward contracts hedged intercompany loans utilized to finance non-U.S.
subsidiaries and matured within 10 days after quarter end. At September 30,
2001, the Company also had $655 of outstanding foreign currency exchange
contracts to sell Euros. These forward contracts hedge contract costs to be
incurred in U.S. dollars with revenues to be earned in Euros and mature in May
2002. The counterparties to the Company's forward contracts are major financial
institutions, which the Company continually evaluates as to their
creditworthiness. The Company has never experienced, nor does it anticipate,
nonperformance by any of its counterparties.
New Accounting Standards - In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards ("SFAS") No. 141
"Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). These pronouncements change the accounting for
business combinations, goodwill and intangible assets. SFAS No. 141 eliminates
the pooling-of-interests method of accounting for business combinations and
further clarifies the criteria to recognize intangible assets separately from
goodwill. The requirements of SFAS No. 141 are effective for any business
combination
6
accounted for by the purchase method that is completed after June 30, 2001. SFAS
No. 142 states goodwill and indefinite lived intangible assets are no longer
amortized but are reviewed for impairment at least annually. Separable
intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of SFAS No.
142 apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, SFAS
No. 142 will be effective for the Company on January 1, 2002. The Company is
currently evaluating the intangible assets associated with its recent
acquisitions and the provisions of SFAS 141 and SFAS 142 and the impact that
adoption will have on the financial position and results of operations.
Reclassifications - Certain prior year amounts have been reclassified to conform
with the current year presentation.
2. SPECIAL CHARGES
The following table sets forth the balances and 2001 activity relating to
special charges as of September 30, 2001.
Personnel Costs Facilities Integration Total
December 31, 2000 $ 10,874 $ 838 $ - $ 11,712
Special charges 6,081 457 1,002 7,540
Cash payments (11,555) (457) (1,002) (13,014)
Non-cash activities (1,000) - - (1,000)
-------- -------- -------- --------
September 30, 2001 $ 4,400 $ 838 $ - $ 5,238
======== ======== ======== ========
Personnel costs include the voluntary resignation offer (from the fourth quarter
of 2000), and severance and personal moving expenses associated with the
closure, downsizing or relocation of offices. During 2001, the Company recorded
severance charges related to the termination of 33 employees in the United
States and 18 employees in non-U.S. operations. The third quarter charge was
primarily related to the relocation of the Company's administrative office to
The Woodlands, Texas, including costs associated with the separation of senior
executives who have elected not to relocate, as well as moving-related and
severance expenses. The Company will incur additional charges throughout the
next twelve months related to this relocation.
The facilities category includes charges related to the sale, closure,
downsizing or relocation of a facility. During 2000, the Company recorded
charges to downsize or lower costs at five facilities worldwide and other exit
costs including asset write-downs and lease termination costs. These charges
were for the anticipated sale of three facilities and the termination of leases
at two others. The sale of the Company's Plainfield administrative office, one
of the three facilities anticipated to be sold, was completed during the second
quarter. The remaining two facilities continue to be held for sale. The
relocation from the two leased facilities has been completed as anticipated.
The integration category relates to initiatives associated with the integration
of the Company's recent acquisitions. Although the integration of the Company's
acquisitions is largely complete in many areas, the Company anticipates these
costs will continue during the fourth quarter and into 2002.
7
3. DISCONTINUED OPERATIONS
During the second quarter of 2001, the Company decided to exit its high purity
piping business, UltraPure Systems ("UPS") due primarily to continuing weak
market conditions in the microelectronics industry. The losses from discontinued
operations are $1,572 and $4,123 (net of tax benefits of $732 and $1,586) for
the three months and for the nine months ended September 30, 2000, and $2,321
(net of tax benefits of $355) for the nine months ended September 30, 2001. The
loss from disposal of $9,898 recognized in the second quarter (net of a $2,338
tax benefit) includes the write-down of equipment (net of estimated proceeds),
lease terminations, severance and relocation costs, and estimated losses during
the phase-out period. As a result of this operation being classified as
discontinued, prior periods have been restated. Revenues for these operations
were $1,091 and $8,081 for the three months ended, and $15,744 and $13,559 for
the nine months ended September 30, 2001 and 2000.
The net assets/liabilities of the discontinued operations have been segregated
on the balance sheet. These consist of current assets and liabilities, goodwill,
and net property and equipment. These net liabilities were $772 at September 30,
2001. The net assets of the discontinued operations were $11,614 at December 31,
2000.
The Company sold UPS Puerto Rico to former management in July 2001 and sold the
business assets and operations of UPS North Carolina in August 2001. The wind-up
of the discontinued high purity piping business continues to proceed on plan.
The Company expects to sell substantially all of the property and equipment and
wind-up all remaining operations by December 31, 2001.
4. CURRENT MATURITY OF LONG-TERM DEBT AND LONG-TERM DEBT
In connection with the acquisition of Howe-Baker International, L.L.C. on
December 28, 2000, the Company assumed a $5,700 note payable bearing interest at
6.00%, with accrued interest and principal due June 30, 2002.
In July 2001, the Company completed a $75 million private placement of senior
notes to a group of institutional investors. The notes carry an interest rate of
7.34% and are due in 2007, with principal reductions annually from 2005 through
2007. Proceeds were used to reduce floating rate debt under the Company's
revolving credit facility.
In August 2001, the Company's Revolving Credit Facility was amended by an
Amended and Restated Credit Agreement. This amendment changed the Facility's
terms from a three-year, unsecured $200,000 Facility to a four-year unsecured
$125,000 Facility. The Company also entered into a 364-Day Credit Agreement with
the same member banks which provides for $50,000 of debt borrowings and
short-term letters of credit. Under these Agreements, the Facilities now provide
for the annual extension of the termination date, subject to mutual agreement
between the Company and participating banks. No debt borrowings are currently
outstanding under these Agreements.
8
5. STOCK HELD IN TRUST
In connection with the departure from the Company of Mr. Timothy J. Wiggins,
former Executive Vice President and Chief Financial Officer, a transfer of
136,157 shares (valued at the original Trust amount of $18 per share) to Mr.
Wiggins pursuant to Section 3.5 of his Change in Control Severance Agreement
(included as Exhibit 10.23 to the Company's 2000 Annual Report on Form 10-K)
occurred during the third quarter.
Other changes in this caption are the result of activity under the Company's
Long-Term Incentive Plan.
6. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three and nine months ended September 30,
2001 and 2000 is as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
Net income $ 8,020 $ 1,218 $ 8,412 $ 5,623
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment (1,056) (730) (1,407) (1,896)
Cash flow hedge of anticipated debt issuance 22 - (499) -
------- ------- ------- -------
Comprehensive (loss) income $ 6,986 $ 488 $ 6,506 $ 3,727
======= ======= ======= =======
Accumulated other comprehensive income (loss) reported on the Company's balance
sheet at September 30, 2001 includes ($11,279) of cumulative translation
adjustment and a balance of ($499) of mark to market loss on the cash flow hedge
for the anticipated private placement debt issuance [See Note 4].
9
7. PER SHARE COMPUTATIONS
(shares in thousands) Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
Income from continuing operations $ 8,020 $ 2,790 $ 20,631 $ 9,746
(Loss) from discontinued operations - (1,572) (12,219) (4,123)
-------- -------- -------- --------
Net income $ 8,020 $ 1,218 $ 8,412 $ 5,623
======== ======== ======== ========
Weighted average shares outstanding - Basic 21,382 9,235 21,829 9,320
Effect of stock options 844 25 735 48
Effect of warrants - - 23 -
Effect of directors deferred fee shares 21 14 20 14
Effect of performance share units - - - 7
Effect of restricted stock units 48 158 27 174
-------- -------- -------- --------
Weighted average shares outstanding - Diluted 22,295 9,432 22,634 9,563
======== ======== ======== ========
Net income per share
Basic:
Income from continuing operations $ 0.38 $ 0.30 $ 0.95 $ 1.05
(Loss) from discontinued operations - (0.17) (0.56) (0.45)
-------- -------- -------- --------
Net income per share $ 0.38 $ 0.13 $ 0.39 $ 0.60
======== ======== ======== ========
Diluted:
Income from continuing operations $ 0.36 $ 0.30 $ 0.91 $ 1.02
(Loss) from discontinued operations - (0.17) (0.54) (0.43)
-------- -------- -------- --------
Net income per share $ 0.36 $ 0.13 $ 0.37 $ 0.59
======== ======== ======== ========
10
8. SEGMENT INFORMATION
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
New Business Taken
North America $ 204,217 $ 67,817 $ 651,706 $ 298,447
Europe, Africa & Middle East 24,151 10,241 53,451 56,759
Asia Pacific 7,370 13,908 23,301 39,440
Central & South America 10,908 77,092 129,141 139,109
--------- --------- --------- ---------
Total $ 246,646 $ 169,058 $ 857,599 $ 533,755
========= ========= ========= =========
Revenues
North America $ 194,122 $ 85,345 $ 520,523 $ 228,128
Europe, Africa & Middle East 28,399 37,505 92,871 131,328
Asia Pacific 9,863 12,716 26,003 44,692
Central & South America 45,390 13,986 137,602 53,007
--------- --------- --------- ---------
Total $ 277,774 $ 149,552 $ 776,999 $ 457,155
========= ========= ========= =========
Income (Loss) From Operations
North America $ 9,939 $ 3,694 $ 26,572 $ 10,145
Europe, Africa & Middle East (810) 169 (2,159) 3,934
Asia Pacific (775) 1,629 (1,242) 1,678
Central & South America 4,706 (543) 13,814 2,091
--------- --------- --------- ---------
Total $ 13,060 $ 4,949 $ 36,985 $ 17,848
========= ========= ========= =========
Income (Loss) From Operations
Excluding Special Charges
North America $ 13,447 $ 3,799 $ 31,081 $ 10,936
Europe, Africa & Middle East (67) 401 (777) 4,654
Asia Pacific (615) 1,683 (1,002) 1,894
Central & South America 5,583 (461) 15,223 2,355
--------- --------- --------- ---------
Total $ 18,348 $ 5,422 $ 44,525 $ 19,839
========= ========= ========= =========
11
9. SUBSEQUENT EVENTS
Pursuant to registration rights granted in connection with the Howe-Baker
International ("Howe-Baker") and the Pitt-Des Moines, Inc. ("PDM") Water and
Engineered Construction Divisions ("the PDM Divisions") acquisitions, the
Company has effective with the Securities and Exchange Commission a secondary
shelf registration of 1,307,356 shares which may be offered and sold from time
to time by certain selling shareholders. The selling shareholders may offer
their shares of common stock from time to time through public or private
transactions, on or off the New York Stock Exchange, at prevailing market prices
or at privately negotiated prices. The Company will not receive any of the
proceeds from the sale of the shares by the selling shareholders.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes.
RESULTS OF OPERATIONS
The 2001 results included Howe-Baker as of January 1, 2001, and the PDM
Divisions as of February 1, 2001.
For the three months ended September 30, 2001, new business taken increased 46%
to $247 million compared with $169 million in 2000. The most significant new
contract in the quarter was the previously announced award of an oil sands
project in Canada valued in excess of $40 million. In addition, Howe-Baker
Engineers was awarded another natural gas project in South America during the
quarter that resulted from a joint sales effort with CB&I. For the first nine
months of 2001, new business taken increased 61% to $858 million compared with
$534 million in the comparable 2000 period. The Company remains on track to
achieve new business taken in excess of $1 billion this year. Backlog at
September 30, 2001 was $843 million compared with $564 million at the end of the
third quarter 2000 and $597 million at year-end 2000.
In the following discussion of third quarter and nine-month results, the 2000
periods have been restated to reclassify results to conform with the current
year presentation. Third quarter revenues increased 86% to $277.8 million from
$149.6 million in 2000. Revenues for the first nine months of 2001 increased 70%
to $777.0 million from $457.2 million in 2000. The increase was due to
significantly higher revenues in North America, of which approximately 85% was
due to the results of the acquired businesses. Higher revenues in the Central
and South America region were the result of a significant volume of work put in
place from new business awarded during the second half of 2000 and the first
quarter of 2001. The Company's revenues fluctuate based on the changing project
mix and are dependent on the level and timing of customer releases of new
business, and on other matters such as project schedules.
Gross profit for the three months ended September 30, 2001 was $34.0 million or
12.2% of revenues compared with $15.4 million or 10.3% of revenues in 2000. The
improvement in gross margin was due primarily to the inclusion of higher margin
work from Howe-Baker and sustained improvements in project execution. Gross
profit for the first nine months of 2001 was $95.0 million or 12.2% of revenues
compared with $49.0 million or 10.7% of revenues in the comparable 2000 period.
Selling and administrative expenses were $15.2 million, or 5.5% of revenues, in
the third quarter of 2001 compared with $10.1 million, or 6.7% of revenues, in
the 2000 period. In the first nine months of 2001, selling and administrative
expenses were $47.7 million, or 6.1% of revenues, compared with $31.1 million,
or 6.8% of revenues, in the 2000 period. The lower percent of revenues reflects
the cost level reduction from the Company's actions during the fourth quarter of
2000 to right size its pre-acquisition operations.
13
During the third quarter of 2001, the Company incurred special charges of $5.3
million primarily related to the relocation of the Company's administrative
office to The Woodlands, Texas, including costs associated with the separation
of senior executives who have elected not to relocate, as well as other
moving-related and severance expenses. The Company will incur additional charges
throughout the next twelve months related to this relocation. Although the
integration of the Company's acquisitions is largely complete in many areas, the
Company anticipates these costs will continue during the fourth quarter and into
2002. Special charges of $0.5 million in the prior year quarter were for
severance costs.
Excluding special charges, income from operations for the third quarter of 2001
more than tripled to $18.3 million compared with $5.4 million in the prior-year
quarter. Operating income in the period was impacted by goodwill amortization
resulting from the Company's recent acquisitions. Income from operations
excluding special charges for the first nine months of 2001 increased 124% to
$44.5 million from $19.8 million for the comparable 2000 period.
Net income from continuing operations excluding special charges for the three
months ended September 30, 2001 more than tripled to $11.5 million or $0.52 per
diluted share compared with $3.1 million or $0.33 per diluted share for the
third quarter of 2000. As a result of recent acquisitions, weighted average
shares outstanding were 22.3 million in the third quarter compared with 9.4
million in the comparable 2000 period. Net income from continuing operations
excluding special charges for nine months of 2001 increased 132% to $25.6
million or $1.13 per diluted share compared with $11.1 million or $1.16 per
diluted share for the first nine months of 2000.
Inclusive of discontinued operations and special charges, net income for the
third quarter of 2001 was $8.0 million or $0.36 per diluted share, compared with
net income of $1.2 million or $0.13 per diluted share for the third quarter of
2000. Net income for the first nine months of 2001 was $8.4 million or $0.37 per
diluted share, compared with net income of $5.6 million or $0.59 per diluted
share for the comparable 2000 period.
FINANCIAL CONDITION
For the nine months ended September 30, 2001, the Company generated cash from
operations of $69.3 million. Cash flow from operating activities included a
reduction in contract capital that provided $34.9 million in 2001. This
reduction was achieved primarily from realization of contract capital from the
acquired businesses and from the high level of activity in the North America and
Central and South America region.
Continued strong cash flow during the quarter resulted in net debt (total debt
less cash and cash equivalents) of $45.1 million at September 30, 2001, down
from $96.6 million at the end of the first quarter. Capital expenditures during
the quarter were $2.4 million compared with $1.5 million in the prior year
period. Capital expenditures for the first nine months of 2001 were $6.2 million
compared with $5.1 million for the comparable 2000 period. The Company is
drawing upon its cash flows to support its previously announced modest stock
buyback program.
During the third quarter, the Company completed a $75 million private placement
of senior notes to a group of institutional investors. The notes carry an
interest rate of 7.34% and are due in 2007, with principal reductions annually
from 2005 through 2007. Proceeds were used to reduce
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floating rate debt under the Company's Revolving Credit Facility. In August
2001, the Company's Revolving Credit Facility was amended by an Amended and
Restated Credit Agreement and the Company also entered into a 364-Day Credit
Agreement. Under these Facilities the Company currently has a maximum aggregate
commitment of $175 million for letters of credit and debt borrowing.
On October 25, 2001, the U.S. Federal Trade Commission ("FTC") announced its
decision to file an administrative complaint challenging the Company's February
2001 acquisition of certain assets of the Engineered Construction Division of
PDM. The FTC's complaint alleges that the acquisition violated Federal antitrust
laws by substantially lessening competition in certain field erected specialty
industrial storage tank product lines in the United States: LNG tanks, LPG
tanks, LIN/LOX/LAR tanks, and thermal vacuum chambers. These product lines
challenged by the FTC do not represent (or constitute) commercially viable
markets in the United States. The FTC is seeking various remedies, including an
order that would re-establish two distinct and separate viable and competing
businesses engaged in the design, engineering, fabrication, construction and
sale of the relevant product lines.
The Company believes the complaint is without substantive merit and intends to
defend the action. The Company expects the impact of the FTC proceeding on its
earnings will be minimal in the current year and in 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign currency exchange
rates, which may adversely affect its results of operations and financial
condition. The Company seeks to minimize the risks from these foreign currency
exchange rate fluctuations through its regular operating and financing
activities and, when deemed appropriate, through its limited use of foreign
currency forward contracts. The Company's exposure to changes in foreign
currency exchange rates arises from receivables, payables and firm commitments
from international transactions, as well as intercompany loans used to finance
non-U.S. subsidiaries. The Company does not use financial instruments for
trading or speculative purposes.
NEW ACCOUNTING STANDARD
As indicated in the Notes to the Consolidated Financial Statements, in June
2001, the Financial Accounting Standards Board issued SFAS 141 and SFAS No. 142.
These pronouncements change the accounting for business combinations, goodwill
and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method
of accounting for business combinations and further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of SFAS
No. 141 are effective for any business combination accounted for by the purchase
method that is completed after June 30, 2001. SFAS No. 142 states goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed for
impairment at least annually. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The amortization provisions of SFAS No. 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, SFAS No. 142 will be effective for the
Company on January 1, 2002. The Company is currently evaluating the intangible
assets associated with its recent acquisitions and the provisions of SFAS 141
and SFAS 142 and the impact that adoption will have on the financial position
and results of operations.
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FORWARD LOOKING STATEMENTS
Any statements contained herein that are not based on historical fact are
forward-looking statements and represent management's best judgment as to what
may occur in the future. The actual outcome and results are not guaranteed, are
subject to risks, uncertainties and assumptions and may differ materially from
what is expressed. A variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements including, but not limited to, the Company's ability to realize cost
savings from its expected execution performance of contracts; the uncertain
timing and the funding of new contract awards, and project cancellations and
operating risks; cost overruns on fixed priced contracts; increased competition;
fluctuating revenues resulting from a number of factors, including the cyclic
nature of the individual markets in which the Company's customers operate; lower
than expected activity in the hydrocarbon industry, demand from which is the
largest component of the Company's revenue, or lower than expected growth in the
Company's other primary end markets; the Company's ability to integrate and
successfully operate acquired businesses and the risks associated with those
businesses; and the ultimate outcome or effect of the FTC proceeding on the
Company's business, financial condition and results of operations. Additional
factors which could cause actual results to differ from such forward-looking
statements are set forth in Amendment No. 1 to the Company's Form S-3
Registration Statement filed with the SEC on November 1, 2001. The Company does
not undertake to update any forward-looking statements contained herein, whether
as a result of new information, future events or otherwise.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 25, 2001, the U.S. Federal Trade Commission announced its decision to
file an administrative complaint challenging the Company's February 2001
acquisition of certain assets of the Engineered Construction Division of
PDM. The FTC's complaint alleges that the acquisition violated
Federal antitrust laws by substantially lessening competition in certain field
erected specialty industrial storage tank product lines in the United States:
LNG tanks, LPG tanks, LIN/LOX/LAR tanks, and thermal vacuum chambers. These
product lines challenged by the FTC do not represent (or constitute)
commercially viable markets in the United States. The FTC is seeking various
remedies, including an order that would re-establish two distinct and separate
viable and competing businesses engaged in the design, engineering, fabrication,
construction and sale of the relevant product lines.
The Company believes the complaint is without substantive merit and intends to
defend the action. The Company is unable to assess the ultimate outcome or
potential effect of this proceeding on its business, financial condition and
results of operations.
There have been no other 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/A for the fiscal year ended
December 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.24 Senior Executive Relocation Loan Agreements between the
Company and Certain Executive Officers.
(a) Agreement between the Company and Gerald M. Glenn dated
September 13, 2001
(b) Agreement between the Company and Stephen P. Crain dated
September 13, 2001
(c) Agreement between the Company and Robert B. Jordan dated
September 13, 2001
(d) Agreement between the Company and Robert H. Wolfe dated
September 13, 2001
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7(b) Reports on Form 8-K
The Company filed a current report of Form 8-K/A on September 28,
2001 (amending a Form 8-K dated February 22, 2001), as the
Company and PDM have amended their Asset Purchase Agreement with
retroactive effect to February 7, 2001 to redefine certain terms
and certain assets purchased in the transaction, resulting in
revised PDM historical and the unaudited pro forma combined
financial statements of CB&I and PDM. Exhibits required were
included under Item 7.
The Company filed a current report on Form 8-K on September 28,
2001. Under Item 5 (Other Events), the Company reported that it
had completed a $75 million private placement of senior notes.
The Company also reported that its Revolving Credit Facility
Agreement had been amended by an Amended and Restated Credit
Agreement, and that it had entered into a 364-Day Credit
Agreement. Exhibits required were included under Item 7.
The Company filed a current report on Form 8-K on November 1,
2001. Under Item 5 (Other Events), the Company reported that on
October 25, 2001, the U.S. Federal Trade Commission announced its
decision to file an administrative complaint challenging the
Company's February 2001 acquisition of certain assets of the
Engineered Construction Division of PDM. The Company also issued
its press release dated November 1, 2001 announcing its results
of operations for the third quarter ended September 30, 2001.
Exhibits required were included under Item 7.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Chicago Bridge & Iron Company N.V.
/s/ Richard E. Goodrich
--------------------------------------
By: Chicago Bridge & Iron Company B.V.
Its: Managing Director
Richard E. Goodrich
Managing Director
(Principal Financial Officer)
Date: November 14, 2001
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