Download CH2M HILL COMPANIES LTD (Form: 8-K, Received

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report January 19, 2017
CH2M HILL Companies, Ltd.
(Exact name of registrant as specified in its charter)
Commission File Number 000-27261
Delaware
(State or other jurisdiction of
incorporation or organization)
93-0549963
(I.R.S. Employer
Identification Number)
9191 South Jamaica Street,
Englewood, CO
(Address of principal executive offices)
80112-5946
(Zip Code)
(303) 771-0900
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
On January 19, 2017, CH2M HILL Companies, Ltd. (“CH2M”) announced its financial results for its third fiscal quarter ended
September 30, 2016. A copy of the Third Quarter 2016 Earnings Report is furnished to the United States Securities and Exchange
Commission (the “SEC”) with this current report on Form 8-K as Exhibit 99.1.
The information contained in this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of
1933, as amended (the “Securities Act”), or the Exchange Act.
Item 7.01. Regulation FD Disclosure.
The disclosure contained in Item 2.02 is incorporated herein by reference.
The information contained in this Item 7.01, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the
Securities Act, or incorporated by reference in any filing under the Securities Act or the Exchange Act.
Item 8.01. Other Events.
New Price for Common Stock and Trade Date Established.
Effective January 19, 2017, the Board of Directors established the price of the CH2M common stock at $46.83 per share. This price
represents a decrease of 10.3% from the price that was set by the CH2M Board of Directors on August 1, 2016.
The next trade date on CH2M’s internal market is February 10, 2017. Those eligible participants who wish to buy or sell CH2M
common stock on this trade date will need to notify our broker, Neidiger, Tucker and Bruner, Inc. (“NTB”), no later than February 1,
2017. All eligible participants will receive detailed information about the trade date and how to participate directly from NTB.
Determination of Common Stock Price.
The price of the CH2M common stock is established by the Board of Directors each quarter based on a company fair valuation
methodology described in the CH2M Prospectus, dated March 23, 2010 (the “Prospectus”), as filed with the SEC, as amended by the
information contained in the subsequent annual, quarterly and current reports filed by CH2M with the SEC pursuant to the Securities Exchange
Act. The valuation methodology used by the board of directors includes the following valuation formula (“Stock Valuation Formula”):
Share Price = [(7.8 x M x P) + (SE)]/CS
As further discussed below, the Stock Valuation Formula is one of several factors considered by the Board of Directors as part of the
total mix of information available to determine the fair value of CH2M common stock. The following table sets forth information concerning
the values used in the valuation formula for purposes of the Board’s determination of the new stock price.
Price Per
Share
Effective Date
January 19, 2017
$
M(1)
46.83
P(2)
(in thousands)
1.2
$
88,288
SE(3)
(in thousands)
$
701,279
CS(4)
(in thousands)
32,622
The factors and values in the table above are defined as follows:
(1)
“M” is the market factor, which is subjectively determined in the sole discretion of the Board of Directors. In
determining the market factor, the Board of Directors takes into account numerous factors in determining the fair value of the common stock,
as further described in the Prospectus and other reports filed with the SEC referred to above.
(2)
“P” is profit after tax, otherwise referred to as net income, for the four fiscal quarters immediately preceding the trade
date, adjusted for any items that the Board of Directors determines should be excluded, as discussed below.
2
(3)
“SE” is CH2M’s total stockholders’ equity, which includes intangible items, as set forth in CH2M’s quarterly or annual
financial statements for the relevant period. For purposes of setting the price of the common stock, the Board does not include in the “SE”
parameter accumulated other comprehensive income (loss) or non-controlling interests.
(4)
“CS” is based on the weighted average number of shares of common stock outstanding during the four fiscal quarters
immediately preceding the trade date, calculated on a fully diluted basis, adjusted for specific items as determined by the Board of Directors, in
its discretion, as discussed below. By comparison, the year to date diluted weighted average number of shares of common stock as reflected in
CH2M’s financial statements is 25,816,819.
As discussed below, the Board of Directors has the discretion to review events and exclude nonrecurring or unusual transactions from
certain of the parameters used in the stock price valuation. Transactions are considered nonrecurring or unusual if the market would not
generally take them into account in valuing an equity security.
Operating results related to winding down of CH2M’s Power EPC business. In connection with the cost reduction initiatives
described below, during 2014 CH2M made a decision to wind down its Power EPC business. For the rolling four quarter period ended Q3
2016, the Power EPC business recognized a loss of $102 million (net of tax). Consistent with the approach of CH2M’s independent third party
valuation experts, the Board of Directors believes that, because these financial results are related to a business that CH2M has chosen to exit,
inclusion of these results does not accurately reflect the profitability or value of CH2M’s continuing operations and would generally not be
taken into account by the market in valuing an equity security. Therefore, the Board of Directors decided to exclude these results from the “P”
(profit after tax) parameter for stock valuation purposes. These results are part of CH2M’s cumulative earnings history, however, and the
Board determined that it should, therefore, still reflect them in the stock valuation calculation as part of the “SE” parameter (total stockholders’
equity). The Board intends to exclude any future operational results from the Power EPC business until the wind down is complete from the
“P” calculation while retaining them in the “SE” parameter.
Restructuring costs. In September 2014, CH2M’s management announced its commitment to a cost reduction initiative that includes
a number of elements designed to help CH2M reduce costs and achieve important business objectives, including improving efficiency,
reducing risk and providing more long-term value for its stockholders. These restructuring activities, including a voluntary retirement program,
workforce reductions, facilities consolidations and evaluation of certain lines of business, began in the third and fourth quarters of 2014 and
continued through 2015.
In October 2016, CH2M’s management announced a restructuring plan to more fully align global operations with CH2M’s
client-centric strategy, including a simplified organization structure and streamlined delivery model to achieve higher levels of profitable
growth. The restructuring activities, including workforce reductions and facilities consolidations, began in the third quarter of 2016 and are
expected to be completed by the end of the first quarter of 2017.
For the rolling four quarter period ended Q3 2016, CH2M incurred charges of $25 million (net of tax) for the restructuring activities
detailed above. The Board of Directors believes that these charges do not accurately reflect the profitability or value of CH2M’s continuing
operations on an ongoing basis and would generally not be taken into account by the market in valuing an equity security. Therefore, the
Board of Directors decided to exclude these charges from the “P” parameter for stock valuation purposes. These charges are part of CH2M’s
cumulative earnings history, however, and the Board determined that it should, therefore, still reflect them in the stock valuation calculation as
part of the “SE” parameter. The Board intends to treat these costs similarly in the future by excluding them from the “P” calculation while
retaining them in the “SE” parameter.
Non-cash depreciation and amortization charges relating to acquisitions. For the rolling four quarter period ended Q3 2016,
CH2M recognized certain non-cash depreciation and amortization charges relating to acquisitions, resulting in a reduction of our earnings of
$15 million (net of tax). The Board of Directors believes that these non-cash charges would generally not be taken into account by the market
in valuing an equity security. Therefore, the Board of Directors decided to exclude these acquisition costs from the “P” parameter for stock
valuation purposes. These non-cash depreciation and amortization charges are part of CH2M’s cumulative earnings history, however, and the
Board determined that it should, therefore, still reflect them in the stock valuation calculation as part of the “SE” parameter. The Board intends
to treat these asset depreciation and amortization costs similarly in the future by excluding them from the “P” calculation while retaining them
in the “SE” parameter.
Tax benefit related to Halcrow pension redesign. In Q3 2016, a non-cash tax benefit was generated totaling $46 million as a result
of the Halcrow pension settlement. The Board of Directors believes that the market would exclude this tax benefit from CH2M’s profit
calculation for valuation purposes. Therefore, the Board of Directors decided in Q3 2016 to exclude this benefit from the calculation of “P”
parameter for stock valuation purposes. At the same time, given that this tax benefit is also part of CH2M’s cumulative earnings history, the
Board determined that this tax benefit should be reflected in the stock valuation calculation as part of the “SE” parameter.
3
Further detailed discussion of these items is contained in CH2M’s Annual Report on Form 10-K for the year ended December 25,
2015, as amended by Amendment No. 1 on Form 10-K/A (the “2015 Annual Report”) under the heading Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations. Our 2015 Annual Report may be obtained from the SEC’s Internet website
(http://www.sec.gov) through the EDGAR Company Filings search page (http://www.sec.gov/edgar/searchedgar/companysearch.html), or by
calling CH2M at (303) 771-0900.
Adjustments to the Calculation of Common Stock Outstanding (“CS”). “ CS’’ is based on the weighted-average number of shares of
CH2M common stock outstanding during the four fiscal quarters immediately preceding the Trade Date, calculated on a fully-diluted basis. By
‘‘fully-diluted,’’ we mean that the calculations are made as if all outstanding dilutive options to purchase CH2M common stock had been
exercised and other ‘‘dilutive’’ securities were converted into shares of our common stock. On June 24, 2015, CH2M sold and issued an
aggregate of 3,214,400 shares of Series A Preferred Stock. On April 11, 2016, CH2M issued an additional 1,607,200 shares of Series A
Preferred Stock in a second closing. The holders of Series A Preferred Stock are entitled to a cumulative dividend at an annual rate of 5%
payable in kind at a future date and a number of votes equal to the number of shares of Common Stock into which it is convertible. As of
September 30, 2016, the Series A Preferred Stock along with the cumulative dividend was convertible into 6,102,648 shares of Common
Stock. Accordingly, the Board of Directors determined to include into the calculation of the “CS” component 6,102,648 shares of Series A
Preferred Stock. In addition, the CH2M Board of Directors may determine, in its discretion and solely for the purpose of determining the price
of CH2M common stock, (1) to adjust the weighted-average number of shares to reflect in an appropriate manner the impact of past or
anticipated future issuances, and (2) to treat substantial issuances of shares, such as substantial issuances of shares as consideration in
connection with business acquisition transactions or issuances of preferred stock, that occur during the four fiscal quarters immediately
preceding the Trade Date as having been issued at the beginning of such four-quarter period. CH2M also includes in CS as calculated an
estimate of the weighted-average number of shares that CH2M reasonably anticipates will be issued during the next four quarters under the
CH2M stock-based compensation programs and employee benefit plans.
The Stock Valuation Formula is one of several factors considered by the Board of Directors as part of the total mix of information
available to determine the fair value of CH2M common stock. The CH2M Board of Directors also takes into account company appraisal
information prepared by independent third party valuation experts and other available information and data.
In the course of determining the stock price for the current period, the Board of Directors reviewed and analyzed several sources of
information in determining a fair valuation of CH2M for the stock trade including, but not limited to, the stock valuation data presented to it,
including the valuation data provided by CH2M’s outside advisers, and the results of using the Stock Valuation Formula. The Board also
considered, among other things, recent volatility in CH2M’s reported results of operations, and ongoing steps being taken by management as
part of our restructuring activities. In addition, the Board reviewed other relevant information regarding CH2M’s fair value. Considering all
the information reviewed and in consultation with CH2M’s professional advisers, the Board deliberated and determined that the current fair
value of CH2M’s common stock is $46.83 per share.
Historical Prices for CH2M Common Stock.
The prices for CH2M common stock for the past three years have been:
Effective Date
Price Per Share
August 9, 2013
November 14, 2013
February 14, 2014
May 16, 2014
August 15, 2014
November 24, 2014
February 20, 2015
May 7, 2015
August 3, 2015
November 2, 2015
February 22, 2016
May 2, 2016
August 1, 2016
January 19, 2017
59.60
61.75
69.43
64.83
60.20
45.93
47.86
51.14
55.75
67.87
62.89
60.91
52.23
46.83
4
Percentage Price
Increase (Decrease)
2.1 %
3.6 %
12.4 %
(6.6 )%
(7.1 )%
(23.7 )%
4.2 %
6.9 %
9.0 %
21.7 %
(7.3 )%
(3.1 )%
(14.3 )%
(10.3 )%
Possible Proration or Allocation of Internal Market Trade.
CH2M determines whether to participate in the internal market on a quarterly basis. Prior to each quarterly trade date, we review the
outstanding orders and any resulting imbalance between sell orders and buy orders and make a determination whether or not CH2M should
participate in the internal market by buying shares if there are more sell orders than buy orders. In making that determination, CH2M’s
management and Board of Directors consider relevant factors in light of prevailing circumstances, including our financial condition and results
of operations, our available cash and capital resources, including the limits that CH2M may spend on share repurchases and the borrowing
capacity available pursuant to the terms of our existing unsecured revolving line of credit and other sources of liquidity, expected current and
future needs for cash to fund our operations, anticipated contingencies and other factors.
CH2M experienced project losses and other adverse operating results in recent periods, which has constrained our cash flow and
liquidity. In addition, CH2M’s principal revolving credit facility included limitations on the amount CH2M may spend to repurchase its
common stock in the internal market in connection with its employee stock ownership program up to $75 million during the three quarter
period ending March 31, 2017 and, thereafter, up to $100 million during a rolling four quarter period less the amount of any legally required
purchases of common stock held in benefit plans. Additionally, the covenants contained within CH2M’s Certificate of Designation of the
Series A Preferred Stock prohibit the repurchase by the Company of shares of our common stock in excess of negotiated pre-approved
amounts. In 2017, the Company is permitted to repurchase shares of common stock in an amount determined by a formula based upon our
cash flow from operations, minus capital expenditures, for fiscal 2016. Depending upon our results of operations for fiscal year 2016, the
Company may be limited or altogether prohibited in its ability to repurchase shares of common stock in the internal market unless it is able to
obtain the consent of the holders of at least a majority of the Series A Preferred Stock. On January 17, 2017, the Company received from the
Series A Preferred Stockholder, an acknowledgment and consent permitting the Company to spend up to $25 million, in the aggregate, to
repurchase shares of common stock in connection with legally required distributions and to participate as a buyer in the internal market on the
February 10, 2017 trade date. No assurance can be given that in the future the Company will be able to obtain an acknowledgment and consent
from the Series A Preferred Stockholder permitting the Company to repurchase common stock in the internal market if such an
acknowledgment and consent is required.
Regardless of any bank covenant or charter limitation, CH2M’s management and Board of Directors could determine to limit the
amount of money expended by CH2M to repurchase shares in the internal market, or not to participate in the internal market, either of which
would result in proration of sell orders that stockholders may place for trades on the next trade date. In addition, CH2M’s Board of Directors
could determine to suspend trading on the internal market in order to provide time to evaluate the ability to adequately provide for proration
and to conserve CH2M’s cash reserves and available liquidity. Since the September 26, 2014 trade, CH2M has limited the amount expended
to repurchase shares in the internal market. We expect that the amounts CH2M will be able to spend to repurchase shares on the February 10,
2017 trade date and the subsequent trade dates that are expected to occur beyond will continue to be restricted, and CH2M’s Board of Directors
and management anticipate that some sell orders will be only partially filled on such trade dates.
Risks Related to Our Internal Market .
Before deciding to invest in CH2M’s common stock, you should carefully consider information regarding CH2M’s historical financial
performance and the risk factors relating to our business and the internal market set forth in CH2M’s annual, quarterly and current reports filed
with the SEC, including the risk factors set forth in our 2015 Annual Report and our subsequent Quarterly Reports on Form 10-Q for the
quarters ended March 25, 2016 and June 24, 2016, as well as the pending Form 10-Q for the quarter ended September 30, 2016. These
documents may be obtained from the SEC’s Internet website or by calling CH2M directly.
Additional Information Regarding the New Price for Common Stock and Trade Date.
CH2M’s internal market enables eligible stockholders to offer to sell or purchase shares of common stock on predetermined dates,
known as trade dates. These trade dates are determined by our Board of Directors in its sole discretion and generally occur on a quarterly
basis. As disclosed in a Form 12b-25 filed with the Securities and Exchange Commission on November 15, 2016, CH2M has been delayed in
filing its Form 10-Q for the third fiscal quarter ended September 30, 2016 (the “Third Quarter”) due to an Audit Committee investigation into
potential accounting errors with respect to the timing and amount of certain project cost overruns reported in 2015.
As a result of this delay, CH2M has not held a trade date since September 7, 2016, which followed the filing of our Form 10-Q for the
second fiscal quarter ended June 24, 2016. As disclosed above, the Board of Directors has determined to hold a trade date on February 10, 2017
following the filing of our Form 10-Q for the Third Quarter. Unlike public companies whose stock is traded on a national securities exchange,
the price of our common stock is determined by our Board of Directors based on a company fair valuation methodology that is intended to
establish a price for our common stock that represents fair value as of the applicable trade date.
5
Because the results of operations for the fiscal quarter ended December 30, 2016 are not yet available, the stock price for the trade
date to be held on February 10, 2017 will be based upon the results disclosed in our Form 10-Q for the Third Quarter and not based upon the
results of our fourth fiscal quarter ended December 30, 2016. We expect that a trade date reflecting a stock price based on the results for such
fourth fiscal quarter will be held after we file our Form 10-K for the year ended December 30, 2016.
Although results for the year ended December 30, 2016 are not yet available, stockholders who elect to participate in this trade date
are advised that, while CH2M does not believe it is in possession of any material non-public information regarding events that occurred after
the close of the Third Quarter other than as disclosed in the Outlook section below, there remains a risk that CH2M is in possession or may
become aware of information that could be considered material non-public information before February 10, 2017. Even if CH2M is in
possession of such information, CH2M does not believe that the Board of Directors relied on any such information in determining the fair value
of our common stock. Further, because we have not closed the fourth quarter, we cannot predict with any certainty our operational and
financial results, nor can we predict whether our stock price will increase or decrease in the trade that will be based upon our fourth fiscal
quarter ended December 30, 2016. We advise you to consider all of this information when deciding whether to participate in the February 10,
2017 trade date.
Outlook.
Management is currently in the process of compiling and completing the information necessary to evaluate CH2M’s financial
condition and results of operations for the quarter and fiscal year ended December 30, 2016. Accordingly, although our revenues for the fourth
quarter of 2016 are expected to be flat or nominally higher than the amounts presented for the third quarter of 2016 and slightly lower than
amounts presented for the fourth quarter of 2015, it is not possible at this time to determine with certainty our operating profits or other results
of operations or financial condition for the fourth quarter of 2016 or for the year ended December 30, 2016. As discussed in prior filings,
CH2M is involved in a fixed-price Transportation contract to design and construct roadway improvements on an expressway in the
southwestern United States and a fixed-price engineering-procurement-construction project in Australia through a consolidated joint venture,
that have recorded losses in the third quarter of 2016 and in prior periods. Due to the delay in our filing of our third quarter financial results,
any known increases to the estimated costs to complete those projects have been included in the results of our operations in the third
quarter. However, as of the date of this Form 8-K filing, we are not aware of any additional losses that may be included in our results of
operations for the fourth quarter of 2016 on these two projects. Similarly, we cannot be certain whether additional cost growth will be
identified on these projects prior to filing our Form 10-K for the year ended December 30, 2016 and therefore possibly be included in the
results of operations for the quarter and fiscal year ended December 30, 2016.
Cautionary Note Regarding Forward Looking Statements.
This Form 8-K contains “forward-looking statements,” as that term is defined in U.S. Federal and certain foreign securities
regulations, including statements regarding our fourth quarter and year end outlook. Although CH2M’s management believes that its
expectations are based on reasonable assumptions, these assumptions are subject to a wide range of economic, business, regulatory, technical,
legal, and other unforeseen risks which may cause actual results to differ materially from those stated or implied by these forward-looking
statements. CH2M undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of
the date of this Form 8-K. We may be required to make changes or adjustments to our operational and financial results when finalizing the
presentation of our financial statements for the three month period and fiscal year ended December 30, 2016 due to subsequent events, new
information or if different conclusions are reached. This communication should be read in conjunction with all the other information included
in our most current Prospectus and European Prospectus, which are filed with the U.S. Securities and Exchange Commission (SEC) and the
U.K. Financial Conduct Authority (FCA), respectively, and, for our stockholders outside of the U.S. and the European Union, similar
documents filed with local securities regulators, where required. You should also read our Annual Report on Form 10-K and quarterly reports
on Form 10-Q, which include a list of factors that could cause actual operational and financial results to differ from those expected.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
99.1
Exhibit Description
Third Quarter 2016 Earnings Report furnished pursuant to Item 2.02 and 7.01
6
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, CH2M has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CH2M HILL COMPANIES, LTD.
Date: January 19, 2017
By:
7
/s/ Gary L. McArthur
Gary L. McArthur
Executive Vice President and Chief Financial Officer
Exhibit 99.1
CH2M reports results for the third quarter of 2016; details transition to client-centric operating model
Jan. 19, 2017
Access our SEC filings here.


Q3 revenue declines six percent to $1.28 billion

Charges for two fixed-price projects drive $108 million operating loss

Net income of $16 million; $0.40 per diluted share, reflecting pension redesign tax benefit

Client-centric operating model to yield $90—$100 million in annual savings
DENVER , Colo.: Jan. 19, 2017 — CH2M today reported results for the third quarter ended Sept. 30, 2016, noting revenue of $1.28 billion
versus $1.37 billion a year ago. Third-quarter net income of $16 million, or $0.40 per diluted share, included a tax benefit of $46 million
related to a pension plan redesign. A year ago, CH2M posted $39 million in net income, or $1.22 per diluted share.
Charges for two unfavorable, at-risk construction projects negated operating income, including a $59 million charge for CH2M’s share of
estimated cost increases for delays and productivity shortfalls on a fixed-price, engineer-procure-construct power plant project in Australia, the
final contract in the fixed-price power EPC business the company announced it was exiting in the third quarter of 2014. In addition, CH2M
recorded a charge of $66 million for higher cost estimates on a fixed-price, design-build tollway project in Texas. In both cases, the charges
include no recovery assumptions for change orders and claims, which the company continues to pursue aggressively.
As a consequence of the cost growth on these two projects, the company used $130 million in cash from operations year-to-date, compared
with $78 million generated during the same period in 2015.
“It’s frustrating when the same two legacy projects keep weighing on our financial performance, especially because they overshadow
improvements in our core business, which remains sound despite the headwinds our broader industry is facing,” said CH2M Chairman and
CEO Jacqueline Hinman. Describing plans launched during the quarter to transition the firm’s operating model, Hinman said, “Building on the
success of our client-centric strategy, we’re creating a competitively distinct
operating model focused on discrete client sectors, rather than common location-based or vertical-market models. We’ll become one of the first
in our industry to align completely around our clients, unlocking global, best-practice expertise and proven delivery methods to drive greater
safety, innovation, quality and efficiency across project lifecycles. We see this as a game-changer for our clients and all of our stakeholders.”
While revenue backlog is down from last year due to several large design-build water projects that are winding down and which are expected to
be replaced this year, Hinman cited a 30-percent surge in gross margin won from new contracts with the firm’s top 100 clients as the catalyst
for CH2M to fully operationalize the client-centric strategy. “Since moving to client-focused account management last year, we’ve sustained
healthy revenue backlog of nearly $9 billion, and our gross margin opportunity pipeline has grown by 35 percent.”
The operating model change, slated to deliver $90-100 million in annual savings upon full implementation in the first quarter of 2017, will
establish a simplified structure aligned around three client sectors: national governments; state and local governments; and private-sector
clients, enabling a seamless interface across practice disciplines, backed by centralized
CH2M Third Quarter 2016 Earnings Report
1
corporate functions. By eliminating activities duplicated in its old matrix structure, the firm expects to free up capacity to invest in common
tools, processes, technology, innovation and employee development. CH2M plans to record pretax charges of $50-70 million to implement the
change, primarily for severance benefits for affected employees and facilities consolidation costs.
CH2M has filed a Form 8-K dated January 18, 2017 and an amended Form 10-K/A for the year ended December 25, 2015 due to the
determination that pre-tax cost growth on a fixed-price, design build tollway project in Texas of $21 million recorded in the 4 th quarter of
2015 should have been reflected as $18 million in the 2 nd quarter of 2015 and $3 million in the 3 rd quarter of 2015. There is no change to the
amounts previously reported for the full year ended December 25, 2015.
2
Business segments and operating results
Environment and Nuclear
The Environment and Nuclear segment grew third-quarter revenue by 32 percent to $559 million, noting higher volumes associated with a
large, multi-year nuclear project in Canada commenced late in 2015, and additional environmental work serving the U.S federal government.
The business posted $29 million in operating income in the quarter—up 38 percent from a year ago—reflecting reduced selling, general and
administrative costs and incremental income from the Canadian nuclear project.
Water
Revenue in the Water segment fell 13 percent to $298 million in the quarter, as growth from two large flood-management programs was offset
by greater volume declines for several contracts reaching completion and dampening effects from the economic distress in the energy industry
and Puerto Rico. The business boosted operating income by 25 percent to $31 million, benefiting from an improved mix of higher margin
consulting services as well as a gain on the acquisition of a controlling interest in one of our joint ventures.
Transportation
The Transportation segment’s revenue declined six percent to $235 million during the quarter. Despite increased project volume in Canada, the
fixed-price, design-build tollway project in Texas clouded much of the segment’s progress, as well as reduced work attributed to economic
weakness in the Middle East and a negative currency effect on the British Pound for work in the United Kingdom. Further changes for the
aforementioned fixed-price, design-build contract again drove up estimated costs to complete the project by $66 million during the quarter,
which drove the business to a $58 million operating loss.
Energy and Industrial
The Energy and Industrial segment revenue declined 27 percent to $211 million in the third quarter compared with a year ago, reflecting lower
volume, project scope, and client concessions on services, operations and maintenance contracts given the prolonged oil and gas industry slump
in the U.S., Canada and Middle East. The segment operating loss in the current quarter was $3 million.
Power EPC (Engineer-Procure-Construct)
In the Power EPC business that the firm is exiting, CH2M recorded an operating loss of $107 million primarily due to the consolidated joint
venture caused by increased costs to complete the above-referenced fixed-price EPC project in Australia. CH2M’s share of the project loss
was $59 million.
Outlook
For the full-year 2016 outlook, CH2M currently expects essentially flat revenue and lower earnings compared with the prior year’s results.
3
Selected financial data providing comparative third-quarter and year-to-date results follow. Amounts for 2015 have been restated.
Consolidated Income Statements
CH2M and subsidiaries, unaudited
(Dollars in thousands, except per share data)
Three Months Ended
September 30,
September 25,
2016
2015
Gross revenue
Equity in earnings of joint ventures and affiliated
companies
Operating expenses:
Direct cost of services
Selling, general and administrative
Operating (loss) income
Other income (expense):
Interest income
Interest expense
(Loss) income before provision for income taxes
Benefit (provision) for income taxes
Net (loss) income
Less: loss (income) attributable to noncontrolling
interests
Net income attributable to CH2M
Net income (loss) attributable to CH2M per common
share:
Basic
Diluted
Weighted average number of common shares:
Basic
Diluted
$
1,279,230
$
26,877
1,365,186
Nine Months Ended
September 30,
September 25,
2016
2015
$
14,890
3,872,921
$
44,647
3,949,320
36,908
(1,189,167 )
(225,290 )
(108,350 )
(1,096,008 )
(220,246 )
63,822
(3,497,257 )
(692,915 )
(272,604 )
(3,190,539 )
(679,619 )
116,070
136
(3,873 )
(112,087 )
78,438
(33,649 )
56
(3,041 )
60,837
(12,332 )
48,505
306
(10,019 )
(282,317 )
118,202
(164,115 )
158
(11,421 )
104,807
(25,691 )
79,116
$
49,582
15,933
$
(9,060 )
39,445
$
142,585
(21,530 )
$
(12,423 )
66,693
$
0.40
$
1.22
$
(1.22 )
$
2.26
$
0.40
$
1.22
$
(1.22 )
$
2.26
25,356,689
27,139,832
25,816,819
27,281,219
25,389,138
27,198,832
25,816,819
27,297,219
4
Business Segment Financial Review
CH2M and subsidiaries, unaudited
(Dollars in thousands)
Three Months Ended
September 30, 2016
September 25, 2015
Gross
Operating
Gross
Operating
Revenue
Income (Loss)
Revenue
Income (Loss)
($ in thousands)
Energy and Industrial
Environment and Nuclear
Transportation
Water
Power EPC
$
Total
$
211,056
558,654
234,509
298,390
(23,379 )
1,279,230
$
(2,574 )
28,557
(57,996 )
30,957
(107,294 )
$
288,877
421,860
250,497
342,744
61,208
$
5,028
20,739
5,237
24,804
8,014
$
(108,350 )
$
1,365,186
$
63,822
Nine Months Ended
September 30, 2016
September 25, 2015
Gross
Operating
Gross
Operating
Revenue
Income (Loss)
Revenue
Income (Loss)
($ in thousands)
Energy and Industrial
Environment and Nuclear
Transportation
Water
Power EPC
$
673,073
1,604,634
705,179
897,698
(7,663 )
$
2,212
68,343
(114,466 )
70,872
(299,565 )
$
880,757
1,177,061
722,202
1,036,965
132,335
$
25,438
61,642
(49,842 )
73,716
5,116
Total
$
3,872,921
$
(272,604 )
$
3,949,320
$
116,070
5
Selected Balance Sheet Items
CH2M and subsidiaries, unaudited
(Dollars in thousands)
September 30, 2016
Cash and cash equivalents
Total current assets
Total assets
Total short-term debt
Total current liabilities
Long-term debt
Total liabilities
Stockholders’ equity
$
126,274
1,464,725
2,829,325
2,224
1,431,027
420,469
2,510,045
319,280
$
December 25, 2015
$
$
197,021
1,671,191
2,861,299
2,069
1,476,325
299,593
2,483,968
377,331
Selected Statement of Cash Flow Items
CH2M and subsidiaries, unaudited
(Dollars in thousands)
Nine Months Ended
September 30, 2016
September 25, 2015
Net (loss) income
Net cash (used in) provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
(164,115 )
(129,947 )
(109,018 )
185,212
(16,994 )
(70,747 )
197,021
126,274
$
6
$
$
79,116
78,404
15,330
(58,970 )
(11,303 )
23,461
131,477
154,938
CH2M HILL Companies, Ltd. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure
To supplement our consolidated financial statements, which are presented in accordance with U.S. generally accepted accounting principles
(GAAP), we provide additional measures of net (loss) income attributable to CH2M and net (loss) income per diluted common share
attributable to CH2M adjusted to exclude or deduct certain costs, charges or expenses. CH2M management believes these non-GAAP financial
measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding
period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on
results in any particular period. CH2M management also believes these non-GAAP financial measures enhance the ability of investors to
analyze CH2M’s business trends and to understand CH2M’s performance. Any analysis of non-GAAP financial measures should be used only
in conjunction with results presented in accordance with GAAP.
A reconciliation of these non-GAAP financial measures with the most directly comparable financial measures calculated in accordance with
GAAP follows:
(In millions, except per share amounts)
Revenue
Net income (loss) attributable to CH2M
Net income (loss) per diluted common share
As Reported
$
$
$
Three Months Ended September 30, 2016
Adjustment (A)
1,279
16
0.40
$
$
$
23
(6 )
(0.19 )
Non-GAAP
$
$
$
1,302
10
0.21
(A) Adjustments relate to 1) revenue from our Power EPC business of ($23 million), and 2) costs incurred related to the 2016 Restructuring
Plan of $3 million (or $0.11 per diluted share), after-tax loss from our Power business of $37 million (or $1.49 per diluted share) and tax
benefit of pension redesign of $46 million (or $1.79 per diluted share).
(In millions, except per share amounts)
Revenue
Net income attributable to CH2M
Net income per diluted common share
As Reported
$
$
$
Three Months Ended September 25, 2015
Adjustment (A)
1,365
39
1.22
$
$
$
(61 )
5
0.14
Non-GAAP
$
$
$
1,304
44
1.36
(A) Adjustments relate to 1) revenue from our Power EPC business of $61 million, and 2) costs incurred related to the 2014 Restructuring Plan
and include after-tax restructuring charges of $6 million (or $0.19 per diluted share) and after-tax income from our Power business of $1
million (or $0.05 per diluted share).
(In millions, except per share amounts)
Revenue
Net (loss) income attributable to CH2M
Net (loss) income per diluted common share
As Reported
$
$
$
Nine Months Ended September 30, 2016
Adjustment (A)
3,873
(22 )
(1.22 )
$
$
$
8
60
2.13
Non-GAAP
$
$
$
3,881
38
0.91
(A) Adjustments relate to 1) revenue from our Power EPC business of ($8 million), and 2) costs incurred related to the 2016 Restructuring
Plan of $3 million (or $0.11 per diluted share), after-tax loss from our Power business of $103 million (or $3.87 per diluted share) and tax
benefit of pension redesign of $46 million (or 1.85 per diluted share).
(In millions, except per share amounts)
Revenue
Net income attributable to CH2M
Net income per diluted common share
As Reported
$
$
$
Nine Months Ended September 25, 2015
Adjustment (A)
3,949
67
2.26
$
$
$
(132 )
17
0.61
$
$
$
Non-GAAP
3,817
84
2.87
(A) Adjustments relate to 1) revenue from our Power EPC business of $132 million, and 2) costs incurred related to the 2014 Restructuring
Plan and include after-tax restructuring charges of $17 million (or $0.61 per diluted share).
7
CH2M HILL Companies, Ltd. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures and Regulation G Disclosure (continued)
Notes:
Costs for the 2014 Restructuring Plan are associated with our activities to reduce overhead costs and achieve important business objectives,
including improving efficiency, reducing risk and providing more long-term value for its stockholders.
Costs for the 2016 Restructuring Plan are associated with our activities to more fully align global operations with the Company’s client-centric
strategy, including a simplified organization structure and streamlined delivery model to achieve higher levels of profitable growth and
primarily related to employee severance and termination benefits and lease termination fees.
Adjustments for revenue and after-tax income (loss) related to our Power EPC business remove the results of this business unit. In the first
quarter of 2014, we shifted our focus away from pursuing and contracting fixed price EPC power projects, and elected to exit the Power EPC
business.
The tax benefit of pension redesign relates to an agreement we made with the Trustees of the largest defined benefit pension plan that came
with a prior acquisition to redesign our obligations in this scheme to better ensure the sustainability of the acquisition over the long term.
8
Conference Call
As announced on the company’s investor website, CH2M will host the Third Quarter 2016 Stockholder Call on January 20, 2017, from 9:00
a.m. until 10:00 a.m. U.S. Mountain Standard Time, providing an update on firm performance and the stock program. Details can be found at
ir.ch2m.com.
About CH2M
CH2M leads the professional services industry delivering sustainable solutions benefiting societal, environmental and economic outcomes with
the development of infrastructure and industry. In this way, CH2Mers make a positive difference providing consulting, design, engineering and
management services for clients in water; environment and nuclear; transportation; energy and industrial markets, from iconic infrastructure to
global programs like the Olympic Games. Ranked among the World’s Most Ethical Companies and top firms in environmental consulting and
program management, CH2M in 2016 became the first professional services firm honored with the World Environment Center Gold Medal
Award for efforts advancing sustainable development. Connect with CH2M at www.ch2m.com; LinkedIn; Twitter; and Facebook.
Forward-looking Statements
This report contains “forward-looking statements,” as that term is defined in U.S. Federal and certain foreign securities regulations, including
information related to our anticipated future operational and financial results, the amount and timing of charges and expenditures related to our
restructuring activities, as well as the anticipated savings and operating efficiencies; business strategies; client market segment concerns; and
growth opportunities. Although CH2M’s management believes that its expectations are based on reasonable assumptions, these assumptions
are subject to a wide range of economic, business, regulatory, technical, legal, and other unforeseen risks which may cause actual results to
differ materially from those stated or implied by these forward-looking statements. Factors that could cause or contribute to such differences
include, among others, our ability to manage the costs associated with our fixed-price contracts, our ability to maintain the liquidity necessary
for our operations, difficulties or delays incurred in the execution of our contracts, difficulties or delays incurred in the implementation of our
restructuring activities and changes in the level of activity in the hydrocarbon industry. We undertake no duty to update any forward-looking
statements made herein. All forward-looking statements speak only as of the date of this earning release.
This communication should be read in conjunction with all the other information included in our most current Prospectus and European
Prospectus, which are filed with the U.S. Securities and Exchange Commission (SEC) and the U.K. Financial Conduct Authority (FCA),
respectively, and, for our stockholders outside of the U.S. and the European Union, similar documents filed with local securities regulators,
where required. You should also read our Annual Report on Form 10-K, the related Amendment No. 1 on Form 10-K/A and quarterly reports
on Form 10-Q, which include a more comprehensive list of factors that could cause actual operational and financial results to differ from those
expected. All documents required to be filed with the SEC and other regulators are available via the investor relations website at ir.ch2m.com
and on the SEC’s website at www.sec.gov.
9