<PAGE> 1
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, 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 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, 2000 - 9,250,149
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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, 2000 and 1999 3
Balance Sheets
September 30, 2000 and December 31, 1999 4
Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of
Results of Operations and Financial Condition 12 - 15
PART II. OTHER INFORMATION 16
SIGNATURE PAGE 17
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 157,633 $ 157,195 $ 470,714 $ 509,078
Cost of revenues 143,904 139,189 426,484 454,197
--------- --------- --------- ---------
Gross profit 13,729 18,006 44,230 54,881
Selling and administrative expenses 11,379 11,870 34,455 35,740
Other operating income, net (297) (1,170) (2,366) (2,221)
--------- --------- --------- ---------
Income from operations 2,647 7,306 12,141 21,362
Interest expense (1,340) (827) (3,777) (2,157)
Interest income 64 101 329 564
--------- --------- --------- ---------
Income before taxes and minority interest 1,371 6,580 8,693 19,769
Income tax expense (384) (1,578) (2,434) (5,535)
--------- --------- --------- ---------
Income before minority interest 987 5,002 6,259 14,234
Minority interest in loss (income) 231 (299) (636) (939)
--------- --------- --------- ---------
Net income $ 1,218 $ 4,703 $ 5,623 $ 13,295
========= ========= ========= =========
Net income per share
Basic $ 0.13 $ 0.43 $ 0.60 $ 1.19
Diluted $ 0.13 $ 0.42 $ 0.59 $ 1.17
Weighted average shares outstanding
Basic 9,235 10,938 9,320 11,197
Diluted 9,432 11,139 9,563 11,339
Dividends on shares
Amount $ 554 $ 636 $ 1,663 $ 1,990
Per share $ 0.06 $ 0.06 $ 0.18 $ 0.18
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
3
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,401 $ 18,407
Accounts receivable, net of allowance for doubtful
accounts of $1,010 in 2000 and $1,054 in 1999 93,797 93,811
Contracts in progress with earned revenues
exceeding related progress billings 48,679 48,486
Other current assets 9,765 7,359
--------- ---------
Total current assets 159,642 168,063
--------- ---------
Property and equipment 103,105 104,600
Goodwill 20,766 18,010
Long-term receivable, net 28,173 28,739
Other non-current assets 21,978 17,913
--------- ---------
Total assets $ 333,664 $ 337,325
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 212 $ 665
Accounts payable 40,311 44,517
Accrued liabilities 37,431 42,259
Contracts in progress with progress billings
exceeding related earned revenues 47,079 53,314
Income taxes payable 2,329 4,942
--------- ---------
Total current liabilities 127,362 145,697
--------- ---------
Long-term debt 55,400 25,000
Other non-current liabilities 56,075 57,367
Minority interest in subsidiaries 5,454 4,851
--------- ---------
Total liabilities 244,291 232,915
--------- ---------
Shareholders' equity
Common stock, NLG .01 par value;
authorized: 35,000,000 in 2000 and 1999;
issued: 9,296,197 in 2000 and 11,295,687 in 1999;
outstanding: 9,250,149 in 2000 and 10,272,982 in 1999 55 67
Additional paid-in capital 63,362 93,393
Retained earnings 48,581 44,621
Stock held in Trust (Note 6) (12,735) (12,700)
Treasury stock, at cost: 46,048 in 2000 and 1,022,705 in 1999 (752) (13,729)
Cumulative translation adjustment (9,138) (7,242)
--------- ---------
Total shareholders' equity 89,373 104,410
--------- ---------
--------- ---------
Total liabilities and shareholders' equity $ 333,664 $ 337,325
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
4
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities
Net income $ 5,623 $ 13,295
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 13,269 13,127
(Decrease) in deferred income taxes (649) (928)
Gain on sale of property and equipment (2,366) (1,946)
Change in operating assets and liabilities (see below) (19,854) (33,393)
-------- --------
Net cash used in operating activities (3,977) (9,845)
-------- --------
Cash flows from investing activities
Cost of business acquisition, net of cash acquired (Note 2) (11,570) -
Capital expenditures (9,812) (10,175)
Proceeds from sale of property and equipment 3,949 4,464
-------- --------
Net cash used in investing activities (17,433) (5,711)
-------- --------
Cash flows from financing activities
(Decrease)/increase in notes payable (468) 6,135
Net borrowing under Revolving Credit Facility 30,400 26,000
Purchase of treasury stock (18,671) (15,085)
Issuance of treasury stock 806 1,521
Dividends paid (1,663) (1,990)
-------- --------
Net cash provided by financing activities 10,404 16,581
-------- --------
(Decrease)/increase in cash and cash equivalents (11,006) 1,025
Cash and cash equivalents, beginning of the year 18,407 5,636
-------- --------
Cash and cash equivalents, end of the period $ 7,401 $ 6,661
======== ========
Change in operating assets and liabilities
Decrease in receivables, net $ 5,658 $ 1,744
(Increase) in contracts in progress, net (6,892) (20,722)
(Decrease) in accounts payable (5,600) (8,326)
-------- --------
Change in contract capital (6,834) (27,304)
(Increase) in other current assets (1,889) (1,765)
(Decrease) in income taxes payable (2,613) (1,520)
(Decrease) in accrued and other non-current liabilities (6,560) (3,930)
(Increase)/decrease in other (1,958) 1,126
-------- --------
Total $(19,854) $(33,393)
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
5
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CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 1999 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.
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, 2000, the Company had $5,487 of outstanding foreign currency
exchange contracts to buy Euros, $2,357 of outstanding foreign currency exchange
contracts to buy Canadian dollars, $2,258 of outstanding foreign currency
exchange contracts to sell Dutch guilders, $352 of outstanding foreign currency
exchange contracts to sell British pounds and $65 of outstanding foreign
exchange contracts to buy Spanish pesetas. These forward contracts hedged
intercompany loans utilized to finance non-U.S. subsidiaries and matured within
20 days after quarter end. The fair value of these forward contracts
approximated their carrying value in the financial statements at September 30,
2000. 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 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, as
amended by SFAS 137 and SFAS 138, is effective for fiscal years beginning after
June 15, 2000. 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
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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.
Reclassification of Prior Year Balances - Certain prior year balances have been
reclassified to conform with current year presentation.
2. ACQUISITIONS
On May 17, 2000, the Company purchased the assets and assumed certain
liabilities of Pacific Pure Water Asia Pte Ltd. ("Pacific Pure") for
approximately $2,300. Pacific Pure provides ultra pure systems for customers in
the microelectronics, pharmaceutical and biotechnology industries. The purchase
price has been allocated to assets acquired and liabilities assumed based on
estimated fair values at the date of acquisition and the balance of
approximately $1,800 was recorded as goodwill.
On January 28, 2000, the Company purchased the assets and assumed certain
liabilities of the business now known as CB&I Trusco Tank ("Trusco") for
approximately $9,300. Trusco designs, fabricates and erects steel structures,
including storage and shop-built tanks, and services municipal and industrial
customers primarily in the water, wastewater and petroleum markets on the U.S.
West Coast. The purchase price has been allocated to assets acquired and
liabilities assumed based on estimated fair values at the date of acquisition
and the balance of approximately $1,400 was recorded as goodwill.
These acquisitions were accounted for under the purchase method of accounting.
Goodwill is amortized on a straight-line basis over periods ranging from 7 to 40
years. The fair values of assets acquired and assumed liabilities are subject to
final adjustment. Pro forma presentation of financial information has not been
presented as these acquisitions were not significant.
3. NOTES PAYABLE AND LONG-TERM DEBT
The weighted average interest rate on $212 of notes payable was 8.83% at
September 30, 2000.
The weighted average interest rate on $55,400 of borrowings under the Company's
Revolving Credit Facility was 7.42% at September 30, 2000.
7
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4. COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 1,218 $ 4,703 $ 5,623 $13,295
Other comprehensive income, net of tax:
Cumulative translation adjustment (730) (488) (1,896) 562
------- ------- ------- -------
Comprehensive income $ 488 $ 4,215 $ 3,727 $13,857
======= ======= ======= =======
</TABLE>
5. PER SHARE COMPUTATIONS
(shares in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 1,218 $ 4,703 $ 5,623 $13,295
======= ======= ======= =======
Weighted average shares outstanding - Basic 9,235 10,938 9,320 11,197
Effect of restricted stock units 158 170 174 126
Effect of stock options 25 23 48 6
Effect of directors deferred fee shares 14 8 14 7
Effect of performance share units - - 7 3
------- ------- ------- -------
Weighted average shares outstanding - Diluted 9,432 11,139 9,563 11,339
======= ======= ======= =======
Net income per share - Basic $ 0.13 $ 0.43 $ 0.60 $ 1.19
======= ======= ======= =======
Net income per share - Diluted $ 0.13 $ 0.42 $ 0.59 $ 1.17
======= ======= ======= =======
</TABLE>
6. STOCK HELD IN TRUST
The restricted stock units transferred to this Trust in September 1999 were
adjusted to 707,495 units during January. The increase of 1,935 units resulted
from forfeitures under the Management Plan.
7. COMMON STOCK
On May 8, 2000, 869,922 shares of Common Stock owned by the Company were
cancelled. The cost of the shares cancelled was $13,852.
On January 11, 2000, 1,129,568 shares of Common Stock owned by the Company were
cancelled. The cost of the shares cancelled was $15,313.
8
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8. SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
New Business Taken
North America $ 73,640 $ 96,226 $ 313,033 $ 252,393
Europe, Africa & Middle East 10,241 17,338 56,759 171,273
Asia Pacific 13,908 14,044 43,034 63,008
Central & South America 77,092 9,222 139,109 45,583
--------- --------- --------- ---------
Total $ 174,881 $ 136,830 $ 551,935 $ 532,257
========= ========= ========= =========
Revenues
North America $ 92,293 $ 66,101 $ 240,325 $ 221,192
Europe, Africa & Middle East 37,505 37,453 131,328 112,967
Asia Pacific 13,849 25,664 46,054 68,156
Central & South America 13,986 27,977 53,007 106,763
--------- --------- --------- ---------
Total $ 157,633 $ 157,195 $ 470,714 $ 509,078
========= ========= ========= =========
Income (Loss) From Operations
North America $ 1,834 $ 324 $ 5,588 $ 4,621
Europe, Africa & Middle East 169 2,406 3,934 6,075
Asia Pacific 1,187 1,445 528 2,708
Central & South America (543) 3,131 2,091 7,958
--------- --------- --------- ---------
Total $ 2,647 $ 7,306 $ 12,141 $ 21,362
========= ========= ========= =========
</TABLE>
9. UPDATE ON PENDING HOWE-BAKER ACQUISITION
On July 30, 2000, the Company signed a definitive agreement to acquire
Howe-Baker International, Inc. ("HBI") in a transaction valued at approximately
$145,000, excluding the value of future earnout obligations assumed under the
agreement. HBI is a leading U.S.-based engineering and construction firm
specializing in the design and construction of hydrocarbon processing plants for
customers in the refining, petrochemical and natural gas processing industries.
The Company expects to account for the acquisition under the purchase method of
accounting. Completion of the transaction is expected during the fourth quarter
of this year, pending shareholder approval.
Under the terms of the transaction, the Company will pay $28,000 in cash, assume
$5,700 in debt and issue 8.1 million shares of Common Stock which will be
conveyed to the seller, WEDGE Group Incorporated, a private investment firm that
owns 100% of HBI. As part of the definitive agreement, excess working capital as
defined, will be returned to WEDGE at close. To the extent working capital
exceeds cash on HBI's Balance Sheet at close, the Company would be required to
fund the shortfall. WEDGE, in a simultaneous transaction, has agreed to sell 4.3
million shares of CB&I Common Stock to First Reserve Corporation at a price of
$16.25 per share, subject to adjustment. Consummation of
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the First Reserve transaction is not a condition to consummation of the WEDGE
transaction. First Reserve is a private equity fund manager specializing in the
energy industry with over $1.7 billion under management.
Upon completion of the contemplated transactions, WEDGE, which already owns
400,000 shares of CB&I stock, will hold approximately 24% of CB&I's outstanding
shares, and First Reserve will hold approximately 24.5%. WEDGE and First Reserve
have agreed to a shareholder agreement with CB&I covering board representation,
standstill provisions, voting restrictions and transfer restrictions. WEDGE and
First Reserve will each nominate two candidates for election to CB&I's
Supervisory Board, which will expand from eight to 12 members. A special meeting
of CB&I shareholders is expected to be held in December 2000 seeking approval of
the various elements of the transaction.
10. UPDATE ON POTENTIAL PURCHASE OF PDM ENGINEERED CONSTRUCTION AND WATER
DIVISIONS
On August 29, 2000, the Company announced that it had signed a letter of intent
to acquire the Engineered Construction Division and the Water Division (the "PDM
Divisions") of Pitt-Des Moines, Inc. of The Woodlands, Texas (the "PDM
Transaction").
PDM's Engineered Construction Division, headquartered in Houston, engineers,
fabricates and constructs liquid and cryogenic storage tanks and systems,
process systems, and specialty plate structures for the petroleum,
petrochemical, cryogenic, liquid natural gas, defense and aerospace industries.
This Division employs approximately 600 people and generated 1999 revenues of
approximately $186,000. PDM's Water Division, headquartered in Pittsburgh,
designs, fabricates and constructs water storage tank projects that include both
conventional styles (such as ground storage reservoirs and standpipes, steel
elevated tanks and composite elevated tanks) and innovative styles designed for
specific applications. This Division employs approximately 400 people and
generated 1999 revenues of approximately $95,000.
Consummation of the PDM Transaction is subject to the satisfaction of various
conditions, including (i) completion of comprehensive due diligence on the PDM
Divisions to the Company's satisfaction, (ii) arrangement of financing for the
transaction, (iii) regulatory clearance under applicable antitrust laws (the
transaction is currently being reviewed by the Federal Trade Commission), and
(iv) execution of a definitive asset purchase agreement.
The next steps are to complete and evaluate the results of the Company's due
diligence, negotiate a definitive asset purchase agreement and arrange for the
financing. As part of the due diligence effort, the Company has begun to
evaluate the integration of the PDM Divisions with the Company. The Company
presently has no commitments for financing the purchase price of the PDM
Divisions. Financing the whole transaction with debt is not practical because of
restrictive covenants in the Company's primary bank credit agreement. The
Company expects substantially all of the purchase price will come from an equity
based financing which would have a dilutive impact on the Company's earnings per
share if the combined earnings per share, including the impact of goodwill
amortization and the benefits of any cost savings and synergies, is less than
the Company's existing earnings per share, but would increase the Company's net
worth.
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11. SUBSEQUENT EVENT - VOLUNTARY RESIGNATION OFFER
On October 2, 2000, the Company presented a voluntary resignation offer (the
"Offer") to 156 of its U.S. and U.S. expatriate salaried employees who have
accumulated a combination of years of service and age that adds up to at least
80. The Company will record a pre-tax special charge in the fourth quarter of
$13,400 ($9,600, net of tax) for the anticipated payments associated with 111
employees accepting the Offer. The Company anticipates the near-term cash
requirement to be approximately $10,900.
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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
In the 2000 third quarter, the Company reported new business taken of $175
million compared with $137 million in the year-earlier period. New contract
awards in the Americas dominated the quarter's new business and included a
liquefied natural gas ("LNG") terminal in the Dominican Republic for an electric
power project, tankage for a heavy crude oil storage terminal in Venezuela and
pressure vessels for a refinery turnaround project in California. The Company's
opportunities in the water, power and natural gas markets continue to grow. For
the nine months ended September 30, 2000, new business taken was $552 million
compared with $532 million in the first nine months of 1999. The Company remains
cautiously optimistic that the anticipated upturn in the Company's base
hydrocarbon business is on the horizon, as the level of bid activity has
increased. Backlog at September 30, 2000 increased to $573 million, compared
with a $511 million backlog at year-end 1999.
Revenues for the third quarter 2000 of $157.6 million were comparable with
revenues reported in the third quarter of 1999. Higher North America revenues
are the result of work executed on the Canadian oil sands project awarded
earlier this year, contributions from work executed by CB&I Trusco Tank
(acquired in January this year) and the Company's start up high purity piping
business. Revenues for the first nine months of 2000 were $470.7 million
compared with $509.1 million for the first nine months of 1999. Higher revenues
in North America and the Europe, Africa, Middle East (EAME) regions were offset
by lower revenues in the Asia Pacific and Central and South America (CSA)
regions, where work has been completed on several significant projects that
were active during the prior-year period. The Company expects fourth quarter
improvement in revenues based on the roll out of several larger projects
currently in backlog. 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, 2000 was $13.7 million, or
8.7% of revenues, compared with $18.0 million, or 11.5% of revenues, in the
prior year quarter. The decline was due primarily to a $1.2 million gross margin
loss at the Company's high purity piping business, $1.6 million of workers
compensation and related insurance cost savings recognized in the prior year
period, and severance costs of $0.5 million in the current quarter.
Selling and administrative expenses were $11.4 million in the third quarter 2000
compared with $11.9 million in the 1999 period. Excluding the selling and
administrative costs of the Company's start-up high purity piping business,
selling and administrative expenses for the quarter would have declined by
approximately 14% compared with the prior year period, reflecting the Company's
continued efforts to control costs.
Income from operations for the third quarter of 2000 was $2.6 million compared
with operating income of $7.3 million for the third quarter of 1999. Third
quarter 2000 income from operations was higher in North America due to
increased volume and project cost savings on a contract at the Company's merit
shop offset by a $1.9 million loss resulting from the start up of the Company's
high purity piping operation, the EAME area was lower due to increased
administrative costs associated with new sales offices, compared with project
cost savings and higher gains from the disposition of assets realized in the
prior year quarter, and the CSA area was lower due to overhead under recovery
resulting from lower volumes and higher project costs. Income from operations
for the first nine months of 2000 was $12.1 million compared with $21.4 million
in the first nine months of 1999.
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Net income for the three months ended September 30, 2000 was $1.2 million or
$0.13 per diluted share, compared with net income of $4.7 million or $0.42 per
diluted share for the same period in 1999. Net income for the first nine months
of 2000 was $5.6 million or $0.59 per diluted share, compared with net income of
$13.3 million or $1.17 per diluted share for the first nine months of 1999.
The Company continues to take the necessary actions to size its operations
appropriately for the level of base business going forward and to position
itself for the anticipated closing of the Howe-Baker and PDM transactions later
this year. Year-to-date the Company has incurred severance costs of $2.0
million, and subsequent to the end of the third quarter, the Company extended a
Voluntary Resignation Offer to certain U.S. salaried employees (see Note 11).
This program will allow the Company to realize cost savings going forward.
The Company is actively working to integrate the operations of Howe-Baker
International in anticipation that the transaction will close during the fourth
quarter. The Company is nearing completion of its comprehensive due diligence of
the Water and Engineered Construction divisions of Pitt Des-Moines, Inc.
(pursuant to a letter of intent signed on August 29, 2000). The next steps will
be to arrange financing for the transaction, obtain regulatory clearance and
execute a definitive purchase agreement.
FINANCIAL CONDITION
For the three months ended September 30, 2000, the Company generated cash from
operations of $2.4 million, resulting in cash used from operations of $4.0
million for the first nine months of 2000. Cash and cash equivalents at the end
of the third quarter were $7.4 million compared to $18.4 million at the end of
1999. Total debt stood at $55.6 million at the end of the period, compared with
$55.4 million at the end of the second quarter 2000 and $25.7 million at the end
of 1999. The net increase in debt levels, during the nine months ended September
30, 2000, reflects the cost of the Company's business acquisitions of $11.6
million, the purchase of 1.2 million shares of CB&I stock for $18.7 million
and start up of the high purity piping operation. Capital expenditures were
$2.7 million during the quarter, bringing the year-to-date total to $9.8
million.
The announced pending acquisition of Howe-Baker will require the Company to
modify or replace its existing Revolving Credit Facility to meet its financing
requirements. The Company does not anticipate any difficulties in securing the
needed modifications or replacement of this Revolving Credit Facility. The
Company presently has no commitments for financing the purchase price of the PDM
Divisions. Financing the PDM Transaction with debt is not practical because of
restrictive covenants in the Company's Revolving Credit Facility agreement. The
Company expects substantially all of the PDM purchase price will come from an
equity based financing.
While the Company expects to continue to generate neutral to positive cash flow
from operations in the near term, the Revolving Credit Facility will be more
fully utilized due to the Howe-Baker acquisition and lower borrowing
availability resulting from lower levels of operating income. The Company's
decision to accomplish step-change growth in revenues by acquisitions may
require the Company to seek additional equity financing in the near term.
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<PAGE> 14
As previously reported, work remains suspended on the Tuban Project ("the
Project"), a $2.3 billion petrochemical project in Tuban, West Java, Indonesia.
At September 30, 2000, the Company's backlog related to the project was
approximately $50 million. Similar to other major contractors involved in the
Project, the Company has received approval to redeploy certain material
purchased for the Project in order to reduce its costs. While the Company
believes the Project remains viable, the $28.2 million outstanding net
receivable has been recorded as a non-current asset in recognition of the
continued suspension of the Project. The Project's shareholders have scheduled
a meeting in the fourth quarter of 2000. After this meeting, the Company will
further consider the viability of the Project and timing of the Project
financing, thus evaluating the realizability of the Company's net contract
investment as of December 31, 2000, in light of any new development. Based upon
these assessments, and a consideration of the mere passage of time, the Company
may determine whether a partial or full write-off or valuation allowance for
this net contract investment may be necessary. Such non-cash write-off or
valuation allowance is not expected to have an adverse impact on the Company's
ability to finance its operations. While the Company believes that work on the
Project will ultimately resume, the Company has no indication that it will
restart in the near term. No assurances can be given that this will happen, or
even though the project resumes, that it will not have an adverse impact on the
Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company seeks to minimize the risks from currency exchange rate fluctuations
through regular operating and financing activities and, when deemed appropriate,
through its limited use of currency forward contracts. The Company's exposure to
changes in 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.
FORWARD LOOKING STATEMENTS
Any statements made in this discussion and analysis that are not based on
historical fact are forward-looking statements and represent management's best
judgement 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 uncertain
timing and the funding of new contract awards; cost overruns on fixed price
contracts; increase in competition by competitors; fluctuating revenues
resulting from the cyclic nature of the individual markets in which the
Company's customers operate; reduced activity in the hydrocarbon industry,
demand from which is the largest component of the Company's revenue; no
assurance that the Company will be successful in modifying or replacing its
existing Revolving Credit Facility to meet its financing requirements; the
Company's ability to successfully consummate the Howe-Baker International, Inc.
and the Pitt-Des Moines, Inc. transactions; the Company's ability to integrate
and successfully operate acquired business, including Howe-Baker International,
Inc. and certain divisions of Pitt-Des Moines, Inc., and the risks associated
with those businesses; and the impact of the Tuban Project where work remains
suspended. Additional factors are set forth in the Company's most recent Annual
Report on Form 10-K and Current Report on Form 8-K (as amended) which describe
other factors that could cause actual results to differ from such
forward-looking statements, as well as the Company's other filings with the
Securities and Exchange Commission (including, but not limited to the "Risk
Factors" disclosed in its
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Registration Statement on Form S-1 [File No.333-18065], as amended). 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
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,
1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Amended Articles of Association of the Company (an
unofficial English translation)
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed current reports on Form 8-K during the three
months ended September 30, 2000.
A report on Form 8-K was filed on August 4, 2000 under Item 5.
(Other Events) the Company signed a definitive purchase
agreement to acquire all the outstanding capital stock of
Howe-Baker International, Inc. from WEDGE Group Incorporated
and Item 7. (Financial Statements and Exhibits) the Company's
Press Release and the Purchase Agreement.
A report on Form 8-K/A was filed on August 15, 2000 under Item
5. (Other Events) the Company signed a definitive purchase
agreement to acquire all the outstanding capital stock of
Howe-Baker International, Inc. from WEDGE Group Incorporated
and WEDGE signed a stock purchase agreement with First Reserve
Fund VIII, L.P. and Item 7. (Financial Statements and
Exhibits) the Company's Press Release, the Purchase Agreement
and the Stock Purchase Agreement .
A report on Form 8-K was filed on August 31, 2000 under Item
5. (Other Events) the Company signed a letter of intent to
acquire the PDM Engineered Construction and PDM Water
Divisions of Pitt-Des Moines, Inc. and Item 7. (Financial
Statements and Exhibits) the Company's Press Release.
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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 14, 2000
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