CB&I Reports 2005 Results.THE WOODLANDS, Texas -- CB&I (NYSE NYSE See: New York Stock Exchange :CBI CBI abbr. cumulative book index CBI Confederation of British Industry CBI n abbr (= Confederation of British Industry) → C.E.O.E. ) has filed its Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended Dec. 31, 2005, with the U.S. Securities and Exchange Commission. The report can be accessed through the investor relations Investor relations The process by which the corporation communicates with its investors. section of the Company's Web site at www.CBI.com. For the year ended Dec. 31, 2005, new business taken grew in all geographic segments, increasing 25% to a record $3.3 billion, compared with $2.6 billion in 2005. Notable awards during the year included significant refinery expansion projects in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , a large natural gas processing Natural gas processing plants, or fractionators, are used to purify the raw natural gas extracted from underground gas fields and brought up to the surface by gas wells. The processed natural gas, used as fuel by residential, commercial and industial consumers, is almost pure plant in South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. , a liquefied natural gas liquefied natural gas: see under natural gas. Liquefied natural gas (LNG) A product of natural gas which consists primarily of methane. Its properties are those of liquid methane, slightly modified by minor constituents. (LNG LNG (liquefied natural gas): see under natural gas. ) import terminal in China, large gas and petrochemical storage projects in the Middle East, and two LNG terminal projects in the United Kingdom (UK). Backlog at Dec. 31, 2005, increased 37% to a record $3.2 billion, compared with $2.3 billion at the end of 2004. Revenue in 2005 increased 19% to a record $2.3 billion, compared with $1.9 billion in 2004, with growth reported in all geographic segments and major technologies. Revenue grew 20% in North America, primarily as a result of higher backlog and a larger volume of process-related work. Revenue growth of 15% in the Europe, Africa, Middle East region resulted from the significant LNG projects under way in the UK. A 27% increase in the Asia Pacific segment was due mainly to higher volume in Australia, while a 12% increase in Central and South America was a result of higher backlog and increased new awards. Net income for 2005 was $16.0 million or $0.16 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with net income of $65.9 million or $0.67 per diluted share for 2004. As disclosed in the 10-K Report, the Company restated second quarter 2005 results (reducing second quarter earnings by $0.06 per share), in substantial part due to subcontractor One who takes a portion of a contract from the principal contractor or from another subcontractor. When an individual or a company is involved in a large-scale project, a contractor is often hired to see that the work is done. cost growth issues on two projects and timing issues related to the segmentation and derivatives factors described below. However, the majority of the impacts to net earnings occurred in the third quarter. Factors that affected net income from the Company's original 2005 full-year guidance were: --Project Losses -- Three loss projects accounted for a $70.1 million decrease in gross profit or $0.47 per share. Losses were due to numerous factors including adverse weather conditions, engineering changes, increased operating costs operating costs npl → gastos mpl operacionales , and costs associated with unapproved un·ap·proved adj. Not approved or sanctioned: an unapproved vaccine; an unapproved protest march. change orders/claims for which the Company has not recognized revenue. --Margin Erosion -- The Company incurred increased costs on a small number of projects, reducing profitability by $40.5 million or $0.27 per share. Several factors that contributed to this erosion were tight market conditions in the Gulf Coast of the United States The Gulf Coast region of the United States comprises the coasts of states which border the Gulf of Mexico. The states of Texas, Louisiana, Mississippi, Alabama, and Florida are known as the Gulf States. All Gulf States are located in the Southern region of the United States. , lower productivity, project delays, and costs associated with unapproved change orders/claims for which the Company has not recognized revenue. --Tax -- Income tax expense for 2005 was $28.4 million or 59.3% of pre-tax income. This compares with $31.3 million, or 32.6% of pre-tax income in 2004. The rate increase which accounted for a $0.13 per share impact was due to a number of factors including the establishment of valuation allowances against foreign losses, and the Company's U.S./non-U.S. income mix. --Segmentation -- Gross profit and revenue on certain contracts were not calculated on a total contract basis after intercompany activity was eliminated. Although this timing issue does not affect the expected overall profitability of these contracts, it decreased 2005 gross profit by $11.9 million or $0.08 per share. --Foreign Currency Derivatives -- Losses on derivative contracts were incurred on certain foreign currency derivatives used to hedge materials purchases. These non-cash losses amounted to $4.8 million or $0.03 per share. --Legal and Audit Fees -- The Company incurred unanticipated and significantly increased legal and audit fees due to the Audit Committee inquiry referred to below and other associated activities. The increased fees accounted for $3.6 million or $0.02 per share. --Offsetting Factors -- Partly offsetting the overall decrease in earnings was a gain from the sale of non-core-business related technology and lower than planned expenditures for medical plans and incentive compensation. Together, these positive offsets totaled $26.6 million or $0.18 per share. The Company ended 2005 with cash and cash equivalents of $334.0 million, compared with $236.4 million at Dec. 31, 2004. Capital expenditures for 2005 were $36.9 million, compared with $17.4 million in 2004. CB&I had cash in excess of debt of $281.6 million at Dec. 31, 2005. CB&I's 2005 Report on Form 10-K and on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. also discusses the recently completed inquiry of the Audit Committee of our Supervisory Board Supervisory board The board of directors that represents stakeholders in the governance of the corporation. and the Company's review of internal control over financial reporting. Two material weaknesses were identified pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to entity level controls and project accounting. In light of these two weaknesses, the Company performed additional analyses and other procedures to ensure that its financial statements were prepared in accordance with U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . These measures included, among other things, an extensive review of certain existing contracts to ensure proper reporting of financial performance. Management has implemented or will implement enhancements to its internal control over financial reporting to address the material weaknesses and add additional rigor rigor /rig·or/ (rig´er) [L.] chill; rigidity. rigor mor´tis the stiffening of a dead body accompanying depletion of adenosine triphosphate in the muscle fibers. to internal controls. "We have conducted a comprehensive evaluation of approximately 80% of our backlog since the Audit Committee inquiry began in October," said Philip K. Asherman, CB&I's President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "The inquiry, which focused on allegations of accounting improprieties in the preparation of the draft financial results for the third quarter of 2005, is finished. We are satisfied that we have identified the issues and are taking the necessary corrective measures, and our outside auditor has issued an unqualified opinion Unqualified opinion An independent auditor's opinion that a company's financial statements comply with accepted accounting procedures. Antithesis of qualified opinion. unqualified opinion See clean opinion. on our 2005 financial statements." Asherman continued, "The projects we noted in both our October and February announcements are all completed or nearly completed. Furthermore, the nature of the issues previously disclosed has not changed, except for a substantial increase to our effective tax rate and the additional impact resulting from incorrectly applying specific criteria for calculating revenue and gross profit for segmentation. As a result of this thorough retrospective evaluation, I am confident in the strength of our backlog. In addition, based on the positive feedback I've received from our loyal customer base and employees, I am convinced that we will capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. our core strengths and the dynamic market conditions well into the future." CB&I will host a conference call at 9 a.m. Central time (10 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT ) Thursday, June 1, 2006, to discuss financial and operating results, and answer questions from investors. The conference call will be broadcast live over the Internet. To access the webcast and slide presentation, go to www.shareholder.com/cbi/medialist.cfm and select the conference call link. Please log on to this Web site at least 15 minutes prior to the start of the call to register and to download and install any necessary audio software. The webcast can also be accessed from the investor relations section of CB&I's Web site (www.CBI.com) by selecting "Presentations and Webcasts". For those who are unable to participate in the live call, the webcast of the conference call will be available at the Web sites listed above following the event. In addition, a replay of the conference call can be accessed by telephone at 1-800-642-1687 (from within the U.S.) or 1-706-645-9291 (from outside the U.S.), passcode 1068845. Both the archived webcast and telephone replay will be available until close of business June 8, 2006. Any statements made in this release that are not based on historical fact are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. and represent management's best judgment as to what may occur in the future. The actual outcome and results are not guaranteed, are subject to risks, uncertainties and assumptions, and may differ materially from those expressed or implied by any forward-looking statements. A variety of factors could cause business conditions and results to differ materially from what is contained in the forward-looking statements including, but not limited to, the Company's ability to realize cost savings from its expected performance of contracts, the uncertain timing and the funding of new contract awards, and project cancellations Project cancellation hits around half of U.S. software development projects, whether developed for in-house corporate use or for sale as retail software. When a project is cancelled early on, it has little financial impact but if project sponsors wait until the project has gone and operating risks Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. ; cost overruns Noun 1. cost overrun - excess of cost over budget; "the cost overrun necessitated an additional allocation of funds in the budget" cost - the total spent for goods or services including money and time and labor on fixed price, target price or similar contracts; risks associated with percentage-of-completion accounting; the Company's ability to settle or negotiate unapproved change orders and claims; changes in the costs or availability of, or delivery schedule for, components, materials, labor or subcontractors; weather conditions that may affect performance and timeliness of completion, which could lead to increased costs and adversely affect the costs or availability of, or delivery schedule for, components, materials, labor or subcontractors; increased competition; fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. revenue resulting from a number of factors, including the cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. nature of the individual markets in which the Company's customers operate; lower than expected activity in the hydrocarbon hydrocarbon (hī'drōkär`bən), any organic compound composed solely of the elements hydrogen and carbon. The hydrocarbons differ both in the total number of carbon and hydrogen atoms in their molecules and in the proportion of hydrogen industry, demand from which is the largest component of the Company's revenue; lower than expected growth in the Company's primary end markets, including but not limited to LNG and clean fuels; risks inherent in the Company's acquisition strategy and its ability to obtain financing for proposed acquisitions; the Company's ability to integrate and successfully operate acquired businesses and the risks associated with those businesses; adverse outcomes of pending claims or litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. or the possibility of new claims or litigation, including pending securities class action litigation and the potential effect on the Company's business, financial condition and results of operations; the ultimate outcome or effect of the pending Federal Trade Commission order on the Company's business, financial condition and results of operations; two material weaknesses in the Company's internal control over financial reporting have been identified, which could adversely affect the Company's ability to report its financial condition and results of operations accurately and on a timely basis; lack of necessary liquidity to finance expenditures prior to the receipt of payment for the performance of contracts and to provide bid and performance bonds and letters of credit securing the Company's obligations under its bids and contracts; proposed and actual revisions to U.S. and non-U.S. tax laws, and interpretation of said laws, and U.S. tax treaties with non-U.S. countries (including The Netherlands), that seek to increase income taxes payable; political and economic conditions including, but not limited to, war, conflict or civil or economic unrest in countries in which the Company operates; and a downturn or disruption in the economy in general. Additional factors which could cause actual results to differ materially from such forward-looking statements are described under "Risk Factors" as set forth in the Company's Form 10-K filed with the SEC for the year ended Dec. 31, 2005. The Company does not undertake to update any forward-looking statements contained herein, whether as a result of new information, future events or otherwise. ABOUT CB&I CB&I executes on average more than 700 projects each year and is one of the world's leading engineering, procurement and construction  The introduction to this article is vague. To comply with Wikipedia's guidelines, it should be improved. (EPC (1) (Entertainment PC) See HTPC.(2) (Electronic Product Code) A standard code for RFID tags administered by EPCglobal Inc. (www.epcglobalinc.org). ) companies, specializing in lump-sum turnkey projects for customers that produce, process, store and distribute the world's natural resources. With more than 60 locations and approximately 10,000 employees throughout the world, CB&I capitalizes on its global expertise and local knowledge to safely and reliably deliver projects virtually anywhere. Information about CB&I is available at www.CBI.com.
VARIANCE FROM 2005 GUIDANCE (a)
-------------------------------
2005 Forecast
as of 2005
15-Feb-06 Actual
--------------- ----------------
Significant Loss Projects 2 3
Impact to Plan EPS ($0.30) ($0.47)
Projects with Significant Margin Erosion 6 6
Impact to Plan EPS ($0.23) ($0.27)
Additional Allowance for Project Reviews ($0.12) $0.00
Project Segmentation Adjustments $0.00 ($0.08)
======================================================================
Total Project Related Impact to Plan ($0.65) ($0.82)
Tax Rate ($0.03) ($0.13)
Foreign Currency Derivatives ($0.04) ($0.03)
Legal and Audit Fees ($0.03) ($0.02)
Offsetting Factors
Non-core Business Related Technology
Sale $0.05 $0.05
Benefit and Incentive Compensation
Costs $0.12 $0.13
Interest, net ($0.01) ($0.01)
Minority Interest ($0.02) ($0.02)
Other Misc, net $0.10 $0.09
======================================================================
Total Non-Project Related Impact to Plan $0.14 $0.06
======================================================================
Total EPS Impact to Plan ($0.51) ($0.76)
Excluding Project Review Allowance ($0.39) ($0.76)
======================================================================
Original EPS Guidance $0.89 - $0.93 $0.89 - $0.93
Revised Guidance $0.40 - $0.50
Actual 2005 EPS $0.16
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(a) EPS figures represent the variance from CB&I's original 2005
planning documents and were computed using the plan's tax rate of
33% and the actual shares outstanding for 2005. The purpose of
this supplemental information is to provide an overview of factors
that impacted the Company's 2005 performance. For audited
financial results, refer to the 10-K filing.
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