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Employees in our offices around the world celebrated the Lummus acquisition. Pictured here from bottom left: Singapore; The Hague, The Netherlands; Beijing, China; Kent, U.K.; Cairo, Egypt; and Bloomfield, New Jersey USA. | ||
To Our Shareholders & Employees
2007 was a transformational year for CB&I as we made several strategic moves to further enhance our ability to capitalize on the strong demand in the global energy market. The highlight of 2007 was certainly the acquisition of Lummus Global, which transforms CB&I into an integrated service provider with a world-class technology business and full-scale capabilities across the entire hydrocarbon sector. Response from our employees, customers and investors has been overwhelmingly positive and we appreciate your support as more than 99% of shares cast voted in favor of the acquisition. Lummus is exceeding our expectations; it is a great fit and a welcome addition to our company.
Financial and Operating Results
Financially, the company had a very good year. Revenue reached $4.4 billion, an increase of 40% compared with 2006, and net income was $165.6 million, or $1.71 per diluted share. Backlog increased to a record high $7.7 billion at year-end 2007 – up 69% over the previous year, due to new awards of more than $6.2 billion and the addition of $1.2 billion in backlog from the Lummus acquisition.
Operating income totaled $205.6 million in 2007, versus $145.6 million in 2006. Our success is primarily driven by our ability to capture and efficiently execute projects across all of our market sectors. In 2007, CB&I worked on approximately 500 projects for a wide variety of clients, across all geographic regions and in all stages of completion. We had several major awards in 2007, the most notable being the $1.5 billion Peru LNG project. This is the largest project in the company’s history and our first full EPC contract for an LNG liquefaction project, an area where we see the potential for significant growth in the future.
While our new awards and earnings performance have been solid across our geographic reporting segments, labor issues on a U.K. project diluted margins in our Europe, Africa and Middle East region throughout the year.
CB&I continues to generate strong free cash flow from operations. In 2007, CB&I produced $446.4 million of cash flow from operating activities, with $305.9 million in cash on hand at year-end. Taking into account the $200 million debt we incurred in funding the acquisition, we ended the year with a $105.9 million net cash position.
Strategic Initiatives
Our strong cash flow gives us the financial flexibility to reinvest in our business, including securing global talent. In 2007, we brought 4,750 new employees onboard – more than 2,700 through the Lummus acquisition – to support the company’s growth strategy. As of year-end, we have 17,000 employees working out of 80 locations on six continents focused on delivering value to our clients and our shareholders.
We have implemented several other strategic initiatives to expand our capabilities and enhance our competitiveness. In January 2007, we opened our new engineering center in Ajman, in the United Arab Emirates, which allows us to recruit talented engineers and strengthens our global position.
In June, we opened our new Island Park fabrication facility in the U.S., which gives us a competitive advantage in modular fabrication and provides deep water access, enabling us to ship large modules to project sites worldwide.
The acquisition of Lummus Global tops our list of strategic initiatives for the year. As a result of the acquisition, CB&I has ascended to a new plateau in the industry and we are very well positioned for further growth. Greater detail on the strategic value of the acquisition is outlined on the following pages.
Safety
In 2007, we achieved one of the best safety records in the industry while logging more than 54 million work-hours (including direct labor, subcontractors and office employees), which is a substantial increase over our total work-hours in 2006. We take a proactive approach to safety management, emphasizing stringent training and other preventative measures to actively protect our workers.
Business Issue
In January 2008, the U.S. Fifth Circuit Court of Appeals upheld the U.S. Federal Trade Commission’s ruling re-garding our 2001 acquisition of PDM. We are currently pursuing our rights of appeal. We also are continuing to work cooperatively with the FTC to resolve this matter.
Summary
Over the past several years, CB&I has evolved into a major technology and EPC provider for some of the world’s largest energy projects. The growth of the company is impressive by any measure and is a clear testament to the success of our past strategic initiatives and our dedicated employees. Looking forward, we are focused on keeping our employees safe and our customers satisfied, generating solid returns for our shareholders, increasing our operational efficiency and fully capitalizing on this unprecedented energy market. With our financial strength and full-scale capabilities we are confident that we can carry CB&I’s momentum into 2008 and beyond. We appreciate your support and look forward to continued success in the future.
