_____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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 000-27261
CH2M HILL Companies, Ltd.
(Exact name of registrant as specified in its charter)
Oregon 93-0549963
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6060 South Willow Drive,
Greenwood Village, CO 80111-5142
(Address of principal executive offices) (Zip Code)
(303) 771-0900
(Registrant's telephone number, including area code)
_______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
As of June 30, 2000, the registrant had 29,387,904 shares of common stock,
$.01 par value per share, issued and outstanding.
<PAGE>
CH2M HILL COMPANIES, LTD.
June 30, 2000
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Consolidated Condensed Financial Statements:
Balance Sheets as of June 30, 2000 and
December 31, 1999.................................. 2
Statements of Income for the Three and
Six-Month Periods Ended June 30, 2000 and 1999..... 3
Statements of Cash Flows for the Six-Month
Periods Ended June 30, 2000 and 1999............... 4
Notes to Consolidated Condensed Financial
Statements......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................... 15
1
<PAGE>
CH2M HILL COMPANIES, LTD
Consolidated Condensed Balance Sheets
(Dollars in thousands)
<TABLE>
June 30, December 31,
2000 1999
___________ ____________
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 20,740 $ 12,557
Receivables, net -
Client accounts 191,223 164,914
Unbilled revenue 104,247 96,610
Other 9,871 4,930
Prepaid expenses & other 6,491 7,912
___________ ____________
Total current assets 332,572 286,923
PROPERTY, PLANT & EQUIPMENT, net 16,119 14,274
OTHER ASSETS, net 53,741 55,958
___________ ____________
TOTAL ASSETS $ 402,432 $ 357,155
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt & notes payable to
former shareholders $ 4,375 $ 6,375
Accounts payable 61,827 60,107
Billings in excess of revenues 65,158 49,143
Accrued incentive compensation 11,006 11,490
Employee related liabilities 51,039 43,100
Other accrued liabilities 15,545 13,278
Current deferred income taxes 34,464 26,907
___________ ____________
Total current liabilities 243,414 210,400
OTHER LONG-TERM LIABILITIES 38,028 34,742
LONG-TERM DEBT 342 313
NOTES PAYABLE TO FORMER SHAREHOLDERS 11,358 14,608
___________ ____________
Total liabilities 293,142 260,063
___________ ____________
COMMITMENTS AND CONTINGENCIES (See Notes)
TEMPORARY SHAREHOLDERS' EQUITY
Preferred stock, Class A $.02 par
value, 50,000,000 shares authorized;
12,095,220 issued and outstanding at
December 31, 1999;
redeemable for $52,130 at
December 31, 1999 - 242
Common stock, $.01 par value,
100,000,000 shares authorized;
17,234,170 issued and outstanding
at December 31, 1999; redeemable
for $74,279 at December 31, 1999 - 172
Additional paid-in capital - 29,234
Retained earnings - 69,774
Accumulated other comprehensive loss - (2,330)
__________ ____________
Total temporary shareholders'
equity - 97,092
__________ ____________
PERMANENT SHAREHOLDERS' EQUITY
Preferred stock, Class A $.02 par
value, 50,000,000 shares authorized;
no amounts issued and outstanding
at June 30, 2000
Common stock, $.01 par value,
100,000,000 shares authorized;
29,387,904 issued and outstanding at
June 30, 2000 294 -
Additional paid-in capital 32,589 -
Retained earnings 79,282 -
Accumulated other comprehensive loss (2,875) -
__________ ____________
Total permanent shareholders'
equity 109,290 -
__________ ____________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 402,432 $ 357,155
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE>
CH2M HILL COMPANIES, LTD.
Consolidated Condensed Statements of Income
(Unaudited)
(Dollars in thousands except per share)
<TABLE>
Three-Month Period Ended Six-Month Period Ended
June 30 June 30
________________________ ______________________
2000 1999 2000 1999
________ ________ _________ _______
<S> <C> <C> <C> <C>
Gross revenue $ 419,623 $ 302,627 $ 786,138 $ 576,063
Equity in earnings of
joint ventures and
affiliated companies 2,810 2,730 8,516 3,470
________ ________ __________ _______
Total revenues 422,433 305,357 794,654 579,533
Operating expenses:
Direct cost of
services and overhead (329,983) (218,948) (609,210) (417,559)
General and
administrative (82,866) (79,104) (165,719) (150,740)
________ ________ __________ ________
Operating income 9,584 7,305 19,725 11,234
Other income (expense):
Interest income 487 221 934 445
Interest expense (293) (393) (510) (869)
________ ________ __________ ________
Income before provision
for income taxes 9,778 7,133 20,149 10,810
Provision for income
taxes (4,888) (3,596) (10,074) (5,394)
________ _________ ___________ ________
Net income $ 4,890 $ 3,537 $ 10,075 $ 5,416
======== ======== ========= =========
Net income per common
share:
Basic $ 0.17 $ 0.12 $ 0.34 $ 0.19
Diluted $ 0.16 $ 0.12 $ 0.34 $ 0.19
Weighted average number
of common shares:
Basic 29,580,471 29,488,580 29,592,411 28,906,580
Diluted 30,151,100 29,488,580 30,022,569 28,906,580
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE>
CH2M HILL COMPANIES, LTD.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
Six-Month Period Ended
June 30
___________________________
2000 1999
__________ ________
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 28,748 $ 15,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets - 336
Capital expenditures (3,905) (2,454)
__________ _____________
Net cash used in investing
activities (3,905) (2,118)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on long-term debt - 71
Borrowing on line of credit 4,900 32,000
Principal payments on notes
payable to former shareholders (3,084) (3,662)
Principal payments on long-term debt (1,971) (2,253)
Principal payments on line of credit (4,900) (32,000)
Purchases and retirements of stock (11,774) (413)
__________ _____________
Net cash used in financing
activities (16,829) (6,257)
CASH EFFECT OF CUMULATIVE TRANSLATION
ADJUSTMENT 169 (220)
__________ _____________
INCREASE IN CASH AND CASH EQUIVALENTS 8,183 7,323
CASH AND CASH EQUIVALENTS, beginning
of period 12,557 16,595
__________ _____________
CASH AND CASH EQUIVALENTS, end of period $ 20,740 $ 23,918
========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial information has been prepared in accordance with
the interim reporting rules and regulations of the Securities and Exchange
Commission, and therefore does not necessarily include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingencies at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Estimates have been prepared on the basis of the most
current and best available information and actual results could differ from
those estimates.
In the opinion of CH2M HILL's management, the accompanying unaudited
consolidated condensed financial statements of the interim period contain all
adjustments necessary to present fairly the financial position of CH2M HILL as
of June 30, 2000 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The
results of operations for the three and six-month periods ended June 30, 2000
are not necessarily indicative of the results that may be achieved for a full
fiscal year and cannot be used to indicate financial performance for the
entire year.
Shareholders' Equity
On November 6, 1998, the Board of Directors approved a new ownership program
for CH2M HILL and certain resolutions that were subsequently ratified by a
vote of the shareholders on December 18, 1998. Such resolutions were
effective January 1, 2000 and included, but were not limited to, adopting
amendments to the Restated Bylaws and Articles of Incorporation which provide
for the:
- authorization to convert all outstanding Class A preferred stock into
shares of common stock on a one-for-one basis,
- increase in the authorized shares of common stock to 100,000,000, par
value $.01 per share, and Class A preferred stock to 50,000,000, par
value $.02 per share,
- authorization of a ten-for-one stock split on CH2M HILL's common
stock and Class A preferred stock,
- imposition of certain restrictions on the stock including, but not
limited to, the right but not the obligation to repurchase shares
upon termination of employment or affiliation, the right of first
refusal, and ownership limits.
As a result of the above changes, the temporary shareholders' equity is now
classified as permanent shareholders' equity. Common and preferred stock
amounts, equivalent share amounts and per share amounts have been adjusted
retroactively to give effect to the stock split.
5
The significant changes in shareholders' equity for the six-month period ended
June 30, 2000 is as follows:
<TABLE>
Shares Amount
__________ ________
<S> <C> <C>
Temporary Shareholders' Equity,
December 31, 1999 29,329,390 $ 97,092
Net Income - 10,075
Shares Issued 1,828,273 14,442
Shares Redeemed (1,769,759) (11,774)
Foreign Currency Translation
Adjustment - (545)
__________ _________
Permanent Shareholders' Equity,
June 30, 2000 29,387,904 $109,290
========== =========
</TABLE>
New Accounting Standard
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes fair value
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of SFAS No. 133 was deferred until January 1,
2001 by the issuance of SFAS No. 137. CH2M HILL will adopt SFAS No. 133 in
the first quarter of fiscal 2001. CH2M HILL is currently assessing the effect
of adoption, if any, on its financial position, results of operations, and
cash flows.
(2) SEGMENT INFORMATION
Certain financial information relating to the three and six-month periods
ended June 30, 2000 and 1999 for each segment is provided below:
<TABLE>
FINANCIAL
Three-month period ended STATEMENT
June 30, 2000 EE&I WATER INDUSTRIAL OTHER BALANCES
________________________ _____ _______ _________ ______ _________
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $218,905 $121,506 $79,212 $ - $419,623
Intersegment sales 11,729 5,370 177 - 17,276
Equity in earnings of
investees accounted
for by the equity method 1,466 1,287 57 - 2,810
Segment profit 7,113 2,196 2,280 (1,811) 9,778
FINANCIAL
Three-month period ended STATEMENT
June 30, 2000 EE&I WATER INDUSTRIAL OTHER BALANCES
________________________ _____ _______ _________ ______ _________
Revenues from external
customers $121,602 $106,440 $74,585 $ - $302,627
Intersegment sales 8,123 2,314 643 - 11,080
Equity in earnings of
investees accounted
for by the equity method 1,913 766 51 - 2,730
Segment profit 5,013 3,655 40 (1,575) 7,133
FINANCIAL
Three-month period ended STATEMENT
June 30, 2000 EE&I WATER INDUSTRIAL OTHER BALANCES
________________________ _____ _______ _________ ______ _________
Revenues from external
customers $417,383 $237,228 $131,527 $ - $786,138
Intersegment sales 21,219 8,779 639 - 30,637
Equity in earnings of
investees accounted
for by the equity method 6,312 2,056 148 - 8,516
Segment profit 14,114 7,383 2,944 (4,291) 20,149
</TABLE>
6
<PAGE>
<TABLE>
FINANCIAL
Three-month period ended STATEMENT
June 30, 2000 EE&I WATER INDUSTRIAL OTHER BALANCES
________________________ _____ _______ _________ ______ _________
<S> <C> <C> <C> <C> <C>
Revenues from external
customers $240,403 $210,835 $124,825 $ - $576,063
Intersegment sales 15,694 4,830 1,647 22,171
Equity in earnings of
investees accounted
for by the equity method 2,404 1,081 (15) - 3,470
Segment profit 7,608 6,403 43 (3,244) 10,810
</TABLE>
(3) COMPREHENSIVE INCOME
Comprehensive income for the three and six-month periods ended June 30, 2000
and 1999 is as follows:
<TABLE>
Three-Month Period Ended Six-Month Period Ended
June 30 June 30
_________________________ _______________________
2000 1999 2000 1999
________ _________ ________ __________
<S> <C> <C> <C> <C>
Net income $ 4,890 $ 3,537 $ 10,075 $ 5,416
Foreign currency
translation
adjustment ( 114) (197) (545) (710)
________ _________ _________ __________
Comprehensive
income $ 4,776 $ 3,340 $ 9,530 $ 4,706
======== ========== ========= ==========
</TABLE>
(4) EARNINGS PER SHARE
The computation of basic earnings per share is based on the weighted average
number of common shares outstanding during the year. Diluted income per share
is based on the weighted average number of common shares outstanding during
the year and, to the extent dilutive, common stock equivalents consisting of
stock options. The difference between the basic and diluted shares at June
30, 2000 consists of 3,256,528 stock options outstanding at the end of the
period. At June 30, 1999, CH2M HILL did not have any dilutive securities
outstanding.
(5) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
CH2M HILL has the following investments in affiliated companies that are 50%
or less owned, which are accounted for under the equity method:
<TABLE>
% of Ownership
<S> <C>
Domestic:
Kaiser-Hill Company, LLC ("Kaiser-Hill")...........50%
MK/IDC (PSI).......................................50%
Foreign:
CH2M Gore and Storrie Limited......................49%
CH2M HILL/CSA......................................50%
Sembawang-IDC......................................25%
CH2M HILL BECA, Ltd. ..............................50%
TDC International of Israel........................50%
</TABLE>
As of June 30, 2000 and December 31, 1999, the total investments in these
material unconsolidated affiliates were approximately $6,045 and $5,763,
respectively, and are included in other assets in the accompanying
consolidated condensed balance sheets.
7
<PAGE>
Summarized financial information for the three and six-month periods ended
June 30, 2000 and 1999, for these affiliates is as follows:
<TABLE>
Three-Month Period Ended Six-Month Period Ended
June 30 June 30
_________________________ _______________________
2000 1999 2000 1999
________ _________ ________ __________
<S> <C> <C> <C> <C>
RESULTS OF
OPERATIONS:
Revenues $ 133,815 $ 176,904 $ 329,623 $ 321,033
Direct costs 126,426 163,346 305,268 301,546
General and
administrative
expenses 2,944 9,024 9,151 12,737
_________ __________ _________ _________
Operating income 4,445 4,534 15,204 6,750
Other income
(expense) (398) 797 (810) 49
Net income $ 4,047 $ 5,331 $ 14,394 $ 6,799
</TABLE>
(6) CONTINGENCIES
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which may involve claims for substantial sums. Damages
assessed in connection with and the cost of defending such actions could be
substantial. CH2M HILL's management believes that the levels of insurance
coverage (after retentions and deductibles) are generally adequate to cover
CH2M HILL's liabilities, if any, with regard to such claims. Any amounts that
are probable of payment by CH2M HILL related to retentions and deductibles are
accrued when such amounts are estimable.
8
<PAGE>
CH2M HILL COMPANIES, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis explains our general financial
condition, changes in financial condition and results of operations for CH2M
HILL as a whole and each of our operating segments including:
- Factors affecting our business
- Our revenues and profits
- Where our revenues and profits came from
- Why those revenues and profits were different from period to period
- Where our cash came from and how it was used
- How these factors affect our overall financial condition
This report contains "forward-looking statements," as that term is defined in
Federal securities laws, including information related to our anticipated
future results of operations, business strategies, financing plans,
competitive position, growth opportunities, and potential effects of future
regulations. Although CH2M HILL's management believes that its expectations
are based on reasonable assumptions, these assumptions are subject to a wide
range of business and technical risks explained in detail in CH2M HILL's
Prospectus that may cause actual results to differ materially from those
stated or implied by these forward-looking statements.
As you read this section, you should also refer to our consolidated condensed
financial statements and the accompanying notes as well as the note regarding
forward-looking information in the CH2M HILL Form 10-K for the year ended
December 31, 1999. These consolidated condensed financial statements provide
additional information regarding our financial activities and condition.
This analysis may be important to you in making decisions about your
investments in CH2M HILL.
Introduction
The engineering and construction industry continues to undergo substantial
change as public and private clients privatize and outsource many of the
services that were formerly provided internally. Numerous mergers and
acquisitions in the industry have resulted in a group of larger firms that
offer a full complement of single-source services including studies, design,
construction, operation, maintenance and in some instances, facility
ownership. Included in the current trend is the movement towards longer-term
contracts for the expanded array of services, e.g., 5 to 20 year contracts for
facility operations. These larger, longer contracts require us to have
substantially greater financial capital, than has historically been necessary,
to remain competitive.
We believe we provide our clients with innovative project delivery using cost-
effective approaches and advanced technologies. We continuously monitor
acquisition and investment opportunities that will expand our portfolio of
services, add value to the projects undertaken for clients, or enhance capital
strength. We believe that we are well positioned geographically, technically
and financially to compete worldwide in the markets we have elected to pursue
and clients we serve.
Overall
Net income for the three-month period ended June 30, 2000 was $4.9 million
compared with $3.6 million in the same period of 1999. For the six month
period ended June 30, 2000, net income was $10.1 million compared to $5.4
million in the same period of 1999. Our diluted earnings per share for the
9
<PAGE>
second quarter in 2000 was $0.16, compared with $0.12 in 1999. For the six-
month period ended June 30, 2000 diluted earnings per share was $0.34,
compared with $0.19 in 1999. Revenues and pre-tax profit for the three and
six month periods ended June 30, 2000 and 1999 by operating segment were as
follows:
<TABLE>
Three Month Period Ended June 30
Revenues Pre-Tax Profit
_____________________ ____________________
(in millions) 2000 1999 2000 1999
________ _______ ________ ______
<S> <C> <C> <C> <C> <C> <C>
EE&I $ 220.4 52% $ 123.5 40% $ 7.1 $ 5.0
Water 122.8 29% 107.2 35% 2.2 3.7
Industrial 79.2 19% 74.6 24% 2.3 -
Corporate - - - - (1.8) (1.6)
______ ___ _____ ____ _______ __________
Total $ 422.4 100% $ 305.3 100% $ 9.8 $ 7.1
______ ___ _____ ____ _______ __________
Three Month Period Ended June 30
Revenues Pre-Tax Profit
_____________________ ____________________
(in millions) 2000 1999 2000 1999
________ _______ ________ ______
EE&I $423.7 53% $ 242.8 42% $ 14.1 $ 7.6
Water 239.3 30% 211.9 37% 7.4 6.4
Industrial 131.7 17% 124.8 21% 2.9 -
Corporate - - - - (4.3) (3.2)
______ ___ _____ ____ _______ __________
Total $794.7 100% $ 579.5 100% $ 20.1 $ 10.8
______ ___ _____ ____ _______ __________
</TABLE>
Results of Operations for the Three and Six Month Periods Ended June 30, 2000
Compared to the Same Periods of 1999
Revenues for the three-month period ended June 30, 2000 were $422.4 million
compared to $305.3 million for the same period in 1999. For the six-month
period ended June 30, 2000, revenues were $794.7 million compared to $579.5
million in 1999. For the second quarter of 2000, the increase of $117.1
million or 38.4% is comprised of improvements in all of the operating
segments. The Environmental, Energy & Infrastructure ("EE&I") segment
reported increased revenues of $96.9 million, which includes revenues
generated by CH2M HILL Hanford Group, Inc. of $78.7 million (this is the
company formerly known as Lockheed Martin Hanford Corporation which was
acquired by CH2M HILL in December 1999.) On a comparable basis quarter over
quarter, EE&I reported increased revenues of $18.2 million or 14.7%. For the
same period, the Water segment reported increased revenues of $15.6 million or
14.6%, and the Industrial segment reported increased revenues of $4.6 million
or 6.2%.
Pre-tax profit for the three-month period ended June 30, 2000 was $9.8 million
compared to $7.1 million in the same period of 1999. For the six-month period
ended June 30, 2000, pre-tax profit was $20.1 million versus $10.8 million in
1999. The increase for the second quarter of 2000 of $2.7 million was
comprised of increases in the EE&I segment of $2.1 million and the Industrial
segment of $2.3 million, offset by a decline in pre-tax profit in the Water
segment of $1.5 million. Corporate expenses increased by $0.2 million.
10
<PAGE>
Environmental, Energy and Infrastructure
Revenues in the EE&I segment for the three-month period ended June 30, 2000
were $220.4 million compared to $123.5 million for the same period in 1999.
This increase of $96.9 million or 78.5% was primarily attributable to $78.7
million of revenues from CH2M HILL Hanford Group, Inc., which aligns with the
nuclear business. This entity provides engineering, design and technical
services to support decontamination, decommissioning and remedial activities
at the U.S. Department of Energy's Hanford Reservation in Richland,
Washington. Our environmental business increased $19.6 million quarter over
quarter, which includes an increase of $8.8 million specifically related to
new construction and design/build contracts. Revenues from traditional
environmental services have increased in the federal and industrial sectors
primarily in the southeast and southwest regions of the United States. This
growth is attributable to the strong domestic economy and our ability to
leverage off of our existing projects. Revenues from construction services
and design/build contracts have grown 147% quarter over quarter, which is
indicative of our commitment to diversify our business and become a single-
source provider of services to our clients. The transportation business
experienced a decline of $3.7 million in revenues quarter over quarter due to
lower subcontractor revenues on several projects. Although subcontractor
revenues are down, the transportation business is well positioned to provide
services from internal resources, which generally have higher margins, to take
advantage of the strong markets fueled by national and state legislation such
as TEA-21 and AIR-21. Our telecommunications business also reported increased
revenues of $2.3 million quarter over quarter and continues to grow. This
growth is expected to continue as we provide network architecture and
operating system design for clients who are building or upgrading
infrastructure to keep pace with advances in technology.
Pre-tax profit for the EE&I segment was $7.1 million for the three-month
period ended June 30, 2000 compared to $5.0 million in the same period of
1999. Pre-tax profit as a percent of revenue for the same period in 2000 was
3.2% compared to 4.0% for 1999. While most of the pre-tax profit improvement
quarter over quarter relates to volume growth in the environmental business,
transportation also had a slight improvement in pre-tax profit due to
incentive fees gained on two large programs. The decrease in pre-tax profit
as a percent of revenue is primarily related to the nuclear business, in which
profits can fluctuate significantly from quarter to quarter depending upon
achievement of certain contractual milestones.
Water
The Water segment reported revenues of $122.8 million for the three-month
period ended June 30, 2000 compared to revenues of $107.2 million in the same
period of 1999. This increase of $15.6 million or 14.6% was equally
attributable to growth in the water and wastewater business as well as the
operations and maintenance business. Revenues from traditional engineering
consulting services were $5.3 million higher than the second quarter of 1999,
propelled by prior business development investment in domestic operations as
well as the strong domestic economy. Revenue growth of $2.9 million was
achieved from design/build projects as we continue to grow this area of our
operations in order to meet market demands. Additionally, revenues from
operations and maintenance services increased by $7.4 million quarter over
quarter primarily due to new contracts, scope increases and shorter term
consulting services on existing contracts. These new contracts are for
durations of up to 20 years and contribute over $279.0 million in backlog.
The Water segment reported $2.2 million of pre-tax profit for the three-month
period ended June 30, 2000 compared to $3.7 million of pre-tax profit for the
same period of 1999. Pre-tax profit as a percent of revenues was 1.8%
compared to 3.5% in the same period of 1999. The water segment actually
experienced a slight improvement in pre-tax profit quarter over quarter within
domestic traditional engineering and design build businesses primarily in the
southeast and southwest domestic regions. However, this improvement was
offset by charges against earnings for projects whose performance is dependent
upon the receipt of change orders and due to the reserve of an uncollectible
receivable balance.
11
<PAGE>
Industrial
The Industrial segment reported revenues of $79.2 million for the three-month
period ended June 30, 2000, of which $48.6 million was generated from the
microelectronics industry. The revenues for the same period of 1999 were $74.6
million, of which $50.1 million was generated from the microelectronics
industry. The increase of $4.6 million was comprised of a $1.5 million
decrease in revenues from the microelectronics industry and an increase in
revenues of $6.1 million from other industries, including food,
pharmaceuticals, and facility services. The mix of the revenues between
construction costs versus services for engineering and construction management
also changed significantly from 2000 versus 1999. The construction cost
component of revenues decreased from $51.2 million, which was 68.6% of 1999
revenues, to $39.6 million, which was 50.0% of 2000 revenues. The
construction revenue decrease was due to two significant construction projects
that were started in 1999 but were near completion prior to the second quarter
of 2000. This decrease in construction revenues of $11.6 million was offset by
an increase of $15.8 million in revenues from services, which increased from
$24.0 million in 1999, to $39.8 million in 2000. The services revenue
increase was due to significant increases in business in the microelectronics
industry.
The Industrial segment reported pre-tax profit of $2.3 million for the three-
month period ended June 30, 2000 versus virtually no profit for the same
period in 1999. Profit as a percent of revenues for 2000 was 2.9%. The most
significant factor causing this profit increase was the 66.0% increase in
volume of services sold during 2000. Direct project costs, as a percentage of
revenues, decreased 9.1% in 2000 versus 1999. This decrease is due to
reduction in construction related costs directly associated with the decrease
in construction revenues. This results in higher project margins due to the
change in mix of revenues, where the construction revenue component decreased
considerably over the services revenue component during 2000. Indirect labor
costs, which are made up of salaries and benefits of all administrative
personnel, plus salaries and benefits of technical personnel for hours not
working on billable client services, decreased as a percent of the services
portion of gross revenues, 23.0% from 2000 versus 1999. This decrease is due
to the significant increase in the number and size of projects performed for
the microelectronics industry. Other overhead, general and administrative
costs decreased, as a percentage of the services portion of revenues , by
12.0% in 2000 versus 1999.
Joint Ventures
We routinely enter into joint ventures to service the needs of our clients.
Such arrangements are customary in the engineering and construction industry
and generally are project specific. Our largest joint venture is Kaiser-Hill
Company, LLC ("Kaiser-Hill"), in which we own a 50% interest. This joint
venture is in our EE&I operating segment. The earnings from this joint
venture are reported as equity in earnings of investees accounted for under
the equity method, along with other joint ventures that are individually
insignificant.
For the three-month period ended June 30, 2000, we reported equity in earnings
of investees accounted for under the equity method of $2.8 million compared to
$2.7 million in the same period of 1999. For the six-month period ended June
30, 2000, we reported earnings of $8.5 million compared to $3.5 million for
the same period of 1999. Our equity in earnings from the Kaiser-Hill joint
venture was $6.3 million for the six-month period ended June 30, 2000 compared
to $2.4 million for the same period in 1999. This increase was primarily
attributable to performance fees earned under the old contract, which expired
on January 31, 2000, for achieving significant contract milestones such as the
demolition of a significant building at the Rocky Flats site. The first
quarter results also include two months of fees under the new contract, which
was effective February 1, 2000.
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Effective February 1, 2000, the U.S. Department of Energy extended Kaiser-
Hill's Rocky Flats contract. Although the new contract is a closure contract
and does not have a defined term, we anticipate closure of the site in 2006.
Under the new contract, Kaiser-Hill is compensated through a base fee
affected, up or down, by its performance against the agreed site target
closure costs. Outside of a negotiated range, for every dollar that the U.S.
Department of Energy saves with earlier cleanup, Kaiser-Hill receives a 30
cent increase in fee. At the same time, for every dollar the cleanup is over
budget, the fee is reduced by 30 cents down to an agreed minimum. The
ultimate fee will also be impacted by the schedule to achieve site closure and
the safety of our performance. Until the results of the performance measures
become more estimable, earnings are expected to be comparable from quarter to
quarter.
Corporate Expenses
Corporate expenses for the three-month period ended June 30, 2000 were $1.8
million compared to $1.6 million for the same period of 1999. For the six-
month period ended June 30, 2000, corporate expenses were $4.3 million
compared to $3.2 million in the same period of 1999. During the first quarter
of 2000, we incurred expenses to buy out a supplemental retirement plan
associated with the old key employee program and to accrete the value of
certain equity instruments related to our compensation plans to the current
stock price. Corporate expenses represent centralized management costs that
are not allocable to individual operating segments and primarily include
expenses associated with administrative compliance functions such as legal,
treasury, accounting, tax and general business development efforts.
Income Taxes
The income tax provision for the three and six month periods ended June 30,
2000 was $4.9 million and $10.1 million, respectively, or an effective tax
rate of 49.9%. This compares to $3.6 million and $5.4 million for the same
periods of 1999, respectively, or an effective tax rate of 48.9%. Our
effective tax rate continues to be higher than the U.S. statutory income tax
rate of 35.0% due to the effect of state income taxes, disallowed portions of
meals and entertainment expenses and non-deductible foreign net operating
losses.
Liquidity and Capital Resources
Cash Flows from Operating Activities
For the six-month period ended June 30, 2000, operations provided $29.0
million of cash primarily due to growth in our operations. Working capital
changes included an increase of $40.0 million in accounts receivable and work-
in-process offset by an increase of $16.1 million in billings in excess of
revenues all as a result of growth in operations, providing a net decrease in
cash of $23.9 million. The remaining net decrease in working capital of $16.4
million is primarily due to the increase in employee related and other accrued
liabilities due to the growth in operations and due to the accrual of payroll
and related benefit expenses. Offsetting the decrease in working capital of
$7.5 million was an increase in earnings of $10.1 million as well as an
increase in other non-cash items of $26.4 million. Non-cash items primarily
include $15.0 million for stock-based compensation and $7.6 million for
deferred income taxes.
During the comparable period of 1999, operations provided $15.9 million of
cash. During this period, payables increased $41.9 million offset by an
increase in receivables and work-in-process of $45.0 million primarily due to
the pass-through of revenues and expenses related to new, large construction
projects. This net decrease of $3.1 million was offset by an increase in
earnings of $5.4 million and non-cash items of stock-based compensation and
deferred income taxes.
Cash Flows from Financing Activities
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For the six-month period ended June 30, 2000, we used $17.0 million of cash in
financing activities, of which $11.8 million was used to purchase stock
presented on the internal market. CH2M HILL purchased $3.3 million of stock
on the internal market to fund its Employee Stock Plan and exercised its right
to purchase the remaining $8.5 million in order to provide liquidity to its
employees by clearing the internal market. These transactions were funded by
cash flows from operations.
Derivatives and Financial Instruments
We occasionally enter into forward contracts in order to hedge our foreign
currency risks and not for speculative purposes. At June 30, 2000 and 1999,
there were no significant forward contracts outstanding. Generally, we do not
hold derivative type instruments.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. We manage our market risk by matching projected cash inflows
from operations, financing activities and investing activities with projected
cash outflows to fund debt payments, capital expenditures and other cash
requirements. We may utilize debt or equity financing for general corporate
purposes and acquisitions. Historically, we have used short-term variable
rate borrowings under our unsecured revolving credit agreement. Our earnings
and cash flows are affected by changes in interest rates affecting our
variable rate borrowings under our bank credit facility. During the first
half of 2000 there were no significant amounts outstanding on the bank credit
facility. The interest rates on CH2M HILL's short-term and long-term
borrowings approximate fair value.
New Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes fair value
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of SFAS No. 133 was deferred until January 1,
2001 by the issuance of SFAS No. 137. We will adopt SFAS No. 133 in the first
quarter of 2001. We are currently assessing the effect of adoption, if any,
on our financial position, results of operations, and cash flows.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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.
CH2M HILL Companies, Ltd.
Date: August 11, 2000 /s/ Samuel H. Iapalucci
___________________________
Samuel H. Iapalucci
Vice President and Chief
Financial Officer
