<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 1-5259
PITT-DES MOINES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0729430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1450 Lake Robbins Drive, Suite 400, 77380
The Woodlands, Texas (Zip Code)
(Address of principal executive offices)
281-765-4600
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, no par value American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
The aggregate market value of the registrant's voting stock held by non-
affiliates was at least $84,387,297 on February 29, 2000, based upon the average
between the highest and lowest sales prices of the registrant's Common Stock as
reported in the consolidated transactions reporting system.
Common Stock outstanding as of February 29, 2000 . . . . .7,389,890 shares.
Documents Incorporated by Reference:
Certain portions of the documents of the Registrant listed below have been
incorporated by reference into the indicated parts of this Annual Report on Form
10-K:
Annual Report to Stockholders for fiscal year ended December 31, 1999 . . .
. . . Part I and Part II
Proxy Statement anticipated to be dated March 30, 2000 . . . . . . . . . .
. . . . . . . Part III, Items 10-13
_______________________________________________________________________________
<PAGE>
PART I
Item 1. Business
General
Pitt-Des Moines, Inc. and its subsidiaries ("PDM" or the "Company") began
conducting business in 1892 and was incorporated in Pennsylvania on February 14,
1916. The Company's principal executive offices are located at 1450 Lake
Robbins Drive, Suite 400, The Woodlands, Texas 77380, telephone number (281)
765-4600.
PDM is a diversified engineering and construction company, and a distributor of
a broad range of carbon steel products. The Company currently operates through
two business segments: Heavy Construction, and Steel Distribution. The Heavy
Construction segment specializes in the engineering and design, procurement,
fabrication, erection and rehabilitation of steel products including liquid and
cryogenic storage and processing systems, water storage systems, bridges and
buildings. The Steel Distribution segment processes and distributes a full line
of heavy carbon steel products and manufactures and markets corrugated metal
culvert pipe and accessories.
A summary of the Company's products and services by business segment is set
forth below.
Heavy Construction
The Heavy Construction business provides:
a) The capability to design, fabricate and erect oil and chemical storage
tanks used for storing crude oil, petroleum, gasoline and other
petroleum derivatives and chemicals. We have developed and patented
certain systems, parts and sealing devices which help to reduce the
hazards of fire and explosion from the stored products, as well as to
decrease air pollution and vapor loss. Additionally, we fabricate and
erect various vessels used in the processing of a variety of oil and
chemical products. The oil and chemical tanks, sealing devices and
process vessels are produced principally for the petroleum,
petrochemical, chemical and food processing industries as well as
government agencies.
b) The capability to design, fabricate and erect elevated and flat bottom
water storage tanks for water service and fire protection requirements
and treatment tanks for the purification, filtration and softening of
water. The principal purchasers of the Company's water storage tanks
and wastewater treatment facilities are government agencies and private
industry.
c) The capability to design, fabricate and erect many types of facilities
and structures; services offered include research and design, material
selection, preparation of detailed drawings, shop fabrication, field
erection and subcontract management.
d) The capability to fabricate and erect miscellaneous plate work which
includes penstocks and breechings, stacks and stack liners, scrubbers,
absorbers, flow conductors and heat exchangers for utilities and
private industry.
2
<PAGE>
Item 1. Business (Cont'd)
e) The capability to design, fabricate and erect high speed wind tunnels,
altitude test chambers, hydrospace test facilities and high vacuum and
thermal test facilities for use in connection with energy, aerospace
and defense research.
f) The capability to design and build supercritical fluid extraction
facilities for the food processing industry.
g) The capability to design and build anaerobic digesters for the
wastewater treatment industry.
h) The capability to fabricate and erect structural steel for commercial,
institutional and public sector buildings for government agencies,
private developers and general contractors.
i) The capability to fabricate structural steel for new bridges and
fabricate and erect structural steel for bridge rehabilitation for
government agencies and general contractors.
Steel Distribution
The Company's Steel Distribution segment operates eight steel service centers
and three culvert facilities located in the West and Midwest regions of the
United States. During 1999, the Company completed construction of a new steel
service center in Woodland, Washington. This new facility serves Portland,
Seattle and the entire Pacific Northwest.
In early 1999, the Company acquired the remaining interest in Oregon Culvert
Company, Inc., which operates facilities in Washington and Oregon.
The steel service centers process and distribute to end users a general line
of carbon steel products including plates, sheets, structural shapes, bars,
tubes, pipe and other miscellaneous metal products. This segment also
manufactures and markets to end users corrugated metal culvert pipe and
accessories. The Steel Distribution segment's primary markets include steel
fabricators, original equipment manufacturers, mining, logging, agricultural and
road construction industries.
The Company and the industry as a whole deem the maintenance of adequate
levels of inventory to be integral to the Steel Distribution business. The
Company believes that it has adequate levels of inventory on hand to meet
current and anticipated customer demand.
Other
Several large companies compete nationally in some product lines with the
Company and there are several local and regional companies that compete in
certain product lines in specific
3
<PAGE>
geographic areas. The majority of the Heavy Construction segment's work is
secured through open competitive bidding or through direct negotiations with
industry or government agencies.
4
<PAGE>
Item 1. Business (Cont'd)
Competition is based primarily on performance including the ability to provide
design, engineering and on-site field construction services in a cost-effective
and timely manner. The Steel Distribution segment's volume of business is based
on the price, delivery, credit terms, and first stage preprocessing of products
that it offers to its customers as well as the segment's reputation.
The Company's earned revenue was $629 million in 1999, compared with $567
million in 1998 and $475 million in 1997. For further financial information
refer to the Consolidated Financial Statements contained in PDM's 1999 Annual
Report to Stockholders and incorporated herein by reference.
The principal raw materials essential to the Company's business are steel,
alloys and other metal plates and structural sections. The Company procures
these raw materials from various domestic and foreign sources.
The Company has a license and technical assistance agreement with Roediger, a
German corporation, which gives the Company exclusive rights in North America
and other selected countries worldwide to use the Roediger technology, a process
which utilizes anaerobic digestion in the treatment of wastewater. Revenues to
date from this technology have not been material to the Company.
Some components of the other products made and erection techniques used by the
Company are covered by patents owned or licensed by the Company. None of these
are deemed to be material to the Company from an overall financial viewpoint.
The Company had a backlog of uncompleted contracts of $300 million on December
31, 1999 compared to $346 million on December 31, 1998. Substantially all
backlog is expected to be completed during 2000. The decrease in backlog from
1998 is attributable to lower sales activity for the Liquid and Cryogenic
Storage group and Steel Building group. The Liquid and Cryogenic Storage group
experienced decreased market activity as soft demand from oil and gas companies
and weak South American economies negatively impacted capital spending. The
Steel Building group new awards were down from 1998's historical high, but
demand is expected to be strong in 2000 resulting in solid bidding activity.
Factors such as the type and scope of operations in progress at any given
time, including weather conditions at field sites, create fluctuations in the
employment level at PDM. On December 31, 1999, the Company employed 2,783
persons, of which 831 were salaried personnel and 1,952 were hourly personnel.
Financial information for the Company's two business segments is included in
the Business Segment Information Section of PDM's 1999 Annual Report to
Stockholders, which section is incorporated herein by reference.
5
<PAGE>
Item 2. Properties
Operations of the Company are conducted at both owned and leased properties. In
addition, certain owned properties of the Company are leased to third party
tenants. The following table indicates each of the Company's facilities by
segment, location, type of facility, year operations began, and square footage
of property owned or leased on December 31, 1999:
<TABLE>
<CAPTION>
YEAR
TYPE OF OPERATIONS SQUARE
LOCATION FACILITY BEGAN FOOTAGE
HEAVY CONSTRUCTION
- ------------------
<S> <C> <C> <C>
Harpersville, Alabama Warehouse and office 1996 11,500
Eloy, Arizona Fabrication plant 1998 108,450
Fresno, California Toolhouse 1963 52,140
Stockton, California Fabrication plant and office 1987 143,000
Palatka, Florida Fabrication plant and office 1997 148,564
Clive, Iowa Fabrication plant and office 1955 176,540
Des Moines, Iowa Toolhouse 1900 29,000
Pittsburgh, Pennsylvania Office and toolhouse 1927 98,780
Warren, Pennsylvania Fabrication plant 1959 125,960
Franklin, Tennessee Toolhouse 1977 28,220
Conroe, Texas (1) Office 1996 1,600
Hitchcock, Texas (2) Toolhouse 1994 5,000
The Woodlands, Texas (1) Office 1996 57,900
Provo, Utah Fabrication plant 1959 154,950
Eau Claire, Wisconsin Fabrication plant and office 1994 309,500
Wausau, Wisconsin Fabrication plant and office 1991 157,090
Port Coquitlam, B.C. Canada (1) Office 1997 12,300
Trenton, Ontario, Canada (1) Office 1997 800
Barcelona, Venezuela (1) Toolhouse 1999 23,700
STEEL DISTRIBUTION
- ------------------
Fresno, California Warehouse and office 1955 112,800
Santa Clara, California Warehouse and office 1947 108,530
Stockton, California Warehouse and office 1967 191,500
Cedar Rapids, Iowa Warehouse and office 1976 66,800
Des Moines, Iowa Warehouse and office 1900 109,100
Sparks, Nevada Warehouse and office 1974 78,940
Tualatin, Oregon Warehouse and office 1973 31,620
Spanish Fork, Utah Warehouse and office 1977 74,280
Arlington, Washington (3) Warehouse and office 1993 13,970
Woodland, Washington Warehouse and office 1999 192,000
Seattle, Washington (1) Office 1999 1,000
</TABLE>
6
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Item 2. Properties (Cont'd)
<TABLE>
<CAPTION>
IDLE HOLDINGS, INCLUDING PLANT AND PROPERTY (4)
- -----------------------------------------------
<S> <C> <C>
Des Moines, Iowa Fabrication plant and office 1900 230,000
Hilliard, Ohio Fabrication plant and office 1971 179,000
Pittsburgh, Pennsylvania Office 1927 10,234
Provo, Utah (5) Office 1959 15,731
</TABLE>
- ----------
(1) Company leases building from outside third party.
(2) Company leases land and building from outside third party.
(3) Company leases land from outside third party.
(4) Company pursues the sale or development of all idle facilities and
regularly evaluates similar opportunities for facilities not fully
utilized.
(5) Company is leasing facility to outside third party.
The properties listed above are utilized by the Company's business segments as
indicated. The Company's production capacity is adequate for its present needs.
The Company believes that its properties have been adequately maintained, are
generally in good condition and are suitable for the Company's business as now
conducted.
Item 3. Legal Proceedings
See Contingencies note accompanying the consolidated financial statements
contained in PDM's 1999 Annual Report to Stockholders, which note is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
Information regarding executive officers of the Registrant is presented in
Part III of this report and is incorporated herein by reference.
7
<PAGE>
PART II
Information for Items 5, 6, 7 and 7A is included in PDM's 1999 Annual Report to
Stockholders and is incorporated herein by reference (and except for these
sections, and sections incorporated herein by reference in Items 1 and 8 of this
report, PDM's Annual Report to Stockholders is not deemed to be filed as part of
this report):
<TABLE>
<CAPTION>
ANNUAL REPORT
TO STOCKHOLDERS
ITEM NO. TITLE SECTION/TITLE
- -------- ------------------------------ ---------------
<S> <C> <C>
Item 5. Market for Registrant's Common Equity Common Stock Information
and Related Stockholder Matters included in Stockholders'
Reference section
Item 6. Selected Financial Data Five-Year Selected
Financial Data
Item 7. Management's Discussion and Analysis Management's Discussion
of Financial Condition and Results of and Analysis
Operations
Item 7A. Qualitative and Quantitative Disclosures Management's Discussion
About Market Risk and Analysis
</TABLE>
Item 8. Financial Statements and Supplemental Data
The financial statements consisting of Consolidated Statements of Income,
Consolidated Statements of Financial Condition, Consolidated Statements of Cash
Flows, Consolidated Statements of Stockholders' Equity, Notes to Consolidated
Financial Statements, and Business Segment Information are included in the
Consolidated Financial Statements section of PDM's 1999 Annual Report to
Stockholders, which is incorporated herein by reference. The report of
independent auditors on PDM's consolidated financial statements is contained in
the Report of Independent Auditors and Management section of PDM's 1999 Annual
Report to Stockholders, which is incorporated herein by reference. The
unaudited Two Year Quarterly Results of Operations contained in PDM's 1999
Annual Report to Stockholders is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant (1)
Regarding the directors of the Registrant, reference is made to the
information set forth under the caption "Election of Directors" in the
Company's definitive Proxy Statement anticipated to be dated March 30, 2000
(the "Proxy Statement") which information is incorporated herein by reference.
The principal executive officers of the Company and their recent business
experience are as follows:
W. R. Jackson, age 91
Director since 1940;
Chairman Emeritus since 1988; formerly Chairman of the Board since 1971.
Mr. Jackson has been with the Company since 1936 and is the father of Mr.
Jackson, Jr. and Mrs. Townsend.
P. O. Elbert, age 69
Director since 1988;
Chairman of the Board of the Company since 1990; formerly President of the
Company since 1988 and President, PDM Structural Group since 1987. Mr. Elbert
joined the Company in 1987. Prior to 1987, Mr. Elbert was Vice Chairman of
Chicago Steel Corporation since 1986; formerly a partner of Elbert and McKee
Company since 1984; formerly President and Chief Executive Officer of Flint
Steel Corporation since 1979; and formerly Group Vice President of Inryco,
Inc., a subsidiary of Inland Steel Company since 1969.
Wm. W. McKee, age 61 (2)
Director since 1988;
President and Chief Executive Officer of the Company since 1990; formerly
President, PDM Plate Group since May 1987 and formerly Executive Vice
President, PDM Structural Group since April 1987. Mr. McKee joined the Company
in 1987. Prior to 1987, Mr. McKee was Secretary of Chicago Steel Corporation
since 1986; formerly a partner of Elbert and McKee Company since 1984;
formerly a consultant with McKee and Associates since 1983; formerly President
of Hogan Manufacturing since 1980; and formerly President of Herrick
Corporation since 1973.
R. A. Byers, age 52 (2)
Treasurer since 1988 and Vice President, Finance and Administration since
1987; formerly Vice President, Finance since 1984; formerly Controller since
1982; formerly Assistant Controller since 1981; formerly Manager of Financial
Reporting since 1979; and formerly with Ernst & Young LLP for ten years.
9
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (Cont'd)
T. R. Lloyd, age 51 (2)
Secretary and General Counsel since 1990; formerly Senior Attorney of Buchanan
Ingersoll Professional Corporation, since 1989; formerly Vice President,
Secretary and General Counsel for Arch Mineral Corporation since 1984; and
formerly Director and Secretary of U.S. Steel Mining Co., Inc. since 1979.
____________________
(1) Except where otherwise indicated, all references are to positions held
with Pitt-Des Moines, Inc. Each executive officer of the Company is
elected annually by the Board of Directors until his successor is elected
and qualified, and each has served continually as an officer since first
elected.
(2) The Company has agreements with each of Messrs. McKee, Byers and Lloyd
covering, among other things, their positions as executive officers of the
Company after a change of control of the Company.
Item 11. Executive Compensation
Reference is made to the information set forth under the captions "Board of
Directors and Committees of the Board," "Executive Compensation and Other
Information," and "Compensation Committee Interlocks and Insider Participation"
appearing in the Company's Proxy Statement, which information is incorporated
herein by reference; provided, however, that the information set forth under the
captions "Compensation Committee Report on Executive Compensation" and
"Performance Graph" in the Proxy Statement shall not be deemed to be soliciting
material or to be "filed" with the Commission or subject to Regulation 14A or
14C (other than as provided in Item 402 of Regulation S-K) or to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as amended.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information contained under the captions
"Stockholdings of Management" and "Principal Holders of Common Stock" in the
Company's Proxy Statement, which information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information contained under the caption
"Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement, which information is incorporated herein by reference.
10
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements and Report of
Independent Auditors previously incorporated by reference in Part II,
Item 8 of this report are incorporated herein by reference:
Report of Independent Auditors
Consolidated Statements of Income -- Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Financial Condition as of December 31, 1999
and 1998
Consolidated Statements of Cash Flows -- Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity -- Years Ended December
31, 1999, 1998 and 1997
Notes To Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule of Pitt-Des
Moines, Inc. and subsidiaries should be read in conjunction with the
Company's consolidated financial statements in the Annual Report.
Schedule II. Valuation and Qualifying Accounts for years ended
December31, 1999, 1998 and 1997
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
3. Exhibits:
3.1 Articles of Incorporation, as amended to date (filed as Exhibit 3.1 to
the Company's quarterly report on Form 10-Q for the quarter ended March
31, 1999 and incorporated herein by reference)
3.2 Bylaws, as amended to date (filed as Exhibit 3.2 to the Company's
annual report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference)
11
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Cont'd)
4.1 Revolving Credit and Letter of Credit Issuance Agreement dated as of
February 16, 1999 by and among Pitt-Des Moines, Inc. and PNC Bank,
National Association, Wells Fargo Bank, N.A., American National Bank
and LaSalle National Bank (filed as Exhibit 4.1 to the Company's annual
report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference)
10.1* Agreement executed by and between the Company and Wm. W. McKee (filed
as Exhibit 10.1 to the Company's annual report on Form 10-K for the
year ended December 31, 1990 and incorporated herein by reference)
10.2* Amendment to agreement executed by and between the Company and Wm. W.
McKee filed as Exhibit 10.1 hereto (filed as Exhibit 10.2 to the
Company's annual report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference)
10.3* Agreement executed by and between the Company and R. A. Byers (filed as
Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1991 and incorporated herein by reference)
10.4* Amendment to agreement executed by and between the Company and R. A.
Byers filed as Exhibit 10.3 hereto (filed as Exhibit 10.4 to the
Company's annual report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference)
10.5* Agreement executed by and between the Company and T. R. Lloyd (filed as
Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1991 and incorporated herein by reference)
10.6* Amendment to agreement executed by and between the Company and T. R.
Lloyd filed as Exhibit 10.5 hereto (filed as Exhibit 10.6 to the
Company's annual report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference)
10.7* Management Incentive Plan (filed as Exhibit 10.5 to the Company's
annual report on Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference)
10.8* Summary of Company 1999 Management Incentive Plan (MIP) (filed
herewith)
10.9* Retirement Plan for PDM Outside Directors as amended, effective May 26,
1994 (filed as Exhibit 10.7 to the Company's annual report on Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference)
12
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Cont'd)
10.10* Retirement Plan for PDM Outside Directors, effective May 26, 1994, as
amended on September 14, 1995 (filed as Exhibit 10.7 to the Company's
annual report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference)
10.11* Stock Option Plan of 1990 (filed as Exhibit 4.01 to the Company's
Registration Statement No. 333-34787 on Form S-8 filed May 7, 1990 and
incorporated herein by reference)
10.12* Investment Letter and Registration Rights Agreement dated September 21,
1993 by and between Pitt-Des Moines, Inc. and William W. McKee, Jr.
(filed as Exhibit 10.1 to the Company's quarterly report on Form 10-Q
for the quarter ended September 30, 1993 and incorporated herein by
reference)
10.13* Amendment to Investment Letter and Registration Rights Agreement dated
September 21, 1993 by and between Pitt-Des Moines, Inc. and William W.
McKee, Jr. filed as Exhibit 10.12 hereto (filed as Exhibit 10.13 to the
Company's annual report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference)
10.14* Investment Letter and Registration Rights Agreement dated September 21,
1993 by and between Pitt-Des Moines, Inc. and Phillip O. Elbert (filed
as Exhibit 10.2 to the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1993 and incorporated herein by reference)
10.15* Amendment to Investment Letter and Registration Rights Agreement dated
September 21, 1993 by and between Pitt-Des Moines, Inc. and P. O.
Elbert filed as Exhibit 10.14 hereto (filed as Exhibit 10.15 to the
Company's annual report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference)
10.16* Directors Stock Plan (filed under the Company's Registration Statement
No. 333-13043 on Form S-8 dated September 30, 1996 and incorporated
herein by reference)
10.17* Stock Option Agreement executed by and between the Company and P. O.
Elbert (filed as Exhibit 10.12 to the Company's annual report on Form
10-K for the year ended December 31, 1996 and incorporated herein by
reference)
10.18* Amendment to Stock Option Agreement executed by and between the Company
and P. O. Elbert filed as Exhibit 10.17 hereto (filed as Exhibit 10.15
to the Company's annual report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference)
13
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Cont'd)
10.19* Supplemental Benefit and Supplemental Salaried Retirement Plan (filed
as Exhibit 10.15 to the Company's annual report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference)
10.20* Long Term Incentive Stock Plan of 1997 (filed under the Company's
Registration Statement No. 333-68853 on Form S-8 dated December 14,
1998 and incorporated herein by reference)
13 Those portions of the Annual Report to Stockholders for fiscal year
ended December 31, 1999, which are incorporated herein by reference
(filed herewith)
21 Subsidiaries of Pitt-Des Moines, Inc. (filed herewith)
23 Consent of Independent Auditors, Ernst & Young LLP (filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
- ------------------------
* Denotes management contract or compensatory plan or arrangement.
14
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
PITT-DES MOINES, INC.
March 28, 2000 By: /s/ Wm. W. McKee
---------------------------------
Wm. W. McKee
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer:
/s/ Wm. W. McKee President, Chief March 28, 2000
- ------------------------------------ Executive Officer and
Wm. W. McKee Director
Principal Financial and Accounting Officer:
/s/ R. A. Byers Chief Financial Officer March 28, 2000
- ------------------------------------ and Chief Accounting
R. A. Byers Officer
Other Directors:
/s/ J. C. Bates Director March 28, 2000
- ------------------------------------
J. C. Bates
/s/ V. G. Beghini Director March 28, 2000
- ------------------------------------
V. G. Beghini
15
<PAGE>
Signatures (Cont'd)
Signatures Title Date
/s/ R. W. Dean Director March 28, 2000
- --------------------------
R. W. Dean
/s/ P. O. Elbert Director March 28, 2000
- --------------------------
P. O. Elbert
/s/ W. L. Friend Director March 28, 2000
- --------------------------
W. L. Friend
/s/ W. R. Jackson Director March 28, 2000
- --------------------------
W. R. Jackson
/s/ W. R. Jackson, Jr. Director March 28, 2000
- --------------------------
W. R. Jackson, Jr.
/s/ W. E. Lewellen Director March 28, 2000
- --------------------------
W. E. Lewellen
/s/ A. J. Paddock Director March 28, 2000
- --------------------------
A. J. Paddock
/s/ J. W. Robinson Director March 28, 2000
- --------------------------
J. W. Robinson
/s/ P. J. Townsend Director March 28, 2000
- --------------------------
P. J. Townsend
16
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Pitt-Des Moines, Inc.
<TABLE>
<CAPTION>
Additions Deductions
(1)
------------- ---------------
Balance at Charged to
Beginning of Costs and Credited to Balance at
Description Period Expenses Asset End of Period
-------------------------------- --------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Deducted from accounts receivable
as allowance for doubtful
accounts:
Year ended December 31, 1999 $ 793,000 $1,348,046 $265,986 $1,875,060
Year ended December 31, 1998 $1,058,724 $ 599,298 $865,022 $ 793,000
Year ended December 31, 1997 $ 868,000 $ 363,233 $172,509 $1,058,724
</TABLE>
- ---------------------
(1) Write-off of accounts deemed to be uncollectible and adjustment of
accruals.
<PAGE>
Exhibit 10.8
SUMMARY OF COMPANY'S 1999 MANAGEMENT INCENTIVE PLAN (MIP)
Pitt-Des Moines, Inc.
Under the terms of the MIP, a minimum rate of return (threshold) on
stockholders' equity must be achieved before bonuses can be awarded. The
threshold for executive officers was established at the after-tax cost of
capital on the assumption that returns in excess of the threshold would lead to
increases in stockholder value. Once this criteria is met, the total amount of
bonus available for distribution to eligible executive officers, including the
Company's Chief Executive Officer ("CEO") under the MIP is based on a percentage
in excess of the minimum return on stockholders' equity. Individual bonus
amounts paid to the Company's executive officers for services rendered in 1999,
including the CEO, were based on a pre-determined percentage limitation on each
individual's base salary (in no case does the applicable limit exceed 100% of
base salary) and the percentage of the overall MIP target achieved. These pre-
determined percentages were established by the Compensation Committee.
Under the terms of the MIP, the Company's eligible executive officers were
entitled to receive and were awarded bonuses under the MIP for the year ended
December 31, 1999.
<PAGE>
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
OPERATING PERFORMANCE
Earned revenue $629,089 $566,711 $474,568 $468,274 $461,274
Income from operations 40,623 30,827 24,950 20,588 22,077
Income before income taxes 39,283 33,552 23,963 20,629 21,255
Net income 24,300 20,155 14,400 12,551 13,019
Earnings per share $ 3.39 $ 2.85 $ 2.06 $ 1.80 $ 1.87
Earnings per share -- assuming dilution $ 3.23 $ 2.72 $ 2.02 $ 1.78 $ 1.86
- -----------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $295,044 $289,383 $231,939 $199,885 $201,136
Long-term debt -- 35,000 11,000 -- 13,000
Stockholders' equity 172,405 149,254 129,663 118,619 108,942
OTHER INFORMATION
For the year:
Cash provided (utilized) by operations $ 52,405 $(13,062) $ 10,578 $ 24,749 $ 14,630
Depreciation and amortization expense 8,641 6,109 5,784 5,681 5,662
Capital expenditures 12,380 17,301 10,607 4,153 5,304
Dividends per common share 0.68 0.60 0.55 0.43 0.33
At year end:
Book value per common share $ 23.46 $ 20.60 $ 18.49 $ 17.03 $ 15.66
Employees 2,783 2,479 2,210 2,006 2,082
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is provided to assist readers in
understanding the Company's financial performance during the periods presented
and significant trends which may impact the future performance of the Company.
It should be read in conjunction with the consolidated financial statements and
accompanying notes included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
PDM is a diversified engineering and construction company, and a distributor of
a broad range of carbon steel products. The Company currently operates in two
business segments: Heavy Construction and Steel Distribution. The Heavy
Construction segment specializes in the engineering and design, procurement,
fabrication, erection and rehabilitation of steel products including liquid and
cryogenic storage and processing systems, water storage systems, bridges and
buildings. The Steel Distribution segment processes and distributes a full line
of heavy carbon steel products and manufactures and markets corrugated metal
culvert pipe and accessories.
The Company realized net income of $24.3 million in 1999 compared with $20.2
million in 1998 and $14.4 million in 1997. The related earnings per share were
$3.23 in 1999 compared with $2.72 in 1998 and $2.02 in 1997. Earned revenue
increased $62.4 million in 1999 when compared with 1998 and increased $92.1
million in 1998 when compared with 1997. Income from operations of $40.6 million
in 1999 increased $9.8 million from $30.8 million in 1998 and increased $5.8
million in 1998 when compared with $25.0 million in 1997. The increase in earned
revenue and income from operations from 1998 to 1999 and 1997 to 1998 is
attributable to the strength of the Heavy Construction segment. For additional
discussion on the results of operations refer to the individual business segment
narratives below.
HEAVY CONSTRUCTION
The economic conditions and competitive environments in which Heavy Construction
operates vary independently from market to market and year to year. These
external factors, outside of management's control, impact financial results. The
following table sets forth the segment's earned revenue and new awards for the
years ended December 31, 1999, 1998 and 1997.
1999 1998 1997
- -------------------------------------------------------
(Dollars in thousands)
EARNED REVENUE
Liquid & Cryogenic
Storage $185,659 $163,148 $121,168
Water Storage 95,265 78,758 68,736
Steel Bridges 88,187 74,952 51,809
Steel Buildings 69,847 50,133 44,927
- -------------------------------------------------------
$438,958 $366,991 $286,640
- -------------------------------------------------------
NEW AWARDS
Liquid & Cryogenic
Storage $133,898 $182,129 $188,441
Water Storage 110,721 89,006 80,424
Steel Bridges 90,580 102,744 62,846
Steel Buildings 52,825 84,120 33,458
- -------------------------------------------------------
$388,024 $457,999 $365,169
- -------------------------------------------------------
Earned revenue increased $72.0 million in 1999 due to balanced growth among all
product groups. The growth is attributable to the following factors:
. Liquid and Cryogenic Storage benefited from progress on significant
contracts including a liquid natural gas import terminal in Puerto Rico.
. The Water Storage group reported strong demand from municipalities driven
by a demographic shift to the suburbs.
. The Steel Bridge group continued to benefit from increased federal and
state infrastructure spending. The level of spending is expected to remain
strong over the next several years due to passage of the "Transportation
Equity Act for the 21st Century" in 1998.
. The Steel Building group benefited from a consistent flow of sizable
contracts, further increasing utilization of the Eloy, Arizona facility
which was brought online in mid-1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
During 1998, earned revenue increased $80.4 million from 1997 levels on the
strength of the Liquid and Cryogenic Storage and Steel Bridge markets. The
Liquid and Cryogenic Storage growth was attributable to progress on significant
contracts including a liquid natural gas import terminal in Puerto Rico, while
the Steel Bridge group benefited from an ongoing capital investment program by
the railroad industry, as well as increased federal and state infrastructure
spending.
New awards for 1999 decreased $70.0 million due primarily to lower sales
activity for the Liquid and Cryogenic Storage and Steel Building groups. The
Liquid and Cryogenic Storage group experienced decreased market activity as soft
demand from oil and gas companies and weak South American economies negatively
impacted capital spending. While market fundamentals are expected to improve by
mid-2000, the lower 1999 sales may result in decreased earned revenue for this
group in 2000.
The Steel Building group new awards were down from the historical high reported
in 1998; however, strong demand for office space, hotels and other structures in
the California market are expected to result in solid bidding activity in 2000.
The overall decrease in new awards was partially offset by increased sales for
the Water Storage group. The above noted spending by municipalities accounted
for the growth over the prior year.
Total new awards increased $92.8 million during 1998 due to solid sales growth
by the Steel Building and Steel Bridge groups. Strong demand for commercial
office space in the Western United States contributed to the growth in Steel
Building new awards, while the above noted railroad industry and infrastructure
spending accounted for the increase in Steel Bridge new awards.
Selling, general and administrative (S, G&A) expense as a percentage of earned
revenue was 6.5 percent, 7.4 percent and 9.0 percent for 1999, 1998 and 1997,
respectively. In both 1999 and 1998, S, G&A expense increased in absolute
dollars due to an increased number of employees to accommodate the expansion of
operations.
Income from operations was $35.5 million in 1999 compared with $26.2 million and
$16.4 million in 1998 and 1997, respectively. The increase in 1999 and 1998 is
primarily attributable to the Company's significant revenue growth. In addition,
lower S, G&A expense as a percentage of earned revenue also contributed to the
increase.
Capital expenditures, exclusive of business acquisitions, were $6.5 million in
1999 compared with $9.8 million and $8.2 million in 1998 and 1997, respectively.
The 1999 expenditures consisted of the acquisition of plant and construction
equipment, as well as the expansion of existing facilities. Expenditures during
1998 related primarily to completion of the structural steel fabricating
facility in Eloy, Arizona, and expansion of the bridge fabrication facility in
Palatka, Florida, while 1997 expenditures were incurred for the construction of
the Arizona facility.
STEEL DISTRIBUTION
For the Steel Distribution segment, earned revenue of $195.0 million decreased
$8.3 million from 1998 despite a 5 percent increase in tonnage shipped. Lower
transaction prices, attributable to a drop in steel prices, accounted for the
decrease from the prior year. However, pricing began to rebound and demand
improved, particularly in the Western United States, during the fourth quarter
of 1999. If these market trends continue, 2000 results should be favorably
impacted. In 1998, a 10 percent increase in volume, despite weaker demand,
accounted for the growth over 1997.
Income from operations was $15.4 million compared with $17.4 million and $16.6
million in 1998 and 1997, respectively. The lower 1999 operating income is
attributable to the decrease in earned revenue and higher S, G&A costs
associated with new or expanded steel service center operations. In 1998,
operating income increased due primarily to the growth in earned revenues. The
1998 increase was partially offset by slightly lower gross margins which were
negatively impacted by weaker demand and competitive pricing pressure. S, G&A
expense as a percentage of earned revenue was 8.1 percent, 6.9 percent and 7.4
percent for 1999, 1998 and 1997, respectively.
During 1999, the Company completed construction of a new steel service center in
Woodland, Washington. This facility enables the Company to provide broader
geographic coverage and enhance customer service to the Northwest United States.
Also in 1999, the Company completed the conversion of a portion of a former
fabricating facility in Des Moines, Iowa to supply the Midwestern United States.
Capital expenditures were $5.8 million in 1999 compared with $6.8 million and
$1.6 million in 1998 and 1997, respectively. The 1999 and 1998 expenditures were
primarily incurred in the construction of the Woodland, Washington and Des
Moines, Iowa, steel service centers. The 1997 capital expenditures consisted of
the acquisition of plant equipment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OTHER
Corporate unallocated expenses, consisting of salaries, benefits, outside
professional services, taxes and insurance, were $10.2 million in 1999 compared
with $12.8 million and $8.1 million in 1998 and 1997, respectively. The decrease
in 1999 is attributable to lower compensation expense recognized under an
incentive stock plan and increased net periodic pension income. The increase in
1998 relates primarily to $3.0 million of compensation expense recognized under
an incentive stock plan, for which no amount was included in the prior year.
Interest expense of $2.6 million in 1999 compares with $1.9 million in 1998 and
$0.8 million in 1997. Interest expense is directly related to the level of net
borrowings the Company maintains throughout the year. The increase in interest
expense for 1999 resulted from the higher level of borrowings to fund capital
expansion and to finance general working capital needs. On December 31, 1999,
the Company had no outstanding debt under its revolving credit facility compared
with $35 million at December 31, 1998. The Company had $11 million of
outstanding debt under the revolving credit facility at December 31, 1997.
The gain on sale of assets was $1.0 million, $4.3 million and $0.4 million in
1999, 1998 and 1997, respectively. In all three years, gains on the sale of idle
properties were recognized.
The effective tax rate was approximately 38 percent in 1999 compared with 40
percent in 1998 and 1997. The 1998 rate was higher than 1999 due to the
inclusion of a non-deductible Justice Department fine.
LIQUIDITY AND CAPITAL RESOURCES
The increase in cash provided by operating activities in 1999, compared with
1998, is primarily due to a net decrease in operating assets and liabilities
(excluding the effects of acquisitions). A decrease in net costs incurred on
contracts coupled with an increase in short-term liabilities contributed to the
improvement in cash provided by operating activities. The changes in operating
assets and liabilities vary from year to year and are affected by the mix, stage
of completion and commercial terms of contracts. During 1998, increases in
accounts receivable and net costs incurred on contracts of $38.1 million
contributed to the decrease in cash provided by operating activities.
The Company expended $12.4 million for capital improvements in 1999, and
realized $2.8 million in proceeds from the sale of idle property. Capital
expenditures in the Heavy Construction segment were for the acquisition of plant
and construction equipment and for the expansion and improvement of facilities.
Capital expenditures by the Steel Distribution segment were for the expansion
and improvement of facilities. During 1999 and 1998, the Company had annual
capital spending of approximately one-and-one-half times and two times annual
depreciation expense, respectively, to maintain its competitive position. The
Company anticipates that capital expenditures in the near future will
approximate the level of depreciation and amortization, although there can be no
assurance that such levels will not increase or decrease.
The Company continues to evaluate and selectively pursue opportunities for
growth or expansion of its business through investment in or acquisition of
complementary businesses. Acquisition and investment candidates are evaluated
based on various criteria in a process which includes due diligence, management
reviews and board approval. Management anticipates that investment and/or
acquisition opportunities will be available to the Company and intends to
investigate those opportunities for future growth and expansion of its business.
The Company expects that any such acquisitions will be financed from cash on
hand or available under the Company's revolving credit facility. In certain
cases, acquisitions may be funded using stock or pursuant to stand-alone credit
facilities.
Cash utilized by financing activities consisted primarily of dividend payments
and payment of debt obligations. The Company paid cash dividends of $5.0 million
($.68 per share) in 1999 compared with $4.4 million ($.60 per share) in 1998 and
$3.8 million ($.55 per share) in 1997.
On February 10, 2000, the Board of Directors declared an 18 percent increase in
its quarterly dividend to $.20 per share. The payment of future dividends will
be evaluated based on business conditions.
The Company has on hand and access to sufficient sources of funds to meet its
anticipated operating, expansion and capital needs. These sources include the
unused portion of a $70.0 million unsecured revolving credit facility which
expires on January 31, 2002. On December 31, 1999, $7.8 million of stand-by
letters of credit were outstanding under this credit facility. The Company
expects to borrow under its credit facility for working capital requirements in
2000.
Inflation has not had a material effect on the Company in recent years, and the
effect is expected to be minimal in the foreseeable future.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR 2000
The Company initiated a review of its software systems in 1997 in view of the
fact that certain systems may not properly recognize dates after the year 1999,
which could cause those systems to produce invalid results or fail to operate.
This is commonly referred to as "the Year 2000 problem." The Company's Year 2000
plan encompassed three main phases: Assessment, Remediation and Testing. All
phases of the Year 2000 plan were generally conducted by the Company's
information technology personnel. While the Company has not tracked these costs
separately, it does not believe the impact of the Year 2000 remediation efforts
has had a material impact on the Company's results of operations for the periods
presented, or that any additional costs will have a material impact on the
Company's future results of operations.
To date, we have not experienced any material Year 2000 issues. Additionally, we
have no reason to believe that any third parties with whom we deal have had any
material Year 2000 issues. However, we cannot assure you that we will not
experience any disruption due to Year 2000 issues in the future. We continue to
monitor our systems and third parties for any Year 2000 problems.
MARKET RISK
Due to current conditions in the credit markets and considering the favorable
terms of the Company's borrowing facility, management believes interest rate
exposure is minimal.
The Company has limited operations outside the United States. As such, there is
limited exposure to the Company's future earnings due to changes in foreign
currency exchange rates. A 10 percent appreciation of the United States dollar
against the related currencies would not have a significant effect on the future
earnings of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement, as amended, addresses the accounting
for derivatives and hedging activities and is effective for years starting after
June 15, 2000.
The Company does not currently utilize derivatives or engage in hedging
activities; therefore, management does not anticipate that the adoption of this
statement will have a material impact on the Company's financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
Any of the comments in this Annual Report that refer to the Company's estimated
or future results, margins on existing or future projects, long-term
profitability and demand and growth trends are forward-looking and reflect the
Company's current analysis of existing trends and information. Actual results
may differ materially from current expectations or projections based on a number
of factors affecting the Company's businesses. The Company's estimates of future
performance depend on, among other things, the likelihood of receiving certain
new awards. While these estimates are based on the good faith judgment of
management, these estimates frequently change based on new facts which become
available. In addition, the timing of receipt of revenue by the Company from
engineering and construction projects can be affected by a number of factors
outside the control of the Company. The Company's businesses are also subject to
fluctuations in demand and to changing global economic and political conditions
which are beyond the control of the Company and may cause actual results to
differ from the forward-looking statements contained in this Annual Report.
These forward-looking statements represent the Company's judgment only as of the
date of this Annual Report. As a result, the reader is cautioned not to rely on
these forward-looking statements. The Company disclaims any intent or obligation
to update these forward-looking statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earned revenue $629,089,077 $566,710,817 $474,567,956
Cost of earned revenue 533,266,736 481,905,383 402,532,030
- ---------------------------------------------------------------------------------------------
Gross profit from operations 95,822,341 84,805,434 72,035,926
Selling, general and administrative expenses 55,198,703 53,978,365 47,085,543
- ---------------------------------------------------------------------------------------------
Income from operations 40,623,638 30,827,069 24,950,383
Other income (expense):
Interest income 866,798 625,218 752,638
Interest expense (2,644,653) (1,914,450) (847,334)
Gain on sale of assets 1,006,336 4,260,911 437,935
Miscellaneous, net (568,893) (246,773) (1,330,472)
- ---------------------------------------------------------------------------------------------
(1,340,412) 2,724,906 (987,233)
- ---------------------------------------------------------------------------------------------
Income before income taxes 39,283,226 33,551,975 23,963,150
Income tax expense 14,983,226 13,396,975 9,562,750
- ---------------------------------------------------------------------------------------------
Net income $ 24,300,000 $ 20,155,000 $ 14,400,400
=============================================================================================
Earnings per share $ 3.39 $ 2.85 $ 2.06
- ---------------------------------------------------------------------------------------------
Earnings per share -- assuming dilution $ 3.23 $ 2.72 $ 2.02
=============================================================================================
Shares used to calculate:
Earnings per share 7,174,300 7,069,122 6,998,698
- ---------------------------------------------------------------------------------------------
Earnings per share -- assuming dilution 7,517,211 7,422,435 7,112,796
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
PDM 1999 ANNUAL REPORT / 25
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,973,773 $ 8,446,701
Accounts and notes receivable 102,320,329 103,998,461
Inventories 30,741,162 31,118,073
Costs and estimated profits in excess of billings 61,150,265 63,700,086
Deferred income taxes 8,544,735 5,875,969
Prepaid expenses 1,074,623 1,204,821
- -------------------------------------------------------------------------------
Total current assets 212,804,887 214,344,111
OTHER ASSETS 14,697,322 10,454,132
GOODWILL 7,186,493 6,587,744
PROPERTY, PLANT AND EQUIPMENT
Land 7,737,027 9,637,915
Buildings 48,664,757 44,091,012
Machinery and equipment 80,752,795 75,711,892
- -------------------------------------------------------------------------------
137,154,579 129,440,819
Allowances for depreciation (76,799,728) (71,443,382)
- -------------------------------------------------------------------------------
Net property, plant and equipment 60,354,851 57,997,437
- -------------------------------------------------------------------------------
$295,043,553 $289,383,424
===============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
26 / PDM 1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 61,424,320 $ 52,776,621
Accrued compensation, related taxes and benefits 17,332,293 14,200,709
Other accrued expenses 3,673,374 3,655,130
Billings in excess of costs and estimated profits 18,297,425 14,774,001
Income taxes 3,987,802 4,640,052
Casualty and liability insurance 8,754,274 5,784,305
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 113,469,488 95,830,818
REVOLVING CREDIT FACILITY -- 35,000,000
DEFERRED INCOME TAXES 8,287,618 6,936,811
MINORITY INTEREST 881,285 2,361,666
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock -- par value $.01 per share; authorized 3,000,000 shares; issued -- none
Common stock -- no par value; authorized 15,000,000 shares; issued 8,946,468 shares 33,549,255 33,549,255
Additional paid-in capital 6,305,236 4,183,698
Retained earnings 145,391,325 126,081,860
Accumulated other comprehensive income -- (290,402)
- -----------------------------------------------------------------------------------------------------------------------
185,245,816 163,524,411
Treasury stock at cost (1999 -1,597,866 shares; 1998 - 1,700,552 shares) (11,784,061) (12,299,282)
Unearned compensation - restricted stock (1,056,593) (1,971,000)
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 172,405,162 149,254,129
- -----------------------------------------------------------------------------------------------------------------------
$295,043,553 $289,383,424
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
PDM 1999 ANNUAL REPORT / 27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,300,000 $ 20,155,000 $ 14,400,400
Adjustments to reconcile net income to net cash
provided (utilized) by operating activities:
Depreciation and amortization 8,640,952 6,109,472 5,784,194
Gain on sale of assets (1,006,336) (4,260,911) (437,935)
Deferred income taxes (credits) (1,317,959) (828,750) 52,336
Minority interest in earnings, net of dividends paid (197,630) (90,686) 473,194
Other non-cash debits (credits), net (926,319) 692,038 (824,396)
Change in operating assets and liabilities providing (using) cash:
Accounts and notes receivable 1,678,132 (25,782,326) (139,306)
Inventories 376,911 (4,881,935) (4,928,286)
Prepaid expenses 145,653 (118,998) (65,197)
Costs, estimated profits and billings, net 6,073,245 (12,338,460) (8,879,535)
Accounts payable 8,647,699 3,964,181 3,422,738
Accrued liabilities 6,394,744 2,568,788 (495,818)
Income taxes (403,817) 1,751,086 2,215,687
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (utilized) by operating activities 52,405,275 (13,061,501) 10,578,076
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (12,380,392) (17,300,645) (10,607,303)
Proceeds from sale of assets 2,845,750 6,724,520 655,397
Acquisitions, net of cash acquired (2,181,600) (614,135) (13,657,216)
Change in non-current assets (1,165,922) 194,650 610,059
- ----------------------------------------------------------------------------------------------------------------
Net cash utilized by investing activities (12,882,164) (10,995,610) (22,999,063)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility 17,000,000 27,000,000 17,000,000
Payments of revolving credit facility (52,000,000) (3,000,000) (6,000,000)
Dividends paid (4,964,974) (4,359,366) (3,849,127)
Other 968,935 826,270 492,138
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (utilized) by financing activities (38,996,039) 20,466,904 7,643,011
- ----------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents 527,072 (3,590,207) (4,777,976)
Cash and cash equivalents at beginning of year 8,446,701 12,036,908 16,814,884
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,973,773 $ 8,446,701 $ 12,036,908
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
28 / PDM 1999 ANNUAL REPORT
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Accumulated
Additional compensation - other
Common paid-in restricted Retained Comprehensive comprehensive
stock capital stock earnings income income
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance on January 1, 1997 $33,549,255 $ 99,594,878 $ (251,355)
Comprehensive income:
Net income 14,400,400 $ 14,400,400
Minimum pension liability (19,652) (19,652)
Total comprehensive income 14,380,748
Cash dividends ($0.55 per share) (3,849,127)
Other $ 95,370 124,637
- -------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1997 33,549,255 95,370 110,270,788 (271,007)
Comprehensive income:
Net income 20,155,000 20,155,000
Minimum pension liability (19,395) (19,395)
Total comprehensive income 20,135,605
Cash dividends ($0.60 per share) (4,359,366)
Issuance of restricted stock 2,581,810 $ (3,696,000)
Stock plan amortization 1,245,000 1,725,000
Other 261,518 15,438
- -------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1998 33,549,255 4,183,698 (1,971,000) 126,081,860 (290,402)
Comprehensive income:
Net income 24,300,000 24,300,000
Minimum pension liability 290,402 290,402
Total comprehensive income 24,590,402
Cash dividends ($0.68 per share) (4,964,974)
Stock plan amortization 1,245,384 930,423
Other 876,154 (16,016) (25,561)
- -------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1999 $33,549,255 $ 6,305,236 $ (1,056,593) $145,391,325 $ --
=========================================================================================================================
<CAPTION>
Treasury stock
----------------------------
Number of
Cost shares
- --------------------------------------------------------------
<S> <C> <C>
Balance on January 1, 1997 $ (14,273,424) (1,980,466)
Comprehensive income:
Net income
Minimum pension liability
Total comprehensive income
Cash dividends ($0.55 per share)
Other 291,783 47,372
- --------------------------------------------------------------
Balance on December 31, 1997 (13,981,641) (1,933,094)
Comprehensive income:
Net income
Minimum pension liability
Total comprehensive income
Cash dividends ($0.60 per share)
Issuance of restricted stock 1,114,190 154,000
Stock plan amortization
Other 568,169 78,542
- --------------------------------------------------------------
Balance on December 31, 1998 (12,299,282) (1,700,552)
Comprehensive income:
Net income
Minimum pension liability
Total comprehensive income
Cash dividends ($0.68 per share)
Stock plan amortization
Other 515,221 102,686
- --------------------------------------------------------------
Balance on December 31, 1999 $ (11,784,061) (1,597,866)
==============================================================
</TABLE>
See Notes to Consolidated Financial Statements.
PDM 1999 ANNUAL REPORT / 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pitt-Des Moines,
Inc. and its subsidiaries (the "Company"). Intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of the Company's consolidated 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 disclosure of contingent liabilities at the balance sheet dates
and the reported amounts of revenue and expenses during the reporting periods
for long-term contracts.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 consolidated financial statements and notes
to consolidated financial statements have been reclassified to conform with the
1999 and 1998 presentation.
CLASSIFICATIONS OF CURRENT ASSETS AND LIABILITIES
The Company, consistent with industry practice, includes in current assets and
current liabilities amounts realizable and payable under contracts which extend
beyond one year. Other assets and liabilities are classified as current or non-
current on the basis of expected realization or payment within or beyond one
year, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as cash and short-term investments with
maturities of three months or less at the time of acquisition.
INVENTORIES
Inventories of raw materials and fabricated parts are principally valued at the
lower of last-in, first-out (LIFO) cost or market, except for certain
inventories which are valued at the lower of first-in, first-out (FIFO) cost or
market.
Contract material inventories included in accumulated contract costs are valued
using the specific identification method.
DEPRECIATION AND AMORTIZATION
Land, buildings, machinery and equipment are carried at cost. Buildings,
machinery and equipment, including capitalized leases, are generally depreciated
by accelerated methods.
At December 31, 1999, $3.9 million of long-lived assets to be disposed of were
included in Property, Plant and Equipment.
Goodwill is amortized on the straight-line method over periods not longer than
forty years.
REVENUE RECOGNITION
The Company's revenues are composed of product sales and products and services
provided under engineering and construction contracts. The Company recognizes
product sales revenues upon delivery to the customer and engineering and
construction contract revenues using the percentage-of-completion method.
Contract revenue recognition is generally based on the proportion of man-hours
incurred to date to total estimated man-hours, but for certain contracts is
based on the relationship of actual costs incurred to date to total estimated
costs. The revenue recognized on contracts is not related to progress billings
to customers.
As long-term contracts extend over one or more years, revisions to estimates of
costs and profits are reflected in the accounting period in which the facts
which require the revisions become known. At the time a loss on a contract
becomes known, the entire amount of the estimated loss is recognized in the
financial statements.
The Company has a history of making reasonably dependable estimates of the
extent of progress towards completion, contract revenues, and contract costs on
its long-term contracts. However, due to uncertainties inherent in the
estimation process, actual results could differ materially from those estimates.
Revenue from contract change orders and claims is recognized when the settlement
is probable and the amount can be reasonably estimated. Contract costs include
all direct material, labor, subcontract costs and those indirect costs related
to contract performance. Costs and estimated profits in excess of billings are
classified as a current asset. Amounts billed in excess of costs and estimated
profits are classified as a current liability.
STOCK PLANS
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation expense for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the grant date over
the amount an employee must pay to acquire the stock. This expense is recognized
ratably over the vesting period.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The market value of restricted stock at the grant date is recorded as unearned
compensation in a separate component of stockholders' equity and adjusted to
current market value at each reporting period. Assuming certain performance
criteria are met, unearned compensation is amortized to expense over the vesting
period.
EARNINGS PER COMMON SHARE
Earnings per share (basic) is calculated by dividing net income by the weighted-
average number of shares of common stock outstanding, exclusive of the non-
vested restricted shares.
Earnings per share (assuming dilution) reflects the assumed conversion of all
dilutive securities, consisting of employee stock options and restricted stock,
to the extent that predetermined goals have been achieved. Such adjustments to
the weighted-average number of shares of common stock outstanding are made only
when such adjustments dilute earnings per common share.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and minimum pension liability
adjustments and is presented in the Consolidated Statements of Stockholders'
Equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement, as amended, addresses the accounting
for derivatives and hedging activities and is effective for years starting after
June 15, 2000.
The Company does not currently utilize derivatives or engage in hedging
activities; therefore, management does not anticipate that the adoption of this
statement will have a material impact on the Company's financial position or
results of operations.
ACQUISITIONS
During 1999, the Company completed the acquisition of the remaining 18 percent
interest in Oregon Culvert Company, Inc., a manufacturer and marketer of
corrugated metal culvert pipe and accessories in Tualatin, Oregon. Pro forma
information has not been presented because it is immaterial.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable at December 31, 1999 and 1998, include
approximately $20.4 million and $18.8 million, respectively, due from customers
in accordance with applicable retainage provisions of engineering and
construction contracts. These amounts become due upon completion of such
contracts. The allowance for doubtful accounts was approximately $1.9 million
and $0.8 million on December 31, 1999 and 1998, respectively.
INVENTORIES
Inventories aggregating approximately $25.3 million and $26.3 million on
December 31, 1999 and 1998, respectively, are valued at the lower of LIFO cost
or market. If these amounts had been valued on the FIFO method, which
approximates replacement cost, these amounts would have been approximately $10.4
million and $12.7 million higher than reported on December 31, 1999 and 1998,
respectively.
Inventories carried on a FIFO basis were $5.4 million and $4.9 million on
December 31, 1999 and 1998, respectively.
COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS
Costs and estimated profits on uncompleted contracts are summarized as follows:
DECEMBER 31, 1999 1998
- -------------------------------------------------------
Costs incurred on
uncompleted contracts $ 664,063,929 $ 608,869,644
Estimated profits 94,429,247 71,450,525
- -------------------------------------------------------
758,493,176 680,320,169
Billings to date (715,640,336) (631,394,084)
- -------------------------------------------------------
$ 42,852,840 $ 48,926,085
- -------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs, estimated profits and billings on uncompleted contracts are included in
the accompanying Consolidated Statements of Financial Condition under the
following captions:
DECEMBER 31, 1999 1998
- -------------------------------------------------------------
Costs and estimated
profits in excess of billings $ 61,150,265 $ 63,700,086
Billings in excess of costs
and estimated profits (18,297,425) (14,774,001)
- -------------------------------------------------------------
$ 42,852,840 $ 48,926,085
- -------------------------------------------------------------
As previously reported, included in costs and estimated profits in excess of
billings on uncompleted contracts was approximately $6.5 million at December 31,
1998, relating to an unapproved change order arising from a dispute over design
and specification changes on a project that had been completed. During 1999, the
Company and defendants agreed to settle all claims and counterclaims in this
matter. The effect of this settlement did not have a material impact on the
results of operations.
OTHER ASSETS
Other assets include prepaid pension costs and notes receivable.
PENSIONS
The Company has a number of noncontributory defined benefit pension plans
covering most employees. Plans covering salaried employees provide monthly
benefits at retirement age based on the participant's monthly salary and years
of employment. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service although certain of such plans provide
benefits based on the participant's hourly wage rate and years of service. The
plans permit the Company, at any time, to amend or terminate the plans subject
to union approval, if applicable.
The Company's policy is to fund the legal minimum required contributions. Plan
assets on December 31, 1999 consisted primarily of listed stocks, bonds,
investments in pooled funds and group annuity contracts of insurance carriers.
Net periodic pension expense (income) for the Company's defined benefit pension
plans included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 1,979,460 $ 1,732,878 $ 1,520,237
Interest cost on projected benefit obligation 4,970,817 4,773,205 4,617,668
Expected return on plan assets (9,098,790) (7,778,867) (6,453,641)
Amortization of transition amount (711,825) (711,825) (711,825)
Amortization of prior service cost 261,527 252,717 254,233
Recognized net actuarial (gain) loss (533,822) (140,022) 48,819
- -----------------------------------------------------------------------------------------
Net periodic pension income $(3,132,633) $(1,871,914) $ (724,509)
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of restructuring activities, curtailment losses of $99,887 are
reflected in the recognized net actuarial loss component of net periodic pension
income for the year ended December 31, 1997.
The following assumptions were used in the determination of net periodic cost:
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------
Discount rate 6.8% 7.0% 7.5%
Rate of increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
- -----------------------------------------------------------------
The interest rates used to discount actuarial liabilities to present value at
December 31, 1999 and 1998 were 7.75 percent and 6.75 percent, respectively.
The following table sets forth the change in benefit obligation, plan assets and
funded status of the Company's defined benefit pension plans:
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 75,254,730 $ 70,180,029
Service cost 1,979,460 1,732,878
Interest cost 4,970,817 4,773,205
Plan amendments 144,961 --
Benefits paid (4,101,971) (3,832,011)
Actuarial (gain) or loss (8,949,401) 2,367,836
Other -- 32,793
- -----------------------------------------------------------------------------
Benefit obligation at end of year $ 69,298,596 $ 75,254,730
- -----------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $103,005,094 $ 88,179,350
Actual return on plan assets 9,267,426 18,242,082
Employer contributions 263,161 415,673
Benefits paid (4,101,971) (3,832,011)
- -----------------------------------------------------------------------------
Fair value of plan assets at end of year $108,433,710 $103,005,094
- -----------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ 39,135,114 $ 27,750,364
Unrecognized transition amount (701,174) (1,412,999)
Unrecognized prior service cost 1,641,404 1,757,970
Unrecognized net gain (26,988,086) (18,403,871)
- -----------------------------------------------------------------------------
Net amount recognized $ 13,087,258 $ 9,691,464
- -----------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts recognized in the Consolidated Statements of Financial Condition
include:
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------
Prepaid benefit cost $ 13,550,681 $ 10,155,553
Accrued benefit liability (651,328) (926,941)
Intangible asset 187,905 172,450
Accumulated other comprehensive income -- 290,402
- -----------------------------------------------------------------------
Net amount recognized $ 13,087,258 $ 9,691,464
- -----------------------------------------------------------------------
The projected benefit obligation and accumulated benefit obligation for pension
plans with accumulated benefit obligations in excess of plan assets were
$1,923,116 and $2,122,470 as of December 31, 1999 and 1998, respectively. The
fair value of plan assets for these plans was $1,582,082 and $1,365,197 as of
December 31, 1999 and 1998, respectively.
The Company also makes contributions to certain multi-employer defined benefit
pension plans primarily for field union employees. These contributions are
determined in accordance with the provisions of negotiated labor contracts and
are generally based on the number of man-hours worked. Company contributions and
costs recognized for these plans were approximately $721,000, $482,000 and
$791,000 for the years ended December 31, 1999, 1998 and 1997, respectively. The
estimated accumulated plan benefits and plan assets for these plans are not
available.
The Company sponsored or contributed to union sponsored defined contribution
plans which cover nearly all salaried employees, certain hourly groups in
accordance with their union labor contracts and nearly all non-union field
employees. Based upon the respective plans, the Company contributions represent
either a stated matching percentage of the participant's basic contribution or a
stated rate per hour worked. Company contributions and costs recognized for
these plans were $2.8 million, $2.4 million and $1.8 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has a noncontributory Employee Stock Ownership Plan (ESOP) which
provides salaried employees, who have at least one year of continuous service,
an opportunity to own Company Common Stock and to accumulate additional
retirement benefits. The Company's contributions, whether in cash or in stock,
are determined annually by the Board of Directors in an amount not to exceed the
maximum allowable as an income tax deduction. Company contributions are 100
percent vested after five years of continuous service. The ESOP contribution is
allocated to the participant's account based upon the actual salary paid to the
participant during that year. The following table sets forth the status of the
Company's ESOP:
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------
Contributions $ 917,000 $ 735,000 $ 682,000
Dividends paid on
ESOP shares $ 184,374 $ 151,079 $ 125,474
Number of shares
held by ESOP 261,823 247,199 222,304
Plan assets at
market value $6,400,000 $5,900,000 $4,100,000
- --------------------------------------------------------------
REVOLVING CREDIT FACILITY
The Company has an unsecured revolving credit agreement (the "Credit Agreement")
with a bank group for $70 million. The Credit Agreement matures on January 31,
2002, at which time all borrowings must be repaid in full. This Credit Agreement
calls for the election of interest at rates based on the prime rate or London
Interbank Offered Rate and requires the payment of a quarterly commitment fee
ranging from .20 percent to .30 percent of the unutilized credit facility. The
interest and commitment fee percentages are determined based upon the ratio of
debt to earnings before interest, taxes, depreciation and amortization for the
trailing four quarters. The Credit Agreement contains restrictive financial
covenants that require minimum levels of tangible net worth, as defined, and the
maintenance of certain financial ratios. On December 31, 1999, $7.8 million of
stand-by-letters of credit were outstanding pursuant to the Credit Agreement.
Interest paid during the years ended December 31, 1999, 1998 and 1997 amounted
to $2.7 million, $1.7 million and $0.7 million, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK PLANS
The Company's stock plans (the "plans") provide for grants of nonqualified or
incentive stock options and restricted stock awards to officers and key
employees. The plans are administered by a committee consisting of at least
three directors of the Company. A total of 2,000,000 shares of the Company's
common stock may be issued pursuant to the plans. Total compensation expense
recognized in the Consolidated Statements of Income for stock-based compensation
awards was $2.2 million and $3.0 million for the years ended December 31, 1999
and 1998, respectively. No compensation expense was recognized in 1997.
Restricted stock awards issued under the plans provide that shares awarded may
not be sold or otherwise transferred until restrictions as established by the
committee have lapsed. There were no restricted stock grants in 1999 or 1997.
Restricted stock issued under the plans with a weighted-average fair value of
$26.38 totaled 154,000 in 1998.
Stock options are generally granted at the fair market value of the Company's
common stock on the date of grant. The vesting periods of options are determined
on a grant-by-grant basis, and may be accelerated in the event of certain
circumstances such as death or disability of the optionee. These options
generally expire within ten years from the date of grant.
The following table summarizes option activity for the three years ended
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-average
Shares exercise price
- ------------------------------------------------------------------
<S> <C> <C>
Outstanding on
December 31, 1996 501,000 $11.79
- ------------------------------------------------------------------
Exercised (49,500) $11.47
Surrendered (3,750) $11.58
- ------------------------------------------------------------------
Outstanding on
December 31, 1997 447,750 $11.83
- ------------------------------------------------------------------
Granted 706,000 $17.56
Exercised (75,750) $10.69
- ------------------------------------------------------------------
Outstanding on
December 31, 1998 1,078,000 $15.66
- ------------------------------------------------------------------
Granted 70,000 $25.25
Exercised (113,100) $11.85
- ------------------------------------------------------------------
Outstanding on
December 31, 1999 1,034,900 $16.72
- ------------------------------------------------------------------
Exercisable:
December 31, 1997 297,376 $11.03
December 31, 1998 374,825 $13.64
December 31, 1999 455,050 $15.12
- ------------------------------------------------------------------
Available for future grant:
December 31, 1997 77,250
December 31, 1998 617,250
December 31, 1999 547,250
- ------------------------------------------------------------------
</TABLE>
Stock options outstanding at December 31, 1999 of 1,034,900 shares at option
prices ranging from $10.25 to $25.25, had a weighted-average remaining
contractual life of 6.8 years.
PDM 1999 ANNUAL REPORT 35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA NET INCOME AND EARNINGS PER SHARE
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its stock options under the fair
value method. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 1998. There were no stock options granted in 1997 under
the plans.
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------
Risk-free interest rate 6.55% 4.91%
Dividend yield 2.76% 2.50%
Volatility factor .249 .203
Weighted-average expected life 7 8
- --------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restriction and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma net
earnings and earnings per share were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Net income - as reported $ 24,300 $ 20,155 $ 14,400
Compensation expense
recognized under
APB opinion No. 25,
net of tax 1,305 1,782 --
Compensation expense
computed under FAS 123,
net of tax (1,553) (2,113) (130)
- -------------------------------------------------------------------------------------------------------------------
Net income - pro forma $ 24,052 $ 19,824 $ 14,270
- -------------------------------------------------------------------------------------------------------------------
Earnings per share - as reported:
Earnings per share $ 3.39 $ 2.85 $ 2.06
Earnings per share -
assuming dilution $ 3.23 $ 2.72 $ 2.02
- -------------------------------------------------------------------------------------------------------------------
Earnings per share - pro forma:
Earnings per share $ 3.31 $ 2.80 $ 2.04
Earnings per share -
assuming dilution $ 3.15 $ 2.67 $ 2.01
- -------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year $ 6.99 $ 10.29 N/A
===================================================================================================================
</TABLE>
INCOME TAXES
The income tax expense (benefit) included in the Consolidated Statements of
Income is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,792,797 $11,337,381 $7,481,146
State 2,787,414 2,300,000 1,600,000
Foreign 720,981 588,344 429,268
- -------------------------------------------------------------------------------------------------------------------
Total current expense 16,301,192 14,225,725 9,510,414
Deferred:
Federal (1,064,511) (669,375) 42,272
State (253,455) (159,375) 10,064
- -------------------------------------------------------------------------------------------------------------------
Total deferred expense (benefit) (1,317,966) (828,750) 52,336
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense $14,983,226 $13,396,975 $9,562,750
===================================================================================================================
</TABLE>
36 PDM 1999 ANNUAL REPORT
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of U.S. statutory federal income tax to the income tax expense
on income before income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory federal income tax expense $13,749,129 $11,743,191 $8,387,103
Increase in taxes resulting from:
State taxes less federal benefit 1,768,000 1,495,000 1,040,000
Other, net (533,903) 158,784 135,647
- ----------------------------------------------------------------------------------
Income tax expense $14,983,226 $13,396,975 $9,562,750
- ----------------------------------------------------------------------------------
</TABLE>
Deferred taxes reflect the tax effects of differences between the amounts
recorded as assets and liabilities for financial reporting purposes and the
amounts recorded for income tax purposes. The tax effects of significant
temporary differences giving rise to deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Casualty and liability insurance $2,793,844 $1,515,813
Contract related amounts 50,400 6,400
Inventory 317,195 502,736
Employee benefits 4,671,929 3,533,820
Accounts receivable allowance and other 711,367 317,200
- ----------------------------------------------------------------------------------
Total deferred tax assets $8,544,735 $5,875,969
- ----------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $2,890,473 $3,200,501
Pension 5,164,164 3,805,847
Other 232,980 (69,537)
- ----------------------------------------------------------------------------------
Total deferred tax liabilities $8,287,618 $6,936,811
- ----------------------------------------------------------------------------------
</TABLE>
Income taxes paid for the years ended December 31, 1999, 1998 and 1997 were
approximately $17.2 million, $12.5 million and $7.1 million, respectively.
EARNINGS PER SHARE
The following table sets forth the computation of earnings per share and
earnings per share assuming dilution:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $24,300,000 $20,155,000 $14,400,400
- -----------------------------------------------------------------------
Denominator:
Weighted-average
shares outstanding 7,174,300 7,069,122 6,998,698
Employee stock options
and restricted stock 342,911 353,313 114,098
- -----------------------------------------------------------------------
Weighted-average shares-
assuming dilution 7,517,211 7,422,435 7,112,796
- -----------------------------------------------------------------------
Earnings per share $ 3.39 $ 2.85 $ 2.06
- -----------------------------------------------------------------------
Earnings per share -
assuming dilution $ 3.23 $ 2.72 $ 2.02
- -----------------------------------------------------------------------
</TABLE>
PDM 1999 ANNUAL REPORT 37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINGENCIES
As previously reported, in a decision dated February 18, 1999, the United States
Court of Appeals for the Seventh Circuit affirmed the Company's July 31, 1997
conviction for two misdemeanor violations of federal Occupational Safety and
Health Administration regulations. As a result of that conviction, other claims,
actions, or proceedings may be instituted against the Company. The Company
cannot predict the likelihood of such a claim, action or proceeding being
instituted against it, and cannot assess the availability of any insurance
coverage or the possibility or materiality of an adverse result in the event of
any such claim, action or proceeding in advance of a claim, action or proceeding
being instituted.
Various claims and legal proceedings are brought against the Company arising
from the normal course of business. Although counsel is unable to predict with
certainty the ultimate outcome, management and counsel believe the Company has
significant and meritorious defenses to any claims, and intend to pursue them
vigorously.
The Company's operations, including idle facilities and other properties, are
subject to and affected by federal, state and local laws and regulations
regarding the protection of the environment. The Company accrues for
environmental costs where such obligations are either known or considered
probable and can be reasonably estimated.
The Company is participating as a potentially responsible party (PRP) at three
different sites, and has been requested to participate as a PRP at one
additional site, pursuant to proceedings under the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). Other parties have also been
identified as PRP's at the sites. Investigative and/or remedial activities are
ongoing. The Company believes, based upon information presently available to it,
that the cost of such future activities will not have a material effect on the
Company's financial position, results of operations or liquidity. Additionally,
amounts reflected in results of operations and in the statements of financial
condition during the three years ended December 31, 1999 for investigative
and/or remedial activities have also not been material. However, the imposition
of more stringent requirements under environmental laws or regulations, new
developments or changes regarding site cleanup costs or the allocation of such
costs among PRP's or a determination that the Company is potentially responsible
for the release of hazardous substances at sites other than those currently
identified, could result in additional costs.
Management believes that the ultimate outcome of any matter currently pending
against the Company will not materially affect the financial position of the
Company although such outcome could be material to the reported results of
operations for the period in which it occurs.
38 PDM 1999 ANNUAL REPORT
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS SEGMENT INFORMATION
The Company has two reportable operating segments: Heavy Construction and Steel
Distribution. These segments are aligned based on the types of products and
services offered. The Heavy Construction Segment specializes in the engineering
and design, procurement, fabrication, erection and rehabilitation of steel
products such as liquid and cryogenic storage and processing systems, water
storage systems, bridges and buildings. The Steel Distribution Segment
distributes a full line of heavy carbon steel products and provides value-added
processing services and the Company's culvert facilities manufacture and market
corrugated metal culvert pipe and accessories.
The Company evaluates performance and allocates resources based on income or
loss from operations. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies except
that inventory is accounted for on a FIFO basis at the segment level compared to
a LIFO basis at the consolidated level, and the Company does not allocate
certain items to its segments including general corporate expenses, incentive
stock plan charges, other income (expense), income tax expense and adjustments
to the LIFO inventory reserve.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
EARNED REVENUE
Heavy Construction $438,957,745 $366,990,953 $286,640,150
Steel Distribution 195,048,958 203,303,858 189,087,094
Corporate and Other (4,917,626) (3,583,994) (1,159,288)
- ---------------------------------------------------------------------------
$629,089,077 $566,710,817 $474,567,956
===========================================================================
DEPRECIATION AND AMORTIZATION
Heavy Construction $ 6,315,563 $ 4,410,637 $ 4,018,457
Steel Distribution 1,839,916 1,542,209 1,664,531
Corporate and Other 485,473 156,626 101,206
- ---------------------------------------------------------------------------
$ 8,640,952 $ 6,109,472 $ 5,784,194
===========================================================================
INCOME (LOSS) FROM OPERATIONS
Heavy Construction $ 35,490,485 $ 26,194,942 $ 16,444,274
Steel Distribution 15,352,376 17,382,353 16,610,367
Corporate and Other (10,219,223) (12,750,226) (8,104,258)
- ---------------------------------------------------------------------------
$ 40,623,638 $ 30,827,069 $ 24,950,383
===========================================================================
IDENTIFIABLE ASSETS
Heavy Construction $190,359,968 $195,602,610 $148,295,267
Steel Distribution 84,707,967 80,042,903 73,790,247
Corporate and Other 19,975,618 13,737,911 9,853,012
- ---------------------------------------------------------------------------
$295,043,553 $289,383,424 $231,938,526
===========================================================================
CAPITAL EXPENDITURES
Heavy Construction $ 6,485,638 $ 9,838,712 $ 8,236,762
Steel Distribution 5,750,364 6,762,172 1,604,404
Corporate and Other 144,390 699,761 766,137
- ---------------------------------------------------------------------------
$ 12,380,392 $ 17,300,645 $ 10,607,303
===========================================================================
</TABLE>
For the years ended 1999, 1998 and 1997, neither any single customer, nor any
country outside the United States, accounted for 10 percent or more of total
earned revenue.
PDM 1999 ANNUAL REPORT 39
<PAGE>
REPORTS OF INDEPENDENT AUDITORS AND MANAGEMENT
REPORT OF INDEPENDENT AUDITORS
STOCKHOLDERS AND BOARD OF DIRECTORS, PITT-DES MOINES, INC.
We have audited the accompanying consolidated statements of financial condition
of Pitt-Des Moines, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pitt-
Des Moines, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
PITTSBURGH, PENNSYLVANIA
FEBRUARY 28, 2000
REPORT OF MANAGEMENT
The management of Pitt-Des Moines, Inc. and its subsidiaries is responsible for
preparing the financial statements and for ensuring that other information
included in this Annual Report is consistent therewith. Estimates and judgments
are necessary ingredients in the preparation of the financial statements.
Management is considerate of these estimates and judgments and believes that the
financial statements and other financial information included herein have been
prepared, in all material respects, in conformity with accounting principles
that are generally accepted, appropriate in the circumstances and consistently
applied. The financial statements have been audited by Ernst & Young LLP,
independent auditors.
In order to prepare the financial statements, Pitt-Des Moines, Inc. maintains
and relies upon a system of internal accounting control. This system is designed
to provide reasonable assurance that assets are safeguarded, transactions are
executed in accordance with management's authorization and transactions are
recorded properly. This system is tested and evaluated by Pitt-Des Moines,
Inc.'s internal auditors. Ernst & Young LLP evaluates the system of internal
accounting control to determine the extent and timing of the procedures they
deem necessary to express an opinion on the financial statements, taken as a
whole.
Oversight of the audit process is provided by the Audit Committee of the Board
of Directors. The Audit Committee meets with the internal auditors and the
independent auditors to discuss and review audit scope and audit findings. The
internal and independent auditors have free access to the Audit Committee;
management is not present during these discussions unless requested by the Audit
Committee. The Audit Committee also recommends to the Board of Directors the
appointment of the independent auditors.
Management recognizes its responsibility for fostering a strong ethical climate
so that the business of Pitt-Des Moines, Inc. is conducted according to the
highest standard of corporate conduct.
/s/ WM. W. McKee
WM. W. MCKEE
PRESIDENT AND CHIEF EXECUTIVE oFFICER
/s/ R. A. Byers
R. A. BYERS
VICE PRESIDENT FINANCE AND TREASURER
40 PDM 1999 ANNUAL REPORT
<PAGE>
TWO YEAR QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations:
(unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
1999
Earned revenue $142,846 $156,455 $160,343 $169,445
Gross profit from operations 20,532 23,025 24,389 27,876
Income before income taxes 8,711 8,392 9,474 12,706
Net income 5,297 5,166 5,832 8,005
Earnings per share $ 0.75 $ 0.72 $ 0.81 $ 1.11
Earnings per share - assuming dilution $ 0.71 $ 0.69 $ 0.77 $ 1.06
=====================================================================================================
1998 (1)
Earned revenue $123,370 $140,188 $154,777 $148,376
Gross profit from operations 19,075 21,205 21,389 23,137
Income before income taxes 6,819 6,804 8,501 11,428
Net income 4,168 4,150 5,173 6,664
Earnings per share $ 0.59 $ 0.59 $ 0.73 $ 0.94
Earnings per share - assuming dilution $ 0.58 $ 0.55 $ 0.69 $ 0.89
=====================================================================================================
</TABLE>
A separate computation of earnings per share is made for each quarter presented.
The dilutive effect on earnings per share is included in each quarter in which
dilution occurs. The earnings per share computation for the year is a separate
annual calculation. Accordingly, the sum of the quarterly earnings per share
amounts will not necessarily equal the earnings per share for the year.
(1) During the fourth quarter of 1998, a gain on the sale of an idle facility
was recognized which increased net income by $0.34 per share.
PDM 1999 ANNUAL REPORT 41
<PAGE>
STOCKHOLDERS' REFERENCE
FORM 10-K
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, provides additional information and may be obtained without charge,
after March 30, 2000, upon written request to:
RICHARD A. BYERS
Vice President Finance and Treasurer
Pitt-Des Moines, Inc.
1450 Lake Robbins Drive, Suite 400
The Woodlands, Texas 77380
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C.
P.O. Box 3315
South Hackensack, NJ 07606-1915
800-851-9677
www.chasemellon.com
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
28th Floor
Pittsburgh, Pennsylvania 15219
ANNUAL MEETING OF STOCKHOLDERS
The Company's Annual Meeting of Stockholders will be held at 2 p.m. on May 4,
2000, at The Woodlands Conference Center, 2301 North Millbend, The Woodlands,
Texas 77380.
COMPANY CONTACT
Investor Relations:
Richard A. Byers
281-765-4600
www.pdm.com
COMMON STOCK INFORMATION
The following table sets forth, for the periods indicated, the high and low
stock prices of the Common Stock and the dividends paid per share of Common
Stock.
| Price range Quarterly
|----------------------------- dividends
| High Low per share
- -------------------------|----------------------------------------------------
1999 |
First Quarter | $27 3/4 $21 3/4 $0.17
Second Quarter | 62 1/2 19 0.17
Third Quarter | 48 1/16 21 3/8 0.17
Fourth Quarter | 25 1/4 19 1/2 0.17
- -------------------------|----------------------------------------------------
| $0.68
- -------------------------|----------------------------------------------------
1998 |
First Quarter | $24 $18 1/8 $0.15
Second Quarter | 32 3/8 24 1/8 0.15
Third Quarter | 29 3/4 21 3/4 0.15
Fourth Quarter | 27 15 0.15
- -------------------------|----------------------------------------------------
| $0.60
- ------------------------------------------------------------------------------
On February 29, 2000, there were 7,389,890 shares outstanding and approximately
433 stockholders of record of the Company's Common Stock.
STOCK TRADING
The Company's Common Stock is traded on the American Stock Exchange (symbol
PDM).
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Percentage of Jurisdiction of
Name of Subsidiary Ownership Incorporation
<S> <C> <C>
Canadian Des Moines Industries Ltd. 100 Canada
Candraft Detailing Inc. 100 Canada
Construcciones Pitt-Des Moines Venezuela, C.A. 100 Venezuela
General Steel Corporation 90 Washington
Hammond Latino Americana, S.A. 100 Panama
HyCon, Inc. 100 Alabama
Hydrostorage, Inc. 100 Tennessee
Maintenance Contractors Corp. 100 Virgin Islands
Oregon Culvert Co., Inc. 100 Oregon
PDM Argentina, SA 100 Argentina
PDM Bahamas Ltd. 100 Bahamas
PDM Bonaire, N.V. 100 Netherlands Antilles
PDM Bridge Corp. 100 Delaware
PDM Chile Limitada 100 Chile
PDM El Salvador, S.A. de C.V. 100 El Salvador
PDM de Guatemala, S.A. 100 Guatemala
PDM International Ltd. 100 Delaware
PDM Latin America Ltd. 100 Georgia
PDM Ohio, Inc. 100 Ohio
PDM Peru S.A.C. 100 Peru
PDM Strocal, Inc. 100 Pennsylvania
PDM-TAI,S.A. 100 Venezuela
PDM Virgin Islands, Ltd. 100 Virgin Islands
Pittsburgh-Des Moines Sdn. Bhd. (PDM Malaysia) 100 Malaysia
P.T. Perkasa Daya Megah (PDM Indonesia) 100 Indonesia
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Pitt-Des Moines, Inc. of our report dated February 28, 2000, included in the
Pitt-Des Moines, Inc. 1999 Annual Report.
Our audit also included the financial statement schedule of Pitt-Des Moines,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8 (No. 333-34787) pertaining to the Stock Option Plan of 1990 of Pitt-
Des Moines, Inc.; Form S-8 (No. 333-13043) pertaining to the Pitt-Des Moines,
Inc. Directors Stock Plan; Form S-8 (No. 333-68853) pertaining to the Pitt-Des
Moines, Inc. Long Term Incentive Stock Plan of 1997 of our report dated February
28, 2000, with respect to the consolidated financial statements incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of Pitt-Des Moines, Inc.
Pittsburgh, Pennsylvania
March 27, 2000
/s/ ERNST & YOUNG LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,974
<SECURITIES> 0
<RECEIVABLES> 104,195
<ALLOWANCES> 1,875
<INVENTORY> 30,741
<CURRENT-ASSETS> 212,805
<PP&E> 137,155
<DEPRECIATION> 76,800
<TOTAL-ASSETS> 295,044
<CURRENT-LIABILITIES> 113,469
<BONDS> 0
0
0
<COMMON> 33,549
<OTHER-SE> 138,856
<TOTAL-LIABILITY-AND-EQUITY> 295,044
<SALES> 629,089
<TOTAL-REVENUES> 629,089
<CGS> 533,267
<TOTAL-COSTS> 533,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,645
<INCOME-PRETAX> 39,283
<INCOME-TAX> 14,983
<INCOME-CONTINUING> 24,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,300
<EPS-BASIC> 3.39
<EPS-DILUTED> 3.23
</TABLE>
