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Chicago Bridge & Iron Company N.V. Reports Operating Results (10-Q)

April 27, 2010 | About:

Chicago Bridge & Iron Company N.V. (NYSE:CBI) filed Quarterly Report for the period ended 2010-03-31.

Chicago Bridge & Iron Company N.v. has a market cap of $2.51 billion; its shares were traded at around $25 with a P/E ratio of 14 and P/S ratio of 0.5. CBI is in the portfolios of John Keeley of Keeley Fund Management, Westport Asset Management, Jim Simons of Renaissance Technologies LLC, PRIMECAP Management, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

New Awards/BacklogDuring the first quarter 2010, new awards, representing the value of new project commitments received during a given period, were $560.2 million, compared with $610.8 million during the comparable 2009 period. These commitments are included in backlog until work is performed and revenue is recognized, or until cancellation. Our current quarter new awards were distributed among our business sectors as follows: CB&I Steel Plate Structures $187.4 million (33%), CB&I Lummus $273.7 million (49%), and Lummus Technology $99.1 million (18%). See Segment Results below for further discussion.

RevenueRevenue was $869.3 million for the first quarter 2010, decreasing $426.6 million, or 33%, as compared with the corresponding 2009 period. Revenue decreased $85.3 million (20%) for CB&I Steel Plate Structures, $329.3 million (41%) for CB&I Lummus and $11.9 million (15%) for Lummus Technology. See Segment Results below for further discussion.

Interest Expense and Interest IncomeInterest expense was $3.7 million for the first quarter 2010, compared with $5.5 million during the corresponding 2009 period. The $1.8 million decrease during the current year quarter, as compared to the comparable prior year period, was due to a lower debt balance. Interest income of $1.2 million for the first quarter 2010 increased $0.8 million compared to the same period in 2009 due to higher average short-term investment levels and higher rates of return.

FinancingDuring the first quarter of 2010, net cash flows used in financing activities totaled $3.1 million, primarily resulting from the purchase of shares associated with our stock-based compensation program totaling $10.5 million being partly offset by $4.6 million of tax benefits associated with tax deductions in excess of recognized stock-based compensation costs and proceeds of $2.9 million associated with the issuance of shares for stock-based compensation during the period.

In addition to the Revolving Facility, we have three committed and unsecured letter of credit and term loan agreements (the LC Agreements) with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., and various private placement note investors. Under the terms of the LC Agreements, either banking institution (the LC Issuers) can issue letters of credit. In the aggregate, they provide up to $275.0 million of capacity. As of March 31, 2010, no direct borrowings were outstanding under the LC Agreements, but all three tranches were fully utilized. Tranche A, a $50.0 million facility, and Tranche B, a $100.0 million facility, are both five-year facilities which terminate in November 2011. Tranche C is an eight-year, $125.0 million facility expiring in November 2014. The LC Agreements have certain restrictive covenants, the most restrictive of which include a minimum net worth level, a minimum fixed charge coverage ratio and a maximum leverage ratio. They also include restrictions with regard to subsidiary indebtedness, sales of assets, liens, investments, type of business conducted, affiliate transactions, sales and leasebacks, and mergers and acquisitions, among other restrictions. In the event of default under the LC Agreements, including our failure to reimburse a draw against an issued letter of credit, the LC Issuers could transfer their claim against us, to the extent such amount is due and payable by us under the LC Agreements, to the private placement lenders, creating a term loan that is due and payable no later than the stated maturity of the respective LC Agreement. In addition to quarterly letter of credit fees that we pay under the LC Agreements, to the extent that a term loan is in effect, we would be assessed a floating rate of interest over LIBOR.

Another form of foreign currency exposure relates to our non-U.S. subsidiaries normal contracting activities. We generally attempt to limit our exposure to foreign currency fluctuations in most of our contracts through provisions that require customer payments in U.S. dollars, the currency of the contracting entity or other currencies corresponding to the currency in which costs are incurred. As a result, we do not always need to hedge foreign currency cash flows for contract work performed. However, where construction contracts do not contain foreign currency provisions, we generally use forward exchange contracts to hedge foreign currency exposure of forecasted transactions and firm commitments. At March 31, 2010, the outstanding notional value of these cash flow hedge contracts was $40.4 million, including foreign currency exchange rate exposure associated with the following currencies: Czech Republic Koruna ($16.2 million), Euro ($12.1 million), Chilean Peso ($9.8 million) and British Pound ($2.3 million). The gains and losses on these contracts are intended to offset changes in the value of the related exposures. The unrealized hedge fair value loss associated with instruments for which we do not seek hedge accounting treatment was not material for the three-month period ended March 31, 2010. Additionally, we exclude forward points, which represent the time value component of the fair value of our derivative positions, from our hedge assessment analysis. This time value component was also not material. The total net fair value of these contracts, including the foreign currency gain related to ineffectiveness, was a gain of approximately $0.5 million. The terms of our contracts generally extend up to two years. The potential change in fair value for our outstanding contracts from a hypothetical ten percent change in quoted foreign currency exchange rates would have been approximately $0.1 million at March 31, 2010.

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