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Q&A with Philip Asherman
What was the strategic
rationale for the Lummus
Global acquisition?
We are clearly seeing the complementary attributes of Lummus as we have expanded our customer base, our geographic reach and our range of capabilities to better respond to the high demand for energy infrastructure worldwide. We bought Lummus primarily because of its 70 licensed technologies and the strength of the associated earnings, but certainly a collateral advantage is that it gives us visibility on capital projects at least 18 months earlier. Our new CB&I Lummus EPC business takes us further downstream with added capabilities to address a very substantial petrochemical market. In addition, we’ve added 2,700 talented new employees to the company.
Are you changing your fixed price business
model as a result of the acquisition?
The acquisition was actually a means to add a new dimension to our business model.
We have been seeing a substantial change in the marketplace in terms of our customers’ contracting philosophies. The acquisition gives us the flexibility to commercially structure our contracts using a hybrid approach to combine variable and fixed pricing elements in order to get a better allocation of risk without eliminating the opportunity for the premium pricing available by assuming manageable risk.
Did the acquisition strain your
financial position?
One of the real successes for us in 2007 was the overall health of our balance sheet. In 2007, we generated $446 million of
operating cash flow. To fund the $820 million net cash purchase price of the acquisition, we secured $200 million of long-term debt and used our available cash to pay the balance. Prior to the acquisition, we didn’t have any debt on the balance sheet, so our debt-to-equity ratio is still healthy and we have financial flexibility going forward to manage our capital and liquidity needs.
How do you plan to sustain
CB&I’s growth?
We are confident we can continue to grow our revenue and earnings. We plan to grow organically by capitalizing on the global demand for energy infrastructure, and potentially through acquisitions if the opportunity is right. We are focused on translating our strong revenue and cash flows into increased earnings and maintaining a healthy balance sheet.
Is CB&I performing to your
expectations?
I am very pleased with our 2007 performance. We exceeded our initial earnings guidance by 20% and we returned a yield in our share price last year of over 120%, both strong indicators of our financial success. Operationally, the overall performance of our backlog has been very solid with margins that generally reflect our focus on increased efficiency. We are generating positive cash flows from our projects at anticipated levels. The acquisition was handled skillfully. Although we had some very stiff competition from world-class companies, we were able to acquire Lummus for a fair price and complete the transition without any major disruptions to our business.
What is your outlook for the
company in 2008?
We anticipate the demand to remain steady in each of our market sectors – LNG infrastructure, energy processes, steel plate storage structures and technology. There is a tremendous amount of spend continuing throughout the whole energy infrastructure market and so we expect our backlog to increase. For the past several years about 50% of our work has been outside of the U.S., and we expect this trend to continue. We believe alternative energy and nuclear markets will become increasingly important components of our business in the near future. Going forward, we think we have the skills, the talent and right business strategy to fully capitalize on these opportunities for the benefit of our shareholders.