Item 5. Operating
and Financial Review and Prospects
Overview
The following discussion is based on
information derived from our consolidated financial statements.
Our consolidated financial statements have been prepared in
accordance with French GAAP, which differ in certain significant
respects from U.S. GAAP. In addition, this discussion
contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from
those anticipated in these forward looking statements as a
result of certain factors, including those set forth under
“Item 3. Key Information — Risk
Factors” and elsewhere in this document. You should read
the following discussion together with our audited consolidated
financial statements for the fiscal years ended
December 31, 2001, 2000 and 1999, included in this annual
report.
On January 1, 1999, the euro was introduced
as the common legal currency of eleven member states of the
European Union, including France. We have prepared our
Consolidated Financial Statements in French francs and have
adopted the euro as our reporting currency for the periods after
January 1, 1999.
Taken as a whole, our operations are not seasonal
or otherwise cyclical, because of our geographic diversity of
operations and mix of upstream and downstream projects, although
individual contracts may be subject to seasonality, primarily
due to the effect of weather conditions on construction activity
particularly in the North Sea. In addition, our upstream oil and
gas activity is typically characterized as a cyclical industry.
To date, however, our business in this sector has shown
relatively steady growth, regardless of the external economic
conditions.
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The Technip-Coflexip Business
Combination
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On October 11, 2001, we completed two
simultaneous exchange offers which resulted in our holding
98.36% of the share capital and 98.54% of the voting rights of
Coflexip and 99.05% of the share capital and voting rights of
ISIS. We have consolidated the results of both of these
companies into our consolidated financial results starting on
October 1, 2001. Prior to October 1, 2001 we accounted
for Coflexip using the equity method to reflect the 29.4%
minority interest we held in that company prior to the
completion of the Coflexip exchange offer. For a description of
this minority interest, see “— Changes is Scope of
Consolidation-Coflexip Stena Offshore”, below. Prior to the
ISIS exchange offer, we had no financial interest in ISIS.
In 2000, their last full financial year prior to
our acquisition of control, Coflexip generated consolidated
revenues of
€
1,064.6 million
and net income of
€
222.7 million,
and ISIS generated consolidated revenues of
€
165.1 million
and net income of
€
87.1 million.
ISIS’s net income in 2000 reflects the significant
contributions under the equity method of its approximately 17.5%
interest in Coflexip (an equity contribution of
€
158.5 million)
and 11.3% interest in us (an equity contribution of
€
21.3 million).
In Note 2 of our audited consolidated
financial statements included in this annual report at
Item 18 we present pro forma financial information
indicating our financial results as if our acquisition of
Coflexip, both directly through the Coflexip tender offer and
indirectly through the ISIS tender offer, had taken place on
January 1, 2001. In accordance with French GAAP, our
audited historical financial statements included in this annual
report reflect this acquisition as of October 1, 2001, and
therefore do not describe a full twelve months of combined
results. We caution you, however, that the pro forma financial
results are not a substitute for our audited historical
financial statements and do not necessarily show what our
combined results would have been had our acquisition of Coflexip
in fact taken place on January 1, 2001. Because our audited
consolidated balance sheet as of December 31, 2001,
included in this annual report already reflects the full
consolidation of Coflexip, we have not prepared a pro forma
balance sheet.
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Changes in Scope of
Consolidation
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We have made significant acquisitions and
disposals, which are material to your understanding of our
financial condition and results of operations. In addition to
the Technip-Coflexip business combination, we
77
describe below the principal changes in our scope
of consolidation occurring between January 1, 1999 and
December 31, 2001.
UTC Projectos e Consultoria
SA.
In October 2001 we finalized the
acquisition (100%) of the privately owned UTC Projectos e
Consultoria SA. We acquired this Brazilian engineering and
construction company to develop its activities in the upstream
sector and especially in deep-water field development.
Coflexip Stena Offshore.
In April 2000, we acquired a 29.7%
interest in Coflexip, the parent company of the Coflexip Stena
Offshore offshore upstream engineering and construction group.
Following the public exchange offer with a cash election
initiated by us for Coflexip shares on July 3, 2001, we now
hold 98.36% of the share capital and 98.54% of the voting rights
of Coflexip. In 1999, the year prior to our first acquisition,
Coflexip reported net sales of
€
1,017.0 million
and net income of
€
89.6 million.
We accounted for our interest in Coflexip from April 19,
2000 to September 30, 2001 using the equity method of
accounting. In January 2001, Coflexip significantly expanded its
operations through its cash acquisition of the Deepwater
Division, which reported sales of approximately
€
390 million
in 2000.
KTI/MDEU.
In March
1999, we finalized our acquisition from Mannesmann AG of the KTI
group of engineering and construction companies and the
engineering divisions of Mannesmann known as MDEU. In 1999,
these businesses generated aggregate consolidated net sales of
€
849.1 million
and aggregate operating income of
€
7.1 million.
Krebs-Speichim.
In
1997, we set up the Krebs-Speichim joint venture through the
combination of an existing business unit with a subsidiary of
Cogema, the French nuclear energy specialist, in order to
improve our market share in the fine chemicals and
pharmaceutical industries. In 1999, Krebs-Speichim and its
consolidated subsidiaries, for which we accounted for under the
proportionate consolidation method, contributed
€
75.2 million
to our consolidated net sales. In September 2000, we acquired
from Cogema the 50% of Krebs-Speichim that we did not already
own.
Critical
Accounting Policies
Our significant accounting policies are more
fully described in Note 1 to our consolidated financial
statements. However, certain of our accounting policies are
particularly important to your understanding of our financial
position and results of operations. Because the application of
these policies requires the exercise of significant judgment by
us, their application is subject to an inherent degree of
uncertainty. We believe the following critical accounting
policies require our more significant judgments and affect
estimates used in the preparation of our consolidated financial
statements.
Revenue
and Cost Recognition
Because most of our sales are generated under
long-term contracts, the performance of which generally exceeds
two fiscal years, the manner in which we recognize revenues and
costs on these contracts is material to your understanding of
our financial condition and results of operations.
Backlog represents the total amount of revenues
we expect to recognize in the future as a result of performing
work under signed contracts on which we have received a down
payment and for which our client has arranged financing, where
applicable. Typically, on multiannual contracts, no more than
approximately 20% of the revenue from a new contract is
recognized within the first year from the date of the order
intake of that contract. Consequently, the amount of revenue
recognized during the fiscal year in which order intake occurs
depends not only on the size of a contract but also on how late
in the fiscal year the order intake occurred in order for earned
income to be generated prior to the end of the fiscal year. The
majority of our revenue is generated by two-to three-year
contracts, with earned revenue recognized according to the
percentage of completion of the various items of the contract.
Our revenue recognition accounting policy is
based on the percentage-of-completion method on a contract-
by-contract basis, except for some non-significant contracts for
which revenue is recognized when the service has been rendered.
Use of the percentage-of-completion method requires us to make
estimates of our future gross margin under the related contract.
We estimate the future gross margin based on a combination of
factors,
78
including our experience in the businesses and in
the geographical region we operate, and market condition in that
region. For lump-sum turnkey long-term contracts to the
completion of early phases such as engineering design,
confirmation of significant orders, and assurance that field
conditions are satisfactory, is necessary to firmly assess
identified risks and to estimate with sufficient precision the
total future costs as well as the expected timetable. As a
result, we recognize the related positive gross margin when the
projected gross margin can be estimated more precisely, contract
by contract.
In accordance with our procedures, throughout the
lives of our long-term contracts we review and periodically
revise their gross margins.
Goodwill amortization and Impairment of
long-lived assets
We amortize goodwill on a straight-line basis
over future periods of benefit, as estimated by management,
which may range from five to 25 years. We select the period
of benefit based on the strategic significance of the asset
acquired.
We assess the impairment of identifiable
intangibles, long-lived assets and goodwill and enterprise level
goodwill whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors we
consider important that could trigger an impairment review
include the following:
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significant under-performance relative to
expected historical or projected future operating results;
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significant changes in the manner of our use of
the acquired assets or the strategy for our overall business; and
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significant negative industry or economic trends.
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When we determine that the carrying value of
intangibles, long-lived assets and goodwill may not be
recoverable based upon the existence of one or more of the above
indicators of impairment, we compare for each group of assets
their carrying value with its estimated realizable value based
upon our expectations of future economic and operating
conditions. Should this comparison indicate that an asset is
impaired, the write-down recognized is equivalent to the
difference between the carrying value and the estimated
realizable value.
Principal
Differences Between U.S. GAAP and French GAAP
The principal difference between U.S. GAAP and
French GAAP that affects us is the difference in accounting for
contract costs and contract bid costs. The treatment of
post-employment benefits and employee stock plans under U.S.
GAAP and French GAAP are also material to our results for the
periods presented. For a summary of differences between the
French GAAP and U.S. GAAP, see Note 29 to
Technip-Coflexip’s Consolidated Financial Statements
included elsewhere in this prospectus.
Under French GAAP, some General and
Administrative costs are recorded as contract, and are
consequently recorded as a component of “Cost of
Sales”. Under U.S. GAAP, General and Administrative costs
not directly related to contracts are to be recorded when
expensed. As a result, revenue and gross margin recorded on
contracts are different under French GAAP and U.S. GAAP.
Under French GAAP, we capitalize contract bid
costs directly attributable to a future contract, the signature
of which can be reasonably expected. We transfer these deferred
costs to the contract costs once the contract is obtained or, if
not obtained at year-end, we depreciate them according to the
probability of success assessed for each outstanding offer.
Under U.S. GAAP, these costs are expensed as incurred.
In conformity with French GAAP, prior to 1999 we
recorded reserves to cover potential overruns on contracts
performed in countries we considered to be subject to
geopolitical risk. At year end 1999, we reversed this reserve.
We currently identify individual contracts, which are subject to
risk, including notably geopolitical and country risks, and
record reserves to cover the probability-weighted estimated
risks. Under U.S. GAAP, we would not have been permitted to
record either of these reserves, because they do not fulfill all
of the criteria set forth in SFAS No. 5, “Accounting
for Contingencies”.
79
Under French GAAP, we accrue pension and other
post-employment benefits in accordance with the practices
prevailing in the country of employment. For the purpose of our
U.S. GAAP reconciliation, we have harmonized valuation methods
and assumptions and recognized the plans as if we had
consistently applied U.S. GAAP.
Under French GAAP, we record common shares issued
upon the exercise of options granted to employees and directors
as an increase in share capital at the exercise price on the
exercise date. We hold treasury shares to settle qualified
employee deferred stock purchase plans, and, in accordance with
French GAAP, do not record compensation expense on stock-based
employee plans. Under U.S. GAAP, APB Opinion No. 25 defines
conditions to classify plans such as compensatory or
non-compensatory. If a plan is deemed to be compensatory, APB
Opinion No. 25 requires that compensation arising from the
plans be measured based on the intrinsic value of the shares
granted or sold to employees. For fixed plans, the compensation
expense is calculated as the difference between the fair value
of the share at the grant date and the employee exercise price.
Compensation expense for compensatory stock-based employee plans
is recognized over the vesting period.
Under French GAAP, we record foreign currency
transactions on long-term contracts at the contract exchange
rate established under the foreign exchange instruments into
which we enter. Under U.S. GAAP, we record foreign currency
transactions at the spot rate except for that portion of the
transaction, which is hedged with a financial instrument, which
we record at the hedged rate.
Under French GAAP, we translate monetary assets
and liabilities denominated in a foreign currency into euro at
year-end, except for “contracts-in-progress” and
“progress payments on contracts” accounts. We record
the resulting exchange gains and losses in our income statement.
We record a reserve for unrealized exchange losses, except if
related to a hedged transaction denominated as a hedge. Under
U.S. GAAP, we include in net income exchange gains or losses
resulting from the adjustment of balances denominated in a
foreign currency, except if related to a contract designated as
a hedge. Since January 1, 2001, we record all exchange
gains and losses in our net income in accordance with Statement
of Financial Accounting Standards No. 133 (“SFAS
No. 133”).
Under French GAAP, we record realized and
unrealized exchange gains and losses related to long-term
contract assets and liabilities as operating income. Under U.S.
GAAP, we record such exchange gains and losses as financial
result.
Under French GAAP, we do not record the fair
values of the derivatives instruments related to future
transactions on our contracts. Until December 31, 2000, the
fair values of these derivative instruments were not recorded
under U.S. GAAP. Since January 1, 2001, for U.S. GAAP
purposes, we record every derivative instrument (including
certain derivative instruments embedded in other contracts) in
accordance with SFAS No. 133 in our balance sheet, either
as an asset or liability measured at its fair value. We report
the changes in these fair values either in shareholders’
equity if specific hedging criteria are met or in the income
statement. Special accounting for qualifying hedges allows a
derivative instruments gains and losses to offset related
results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of
transactions that receive hedge accounting. We recorded the
effect as of January 1, 2001 of the adoption of SFAS
No. 133 as a cumulative effect of change in accounting
principle.
Under French GAAP, goodwill is amortized over a
period ranging from 5 to 25 years, depending on the
activity of the business acquired. Under U.S. GAAP,
goodwill resulting from business combinations initiated after
June 30, 2001 is no longer amortized.
After acquiring the interest in Coflexip, we were
unable to perform a complete valuation of the assets and
liabilities acquired. Accordingly, we could not precisely
identify the difference between the cost of our investment in
Coflexip and the net assets acquired, and therefore elected
under French GAAP to amortize the goodwill over a 20 year
period based on an overall analysis of goodwill components at
the date of acquisition. We recognized the subsequent gain
reported by Coflexip on the sale of Cal Dive securities as a
separate non-operating line as described in Note 2(b). For U.S.
GAAP purposes, we reduced our share of the gain recorded by
Coflexip on its disposal of Cal Dive securities. The amount
recognized under U.S. GAAP was the difference
80
between the selling price and the fair value of
the Cal Dive securities at the date of the acquisition of the
29.7% interest in Coflexip. Goodwill amortization was reduced
accordingly.
Recently Issued Accounting
Pronouncements
Accounting for Business Combinations and
Goodwill and Other Intangible Assets.
In July 2001, the FASB issued SFAS
No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141
establishes accounting and reporting standards for business
combinations and is effective for all business combinations
consummated after June 30, 2001. SFAS No. 141 is not
anticipated to have a material effect on our financial results.
We use the provisions of SFAS No. 141 to account for our
acquisitions of Coflexip and ISIS. SFAS No. 142 establishes
accounting and reporting standards for goodwill and intangible
assets, requiring impairment testing for goodwill and intangible
assets, and the elimination of periodic amortization of goodwill
and certain intangibles.
SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001, although goodwill on
business combinations consummated after July 1, 2001 is not
amortized. Upon adoption, all goodwill and indefinite lived
intangible assets must be tested for impairment and a cumulative
effect adjustment to net income recognized at that time. We
adopted SFAS No. 142 on January 1, 2002 and do not
anticipate that the adoption of SFAS No. 142 will have a
material impact on our results of operations, financial position
or cash flow. We will not reclassify intangible assets in
reported goodwill. At the year ended December 31, 2001, we
recorded amortization of
€
61.3 million
related to goodwill and indefinite lived assets.
Accounting for Asset Retirement
Obligations —
In June 2001,
the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS No. 143). SFAS
No. 143 establishes accounting requirements for retirement
obligations associated with tangible long-lived assets,
including (1) the timing of the liability recognition,
(2) initial measurement of the liability,
(3) allocation of asset retirement cost to expense,
(4) subsequent measurement of the liability and
(5) financial statement disclosures. SFAS No. 143
requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and depreciated over the
life of the associated fixed asset. An entity shall measure
changes in the liability for an asset retirement obligation due
to passage of time by applying an interest method of allocation
to the amount of the liability at the beginning of the period.
The interest rate used to measure that change shall be the
credit-adjusted risk-free rate that existed when the liability
was initially measured. That amount shall be recognized as an
increase in the carrying amount of the liability and as an
expense classified as an operating item in the statement of
income. SFAS 143 is effective for fiscal years beginning after
June 15, 2002, with early application encouraged.
We expect to adopt SFAS No. 143 on
January 1, 2003 and have not yet determined the impact that
it will have on our results of operations, financial position or
cash flows.
Accounting for the Impairment or Disposal of
Long-Lived Assets —
In
August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144). SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale
consistent with the fundamental provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. While it supersedes
portions of APB Opinion 30, Reporting the Results of Operations
-Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, it retains the discontinued operations
presentation, yet it broadens that presentation to include a
component of an entity (rather than a segment of a business).
However, discontinued operations are no longer recorded at net
realizable value and future operating losses are no longer
recognized before they occur. SFAS No. 144 also establishes
criteria for determining when an asset should be treated as held
for sale. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001 and interim periods
within those fiscal years, with early application encouraged.
The provisions of SFAS No. 144 are generally to be applied
prospectively.
81
We adopted SFAS No. 144 on January 1,
2002 and have yet not determined the impact that it will have on
our results of operations, financial position or cash flows.
Segment
Reporting
In June 1998, the Financial Accounting Standards
Board (“FASB”) issued SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related
Information.” The objective of this statement is to provide
users of financial statements information about the different
types of business activities in which a company engages and the
different economic environments in which it operates. Subsequent
to our business combination with Coflexip, our management has
structured our operations into three branches that we utilize as
reporting segments. These branches are the Offshore sector,
which comprises the offshore business units of Technip and
substantially all of the operations of Coflexip, the Onshore/
downstream sectors, which comprises the Technip hydrocarbons
activities not accounted for in the offshore sector, and the
Industries sector, which comprises our activities outside the
hydrocarbons industry. Prior to the business combination and
subsequent management reorganization, our operations were
managed in four segments: a production segment, now split
between the Offshore and Onshore/ downstream segments, a
refineries segment and a petrochemicals segment, now included in
our Onshore/ downstream segment, and an industries segment
corresponding to our current Industries segment. Our acquisition
of ISIS has not had a material impact on any of our segments,
beyond increasing our equity interest in Coflexip. Prior to the
Technip-Coflexip business combination, Coflexip’s
management had determined its reporting segments were based on
geographical location. Substantially all of Coflexip’s
operations are now accounted for in our Offshore segment. For
the avoidance of doubt, we note that the definition of
geographic zones applied by Coflexip prior to the
Technip-Coflexip business combination does not correspond to the
definition used by the new group. In addition, Coflexip’s
prior allocation of project revenues to each of its four
regional segments is based on the region of the affiliate which
conducted the project, while our geographic allocation project
revenues reflects the region in which the project is located.
Foreign
Currency
In each of the three years in the period ended
December 31, 2001, approximately 60% of our net sales were
denominated in a currency other than our reporting currency, the
euro. Our principal non-euro currency during this period was the
U.S. dollar, which made up approximately 50% of net sales
and approximately 25% of operating expenses. In 2001,
fluctuations between the euro and other currencies, notably the
dollar, had a positive effect on our consolidated net sales
amounting to approximately
€
14.5 million.
In addition to the dollar and euro, other important operating
currencies for us include the Japanese yen, British pound and
Malaysian ringitt. For a detailed description of our exposure to
foreign currencies and currency hedging instruments, see
“Item II. Qualitative and Quantitative Disclosures of
Market Risk”.
Our policy is to naturally hedge a substantial
portion of our contracts by matching the currency of our own
equipment purchases and subcontractor payments to the currency
in which we will ourselves receive payment. Subsequently, we
manage our foreign currency exposure on the portion of
anticipated foreign currency cash flows that is not naturally
hedged by entering into standard financial instruments such as
forward exchange contracts or options. We do not enter into
financial instruments for trading or speculative purposes.
Foreign currency exposure.
During the bid period, our currency
exposure derives from the fact that exchange rate movements
between the date as of which we calculate our projected costs
and resulting bid and the date on which the contract is awarded
could negatively affect our expected margins. We manage our
currency risk exposure, primarily, by submitting multicurrency
bids matched to the expected currency of expense and
secondarily, to the extent necessary, by insurance contracts
and, to a limited extent, options.
Foreign currency transactions.
Foreign currency transactions are
translated into euro at the rate of exchange applicable at the
transaction date, except for those related to long-term
contracts which are translated using the contract rate based on
foreign currency hedging. At year end, monetary assets and
liabilities denominated in foreign currencies are translated
into French francs at the exchange rate prevailing at that date
except for contracts-in-progress accounts and progress payments
received from long-term contract customers
82
which are recorded at the contract rate. The
resulting exchange gains or losses are recorded in the income
statement.
Recent Developments and Outlook for
2002
Recent
Developments
In the first months of the current year, we
booked several important contracts into our backlog. In January,
Tukmenneftegas awarded us a
€
130 million
contract for the design and construction of a diesel
hydrotreating plant at the Turkmenbashi refinery in
Turkmenistan. Additionally, Saudi Arabian Company (Saudi Aramco)
awarded us a substantial turnkey project for the extension of
the Berri gas complex to treat additional volume of gas
originating from the Quatif field, which is currently under
development. This extension will bring the annual gas treatment
capacity of the complex from 3.5 billion cubic meters to
8.7 billion cubic meters upon completion. The sulfur
recovery capacity of the complex will also be increased from
1,330 metric tons per day to 3,313 metric tons per day. Our
involvement will include project management, engineering
services, sourcing of equipment and materials, construction as
well as startup and commissioning. Also in our Africa/ Middle
East region, the Oman-India Fertilizer Company has awarded our
50/50 joint venture with Snamprogetti a turnkey contract worth
approximately U.S.$ 770 million for the design and
construction of a fertilizer complex in Oman having two
1,750 tons-per-day ammonia plants, two
2,650 tons-per-day urea plants, and two granulation units.
This project, which we believe will be the largest grass-roots
fertilizer plant in the world, builds on Oman’s gas
resources to develop local industry. This contract will enter
our backlog once financing is finalized, and is expected to be
completed 35 months after the coming into force of the
contract.
Our net sales for the three-month period ended
March 31, 2002 amounted to
€
1,075.7 million.
Our pro forma net sales for the comparable period in 2001 were
€
1,089.6 million.
The table below describes in percentage terms the breakdown of
our net sales by business segment in each of the three-month
periods ended March 31, 2002 (historical) and 2001 (pro
forma). Our earnings before interest, taxes, depreciation and
amortization amounted to
€
72.0 million
in the first quarter of 2002 compared to
€
107.5 million
on a pro forma basis for the comparable period in 2001. In the
first quarter of 2002, we recorded a net loss of
€
13.3 million,
but had net income before exceptional items and goodwill
amortization of
€
16.1 million.
Because our portfolio of contracts is relatively concentrated
and the percentage of completion method of accounting used for
our mainstay multi-year turnkey contracts does not contribute
equally to each quarter during which a contract is executed,
your analysis of our operations should view our quarterly
results in light of other factors including our annual results
and backlog. We also caution you that our quarterly results in
our Offshore segment are somewhat seasonal, with reduced
activity in the North Sea during the first and last quarters of
the year on account of weather conditions.
Net Sales by Business Segment
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Three Months Ended
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March 31,
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Segment
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2002
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2001
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(pro forma)
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Offshore
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45.2%
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41.0%
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Onshore/ Downstream
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46.7%
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50.9%
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Industries
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8.1%
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8.1%
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Total
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100%
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100%
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Our backlog at March 31, 2002 amounted to a
record
€
5,555.0 million,
a 12.7% increase over backlog at December 31, 2001. Our
order intake accelerated during the first quarter of 2002 to
€
1,703 million,
a 28% increase over the comparable pro forma figure for the
first quarter of 2001.
At the end of January 2002, we issued
convertible/exchangeable bonds in a nominal amount of
€
793.5 million
which we applied to the reimbursement of our Coflexip
acquisition financing. See “— Liquidity and
Capital Resources”, below.
83
Outlook
In 2002, we expect that offshore activities in
the North Sea will be stable in the British zone, with a strong
showing by tie-back contracts performed for independent
operators. In the Norwegian zone, the marketing slowdown
experienced in 2001 is likely to result in reduced earnings in
2002. However, numerous calls for bids are currently being
issued, principally by the major exploration and production
groups and focused on large infrastructure projects that we
expect to be awarded in 2002 leading to increased activity in
2003. Building on a market leading position for subsea services
in the Gulf of Mexico achieved in 2001 with our commissioning of
CSO Deep Blue, our level of offshore activity in the Americas
should be strong as we execute SURF and SPAR contracts entered
into backlog in 2001 and local operators continue to develop
additional deepwater fields. We also anticipate that our
activities in the Americas will benefit from margins in Brazil
moving more in line with the rest of the world as more highly
integrated contracts are put to bid and surtaxes on foreign
products are removed. In West Africa, several major calls for
bids which have been delayed, in some cases for several years,
are expected to be opened in 2002, leading to sustained SURF
activity in our Africa/ Middle East zone.
In 2002, we expect that important drivers of our
Onshore/ Downstream activities will be the continued development
of gas resources, particularly through petrochemical projects in
the Middle East (see “— Recent
Developments,” above) and liquefied natural gas projects
globally, as well as refinery projects motivated by new refinery
product specifications coming into force in Europe and the
United States by 2005.
While our fiscal years 2000 and 2001 benefited
from the completion of major contracts that came into force in
1997 and 1998 (notably Midor in Egypt, Sincor in Venezuela and
OGD II in Nigeria), we were not scheduled to complete any
contract of similar size in the first quarter of 2002. For 2002
taken as a whole, our current expectation is that our Onshore/
Downstream Branch and our Industries Branch will in the
aggregate experience a decline in revenues on the order of 10%,
as a result of the slowdown in order intake experienced in
2000 — 2001 and the absence of any major contract
scheduled for completion in 2002. As a result of these factors,
we expect the aggregate operating margin for these branches to
fall between 4% and 5% in 2002, as compared to 6% and 7% in the
two preceding years. Overall, we expect our net sales and
earnings before interest, taxes, depreciation and amortization
in 2002 to be largely in line with those achieved on a pro forma
basis in 2001. Over the longer term, we expect that the
accelerated order intake experienced since last fall combined
with the timing of progress and completion of major projects in
our backlog will contribute to both higher revenues and
operating margins for our Onshore/ Downstream Branch and our
Industries Branch in 2003 and 2004.
Our priorities for 2002 are the following:
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•
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Integrate our teams in the Offshore sector and
throughout the group;
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•
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Develop our anticipated integration synergies
(global procurement, rationalization of structures and reduction
of costs);
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•
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Successful bidding on at least one major
deepwater development tender in West Africa; and
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•
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Successful bidding on at least one major
liquefied natural gas project.
|
We caution you, however, that there can be no
assurance of our ability to achieve these targets, which are
subject to risks and uncertainties beyond our control. Our
actual results could differ materially as a result of numerous
factors including notably capital expenditures in the oil and
gas industry, price levels of oil and gas, the timing of
development of offshore energy resources, materialization of
construction risks, the strength of competition, interest rate
movements and stability in developing countries.
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Technip “Stand-alone”
Results
|
An additional unaudited non-historical measure
which we have prepared to assist in your analysis of our results
of operations for the fiscal year ended December 31, 2001,
are Techip “stand-alone” financial results of
operations. Our stand-alone results have been calculated for the
fiscal year 2001 as if neither the Technip-Coflexip business
combination nor our related acquisition of ISIS had occurred and
we had continued to account for our interest in Coflexip using
the equity method at the 29.4% level for all twelve months of
the fiscal year. This compares to our audited historical
accounts where we accounted for our interest in Coflexip using
the equity
84
method at the 29.4% level through
September 30, 2001, and thereafter using the full
consolidation method with deduction of a 1.64% minority
interest. The table below sets out selected unaudited
“stand-alone” financial data for 2001, compared to the
corresponding audited Technip financial data for 2000. We note
that our consolidated accounts for 2000 reflects our initial
minority interest in Coflexip only starting April 1, 2000,
as a result of our date of acquisition of this interest and that
our equity interest in 2000 was accounted for at the 29.7% level
rather than at the 29.4% level used in 2001 as the result of
dilution.
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Technip
|
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“stand-alone”
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Technip
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(unaudited)
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(audited)
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Amounts in Millions except per share data
|
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2001
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2000
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(in million
€
, except shares and
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per share data)
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Net sales
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3,051.0
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2,972.0
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Cost of Sales
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(2,703.0
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)
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(2,680.8
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)
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Gross Margin
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348.0
|
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291.2
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Research and Development expenses
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(13.3
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)
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(7.2
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)
|
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Selling, general and administrative
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|
(111.7
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)
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(85.1
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)
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Operating Income before Depreciation and
Amortization (EBITDA)
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223.0
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198.9
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Depreciation and amortization other than goodwill
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(19.5
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)
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(16.3
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)
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Operating income before goodwill
amortization
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203.5
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182.6
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Goodwill amortization
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(41.6
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)
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|
(26.7
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)
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|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
161.9
|
|
|
|
155.9
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|
|
|
|
|
|
|
|
|
|
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Financial Result
|
|
|
(0.5
|
)
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|
5.8
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Non-operating Income (Loss)
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|
|
(6.6
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)
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|
|
93.9
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Income of equity affiliates
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|
25.2
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|
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22.1
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Minority Interest
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(1.8
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)
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|
(1.2
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)
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Income taxes
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|
(57.2
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)
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|
(62.3
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)
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|
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|
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Net Income
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|
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121.0
|
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|
|
214.2
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|
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Non-operating Income (Loss)
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6.6
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(93.9
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)
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Goodwill amortization
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41.6
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26.7
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|
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Net Income before non-operating income and
goodwill amortization
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|
|
169.2
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|
|
|
147.0
|
|
|
|
|
|
|
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|
|
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Net Income Per Share
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N/A
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|
|
|
12.85
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Net Income Per ADS(2)
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|
|
N/A
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|
|
|
N/A
|
|
|
Net Income per share (before non-operating income
and goodwill amortization)
|
|
|
N/A
|
|
|
|
8.82
|
|
|
Net Income per ADS(2) (before non-operating
income and goodwill amortization)
|
|
|
N/A
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N/A
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|
Number of shares on a fully diluted basis at year
end(3)
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N/A
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16,664,584
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85
|
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|
|
|
|
|
|
|
|
|
|
|
Technip
|
|
|
|
|
|
“stand-alone”
|
|
Technip
|
|
|
|
(unaudited)
|
|
(audited)
|
|
|
|
December 31,
|
|
December 31,
|
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|
|
2001
|
|
2000
|
|
|
|
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|
|
|
ASSETS(4)
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Total Non-current Assets
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|
|
3,684
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|
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|
1,051
|
|
|
Contracts in Progress
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4,590
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|
|
|
4,725
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Other Current Assets
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|
|
844
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|
|
|
568
|
|
|
Cash and Marketable Securities
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|
|
403
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,521
|
|
|
|
6,907
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|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
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Shareholders’ Equity
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|
|
2,398
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|
|
|
766
|
|
|
Minority Interests
|
|
|
7
|
|
|
|
4
|
|
|
Provisions
|
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|
234
|
|
|
|
233
|
|
|
Financial Liabilities
|
|
|
1,140
|
|
|
|
196
|
|
|
Progress Payments
|
|
|
4,943
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|
|
|
4,896
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|
|
Other Current Liabilities
|
|
|
799
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,521
|
|
|
|
6,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
U.S. dollar amounts are provided for reader
convenience only, converted at the rate of
US$1.00 = EUR 1.1234.
|
|
|
|
(2)
|
One ADS is equal to one fourth of one ordinary
share.
|
|
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|
(3)
|
Does not include the Technip shares held by ISIS
(1,847,376), nor does it include the dilutive effect of the
convertible bonds which were issued early 2002.
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|
|
|
(4)
|
The column referring to Technip “stand
alone” presents the balance sheet of Technip “stand
alone” including also the shares of Coflexip and Isis
acquired in October through the tender offers financed by equity
and debt, but before the consolidation of their balance sheets.
|
Technip-Coflexip Results of Operations for the
Year Ended December 31, 2001 Compared to
the Year Ended December 31,
2000
Our consolidated net sales for 2001 were
€
3,546.0 million.
This was an increase of 19.3% from net sales in 2000 of
€
2,972.0 million
and is largely due to our acquisition of Coflexip, the results
of which have been consolidated since October 1, 2001.
Coflexip contributed
€
495.0 million
of consolidated net sales for 2001. On a stand-alone basis, our
consolidated net sales increased 2.7% to
€
3,051.0 million
in 2001 compared to 2000. This moderate growth reflects the
slowdown in order intake which took place these past two years,
where we continued, in a highly competitive market, to focus on
expected contract margins rather than volume. Among the largest
contributors to net sales in 2001, as a result of the size and
state of progress on these contracts, were Q-CHEM (Quatar),
Nigeria Train III (Nigeria), Sincor (Venezuela) and La Isla
(Curaçao). Factors affecting the net sales contributed by
Coflexip are discussed below in “— Coflexip
Operating and Financial Review and Prospects-Operating
Revenues”.
Backlog.
Backlog, an
unaudited measure resulting from firm orders received during the
year and previous years, less progress on contracts underway,
was
€
4,926 million
at December 31, 2001, compared with
€
3,410 million
at December 31, 2000, or the aggregate
€
4,770 million
in backlog recorded at the same date by the entities making up
the new group (of which approximately
€
3,410 million
was attributable to Technip,
€
931 million
was attributable to Coflexip and
€
429 million
was attributable to the Deepwater Division).
During 2001, there was noticeable backlog growth
in the Americas, principally in the offshore sector, with this
region representing 33.8% of total group backlog at
December 31, 2001. Coflexip (including the Deepwater
Division) contributed
€
1,887.0 million
of our total backlog at December 31, 2001 of which more
than half was in
86
the Americas with the remainder principally in
Europe and Russia/ Central Asia. Approximately 34% of our
backlog was for contracts in Africa/ Middle East at the same
date.
Broken down by business segment, at
December 31, 2001, approximately 43.4% of our backlog was
in the Offshore sector, 50.7% was in the Onshore/ Downstream
sector and the remainder was in our Industries sector. Contract
intake in 2001 was driven in the Offshore sector principally by
our Deepwater Division’s provision of deepwater floating
platforms in the Gulf of Mexico and contracts for shallow water
platforms in Iran and Azerbaijan. In the Onshore/ Downstream
sector, backlog was driven principally by a $400 million
ammonium/urea complex in Vietnam and in gas projects valued at
approximately one billion euro in the Arabian Peninsula as well
as new polyolefin projects. Backlog in the Industries sector was
driven by a $100 million fertilizer plant in Brazil, a
nickel/ cobalt production complex in New Caledonia, engineering
and project management services for the Airbus A380 assembly
plant in France as well as the design and construction of
electric plants in Germany and Saudi Arabia.
On a stand-alone basis, our backlog decreased
10.9% to
€
3,039 million
at December 31, 2001 compared to December 31, 2000.
Backlog at December 31, 2001 does not include the order
intake of two very large contracts for ethylene complexes in
Iran (onshore/ downstream segment) for which financing has not
yet been confirmed by the client. As a result, our order intake
not yet booked as backlog as of December 31, 2001, amounted
to approximately
€
1.5 billion,
compared to approximately
€
0.7 billion
at December 31, 2000, and
€
0.8 billion
at December 31, 1999.
Net sales by segment.
Our Offshore segment accounted for
€
722.0 million,
or 20.4% of total revenues in 2001, compared to
€
130.0 million
or 4.4% in 2000, a dramatic increase in net sales mainly
attributable to our consolidation of Coflexip as of
October 1, 2001. We account for substantially all revenues
contributed by Coflexip in our Offshore segment. Other factors
contributing to sales in this segment were increased SURF and
Spar activities in North America and South America as well as
sustained activity in the North Sea. Contributing to the level
of SURF activity in the fourth quarter was the commissioning of
our
CSO Deep Blue
pipe-laying vessel, which was active on
deepwater projects (1,100 meters) in the Gulf of Mexico.
Coflexip contributed
€
495.0 million
in the fourth quarter, or 68.6% of our total annual Offshore
segment revenues in 2001. On a stand-alone basis, our Offshore
segment revenues increased 74.6% to
€
227.0 million
in 2001 compared to 2000. Major contributors to this growth were
the delivery and start-up of the Elgin Franklin TPG 500 platform
in the North Sea, two important contracts in Nigeria and
significant progress on the Cakerawala field in the territorial
waters of Malaysia and Thailand as well as sustained North Sea
activities.
Our Onshore/ Downstream segment, which is
comprised of activities related to production, refining and
petrochemicals, accounted for
€
2,352.0 million,
or 66.3% of total revenues in 2001, compared to
€
2,290.9 million
or 77.1% in 2000, an increase in net sales of 2.7%. In 2001,
important contributors to this segment in 2000 were the Midor
refinery in Egypt, the OGD2 gas treatment installations in Abu
Dhabi, the coke calcination plant in Bahrain and the Sincor
complex in Venezuela.
Our Industry segment contributed sales of
€
472 million,
or 13.3% of total revenues in 2001 as compared to
€
551.1 million,
or 18.5% of total revenues, in 2000, a decrease in net sales of
14.4%. This decrease reflects the completion in 2000 of two
large turnkey contracts.
Net sales by geographic area.
During 2001, our operations in Europe
and Russia/ Central Asia generated
€
942.0 million
in sales, or 26.6% of total revenues, compared to
€
717.7 million,
or 24.1% of total revenues in 2000, an increase of 31.4%,
reflecting primarily the consolidation of Coflexip’s North
Sea and other European revenues in the last quarter of 2001.
Coflexip operations in Europe and Russia/ Central Asia generated
€
230 million
in sales or 24.4% of our total revenues from Europe in 2001. On
a stand-alone basis, our operations in Europe and Russia/
Central Asia decreased 0.7% to
€
712.0 million
in 2001 compared to 2000. The principal contributors to sales in
this region in 2001 were Blake (BRITISH GAS), Nugget ABB, Elgin
Franklin (ETPM and TotalFinaElf), Ringhorne (ESSO), RWE
Powerplant in Germany, DOW Chemicals in the Netherlands, Lube
Oil in Turkmenistan, Shah Deniz in Azerbaïdjan as well as
increased sales of umbilicals in the North Sea.
Sales generated from our activities in Africa/
Middle East during 2001 amounted to
€
1,209.0 million,
or 34.1% of total revenues, a decrease of 16.5% from reported
revenues in 2000 of
€
1,448.3 million
or 48.7% of
87
total 2000 revenues. This decrease is a result of
the completion of major projects in Egypt and Nigeria which
resulted in substantial revenues in 2000. Coflexip operations in
Africa/ Middle East were not material in 2001. The principal
contracts contributing to our sales in this region in 2001 were
Kuito 1 E (CABGOC), Train n 3 in Nigeria, Q-CHEM
in Quatar, Haradh in Saudi Arabia and MIDOR in Egypt.
Our operations in Asia Pacific generated sales of
€
560.0 million
in 2001, or 15.8% of total revenues, up from
€
352.2 million,
or 11.9% of total revenues in 2000, an increase of 59.0%, due to
progress on the Legendre (WOODSIDE) and Bonkot (PTT) contracts,
the CTOC and OPTIMAL contracts in Malaysia, and the PTA CAPCO
contract in Taiwan. Coflexip operations in the Asia Pacific
generated
€
32.0 million
in sales in the fourth quarter or 5.7% of our total annual
revenues generated in the Asia Pacific region in 2001.
Sales generated from our activities in the
Americas increased significantly during 2001 and amounted to
€
835.0 million,
or 23.5% of total revenues, compared to revenues in 2000 of
€
454.5 million.
The principal contracts contributing to our sales in this region
in 2001 were Banjo/Seahawk (WILLIAMS), Nile (BP), American
Accryl and HDPE Chevron in the United States, La Isla in
Curaçao, and COPEBRAS in Brazil. Coflexip operations in the
Americas generated
€
223.0 million
in sales in the fourth quarter or 26.7% of our total annual
revenues from the Americas in 2001, mainly from SURF projects in
the Gulf of Mexico and Brazil. On a stand-alone basis, our
operations in the Americas increased 34.7% to
€
612.0 million
in 2001 compared to 2000.
Our cost of sales was
€
3,094.3 million
in 2001, compared to
€
2,680.8 million
in 2000. Coflexip contributed cost of sales in 2001 of
€
391.1 million
in the fourth quarter or 12.7% of our total annual cost of
sales. On a stand-alone basis, our cost of sales increased 0.8%
to
€
2,703.0 million
in 2001 compared to 2000. The major component was payroll, study
costs, and external costs such as equipment purchases and
construction subcontracting. The increase in our costs was
principally linked to our overall level of activity.
We achieved a gross margin in 2001 amounting to
€
451.7 million,
compared to
€
291.2 million
during 2000. As a percentage of net sales, gross margin was
12.7% in 2001, compared to 9.8% in 2000. Coflexip contributed
€
103.9 million
to our 2001 gross margin. On a stand-alone basis, our gross
margin was 11.4% of sales in 2001 as compared to 9.8% in 2000.
The principal factor accounting for this change was the
completion of major contracts in Venezuela and Africa under
favorable conditions. Factors affecting the gross margin
contributed by Coflexip are discussed below at “Coflexip
Operating and Financial Review and Prospects.”
|
|
|
|
|
Research and Development
Expenses
|
Our research and development expenses amounted to
€
18.3 million
in 2001, compared to
€
7.2 million
in 2000. Most of our technology is licensed and applied to a
particular product; therefore it is not accounted for as a
research and development expense. The principal factors
accounting for the increase in internally financed research and
development expenditures is our investment in e-procurement and
other information technology, as well as Coflexip’s
contribution of
€
5.0 million
in expenses in the fourth quarter.
|
|
|
|
|
Selling, General and Administrative
Expenses
|
Our selling, general and administrative expenses
during 2001 were
€
149.0 million
compared to
€
85.1 million
incurred in 2000. The increase between the two periods is in
part explained by the consolidation of approximately
€
37.3 million
in Coflexip selling, general and administrative expenses in the
fourth quarter. On a stand-alone basis, our selling, general and
administrative expenses increased 31.3% to
€
111.7 million,
and amounted to 3.7% of sales. The principal factors accounting
for this increase were our consolidation of Coflexip and
expenditures on computer systems and other production tools.
88
|
|
|
|
|
EBITDA and Operating Income
|
Our earnings before interest, tax, depreciation
and amortization (commonly referred to by the acronym EBITDA)
amounted to
€
284.4 million
in 2001 compared to
€
198.9 million
in 2000. The growth in EBITDA resulted both from Coflexip’s
contribution of
€
61.6 million
to our EBITDA in the fourth quarter of 2001 and to a 12.1%
increase in our EBITDA on a stand-alone basis to
€
223.0 million.
Operating income amounted to
€
173.5 million
in 2001, compared to
€
155.9 million
the previous year, an increase of 11.3%. The operating margin
(operating income taken as a percent of net sales) declined to
4.9% in 2001 from 5.2% in 2000, primarily as a result of the
non-recurring change described below. Coflexip contributed
operating income for the fourth quarter of 2001 amounting to
€
27.3 million
or 15.7% of our total annual operating income for 2001. On a
stand-alone basis, our operating income was
€
161.9 million
or 5.3% of sales for 2001.
Our operating income compared to EBITDA reflects
depreciation charges of
€
49.6 million
in 2001 compared to approximately
€
16.3 million
in 2000, principally as a result of our consolidation of
Coflexip’s more capital intensive operations starting on
October 1, 2001. Most of our depreciation charges relate to
assets in our Offshore segment. Our EBITDA also excludes
amortization of goodwill resulting from acquisitions, which in
2001 amounted to
€
61.3 million
compared to
€
26.7 million
the preceding year. This significant increase is principally due
to the acquisitions of ISIS and Coflexip in simultaneous tender
offers in 2001.
In 2001 the results of the Deepwater Division
were impacted not only by the non-recurring loss of
€
27.3 million
incurred on a drilling rig repair contract undertaken by
Coflexip, but also by the delay of several deep water field
development projects in the Gulf of Mexico and the relatively
low average levels of capacity utilization at its yards in
Newcastle and Corpus Christi. As a result of the reduced
expectations of future cash flows from the Deepwater Division,
Coflexip recorded an amortization charge of
€
142.6 million
relating to the Deepwater Division acquisition goodwill carried
on its balance sheet. This charge did not have a negative effect
on our consolidated results for the year. Our total goodwill
resulting from acquisitions carried on our balance sheet remains
unchanged at approximately
€
2.6 billion,
generating an annual amortization charge of about
€
120 million.
Factors affecting EBITDA and operating income
contributed by Coflexip are discussed below at “Coflexip
Operating and Financial Review and Prospects-Operating income
and Earnings Before Interest, Tax, Depreciation and
Amortization/ EBITDA”.
EBITDA by segment.
Below we present EBITDA and EBITDA
margins by business segment for 2001 and 2000. We have defined
segment EBITDA margins as segment EBITDA divided by segment net
sales. We generated an immaterial amount of operating income and
EBITDA from outside these segments in both 2001 and 2000.
Our Offshore segment generated EBITDA of
€
86.3 million,
with a segment EBITDA margin of 11.9% in 2001, improved from
segment EBITDA of
€
0.1 million,
with a segment EBITDA margin of 0.1% in 2000. Coflexip
contributed EBITDA for 2001 amounting to
€
61.6 million
or 71.4% of our Offshore segment EBITDA for the year. On a
stand-alone basis, our Offshore segment EBITDA was
€
24.7 million
or 10.9% of segment sales for 2001. The principal sources of
EBITDA for this segment in 2001 were our CTOC contract in
Malaysia and our AMENAM contract in Nigeria. The increase in
segment EBITDA margin is explained by the strong contributions
of these two contracts.
Our Onshore/ Downstream segment generated EBITDA
of
€
189.0 million,
with a segment EBITDA margin of 8.0% in 2001, compared to
segment EBITDA income of
€
157.1 million,
with a segment EBITDA margin of 6.9% in 2000, an increase in
segment EBITDA of 20.4%. The increase in EBITDA was attributable
to the significant progress made on La Isla in Curaçao,
MIDOR in Egypt, Optimal and PETLIN in Malaysia, Alba in Bahrain
et LNG in Nigeria, as well as the completion under favorable
conditions of our contracts in Venezuela.
Our Industry segment contributed EBITDA of
€
9.1 million
with a segment EBITDA margin of 1.9% in 2001, as compared to
segment EBITDA of
€
41.7 million
with a segment EBITDA margin of 7.6% in 2000, a
89
decrease in segment EBITDA of 78.2%. A major
contributing factor to the decrease in segment EBITDA and margin
was the difficulty encountered on a turnkey contract in Senegal.
EBITDA by geographic zone.
Below we present EBITDA and EBITDA
margins by geographic zone for 2001 and 2000. We have defined
EBITDA margins as EBITDA divided by segment net sales for a
given zone.
In Europe and Russia/ Central Asia, we generated
EBITDA of
€
73.2 million
in 2001 (7.8% EBITDA margin) compared to
€
64.2 million
(9.0%) in the preceding year. The reduced margins on increased
activity resulted from a relatively smaller contribution from
turnkey contracts in this region in 2001.
In Africa/ Middle East, we generated EBITDA of
€
74.8 million
in 2001 (6.2% EBITDA margin) compared to
€
102.9 million
(7.1%) in the preceding year.
In Asia Pacific, we generated EBITDA of
€
72.2 million
in 2001 (12.9% EBITDA margin) compared to
€
29.3 million
(8.3%) in the preceding year. The increase in EBITDA and EBITDA
margin in this region results from both the sustained demand for
our services and the collection of early completion bonuses
under certain contracts in this region.
In the Americas, we generated EBITDA of
€
64.2 million
in 2001 (7.7% EBITDA margin) compared to
€
2.5 million
(0.6%) in the preceding year.
This strong improvement results from the
satisfactory progress in 2001 on a contract for which we had
taken provisions in 2000 as well as completion of several other
projects, notably La Isla in Curaçao.
Amortization of goodwill during 2001 amounted to
€
61.3 million,
compared to
€
26.7
million in 2000. The increase is mainly due to our commencement
of amortization of goodwill generated by our acquisition of
Coflexip and Isis in October 2001 generating an annual
amortization change of
€
81.9 million.
We recorded
€
20.4 million
in 2001, reflecting an amortization of this intangible asset
starting in October 2001. The remainder of the goodwill
amortization in 2001 mainly results from amortization of
goodwill arising from our potential acquisition of Coflexip in
2000 for
€
22.4 million
and from our acquisition of KTI and MDEU from Mannesmann in 1999
for
€
8.0
million.
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Financial Income (loss), Excluding
Financial Income on Contracts (Net)
|
We had a net financial loss (excluding financial
income on contracts, which we record under net sales) of
€
6.5 million
in 2001, compared to net financial income of
€
5.8 million
in 2000. Coflexip contributed
€
2.4 million
to our net financial income in 2001. The principal factor
contributing to this decrease was our higher average debt level
in 2001 due primarily to the financing of the cash portion of
our acquisition of Coflexip through debt. Interest expenses on
this acquisition financing amounted to
€
9.6 million
for the period. Other factors contributing to this net financial
loss was the consolidation of negative net financial income from
Coflexip and ISIS in the fourth quarter amounting to losses of
€
2.4 million
and
€
1.2 million,
respectively. This line item does not include financial revenue
on positive cash balances of individual contracts, which we
account for under net sales. In 2001 and 2000 financial revenues
from these sources contributed
€
17.0 million
and
€
25.0 million,
respectively, to our net sales. Factors affecting Coflexip net
financial income for 2001 are described below at “Coflexip
Operating and Financial Review and Prospects —
Coflexip Financial result, non-recurring items and equity income
of investees”.
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Equity in Income of Unconsolidated
Affiliates
|
Our equity in income of unconsolidated affiliates
amounted to
€
15.6 million
in 2001, compared to
€
22.1 million
in 2000. The principal unconsolidated affiliates contributing
income to this item in 2001 were Coflexip with a contribution of
€
14.4 million
in 2001 and Ipedex, a subsidiary which provides maintenance and
operations for oil and gas companies. Coflexip was accounted for
under the equity method from April 2000 until September 30,
2001. Beginning of October 1, 2001 we consolidated its
operations following the successful
90
completion of the Coflexip and ISIS exchange
offers. In May 2002, we announced our agreement to sell our 46%
interest in Ipedex for
€
6.9 million
euro in a management buy-out.
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Non-operating Income (loss)
|
We incurred a non-operating loss in 2001 of
€
6.6 million
compared to a non-operating income of
€
93.9 million
in 2000. In 2001 our non-operating loss was primarily the result
of the dilution of our interest in Coflexip prior to the
business combination as well as restructuring charges related to
EHR GmbH and other expenses. Coflexip did not contribute to our
non-operating loss of 2001. Non-operating income in 2000 was
primarily derived from capital gains on our sale of Cogema
shares
(
€
69.9 million)
and our 29.7% interest in the capital gains on Coflexip’s
sale of its Cal Dive shares in September 2000
(
€
39.0 million).
Our income tax for 2001 amounted to
€
65.5 million,
compared to
€
62.3 million
in 2000. Compared to the generally applicable French corporate
income tax rate of 36.23% for 2001 and 36.66% for 2000, our
effective income tax rate in 2001 amounted to 30.31%, and 37.22%
in 2000. Factors affecting Coflexip income tax for 2001 are
described below at “Coflexip Operating and Financial Review
and Prospects-Financial result, non recurring items as equity
income of investees”.
Minority interests in our earnings amounted to
€
2.4 million
in 2001, compared to
€
1.2 million
in 2000. This difference is not significant compared to the
overall amounts included during these years.
Our consolidated net income for 2001 was
€
108.1 million,
a decrease of 49.5% compared to net income of
€
214.2 million
in 2000. Coflexip contributed
€
19.6 million
or 18.1% to our consolidated net income for 2001. On a
stand-alone basis, our consolidated net income for 2001 was
€
121.0 million.
Excluding non-operating income and goodwill amortization,
earnings amounted to
€
176.0 million
in 2001 and
€
147.0 million
in 2000, an increase of 19.7%. Non-recurring items in 2000
included significant one time gains on disposals.
Our net income before non-recurring items and
amortization of goodwill per share on a fully diluted basis was
€
6.93 in
2001 compared to fully diluted net income before non-recurring
items and amortization of goodwill per share of
€
8.82 in
2000, representing a decrease of 21.4%. Diluted net income
before non-recurring items and amortization of goodwill per
share has been calculated on the basis of net income before
non-recurring items and amortization of goodwill divided by the
number of common shares outstanding as of each year end,
including outstanding options to subscribe to new shares granted
to employees. Per share statistics in 2001 reflect our issuance
of approximately 10 million new Technip-Coflexip shares in
October 2001 in consideration for the Coflexip and ISIS shares
tendered to us in the simultaneous exchange offers we conducted
on these companies.
Technip-Coflexip Results of Operations for the
Year Ended December 31, 2000 Compared to
the Year Ended December 31,
1999
Our consolidated net sales for 2000 were
€
2,972.0 million.
This was an increase of 6.8% from net sales in 1999 of
€
2,782.2 million
and is largely due to revenues from in-progress contracts,
reflecting several major contracts which have entered the
construction phase. Among the largest contributors to net sales
in 2000, as a result of the size and state of progress on these
contracts, were the OGD II gas treatment plant in Abu Dhabi, the
Sincor refinery in Venezuela, the Midor refinery in Egypt, the
Q-Chem petrochemical facility in Qatar and a calcinated coke
plant in Bahrain.
Backlog, resulting from orders received during
the year, less progress on contracts underway, was
€
3,410.0 million
at December 31, 2000, compared with
€
3,468.2 million
at December 31, 1999, and represents the equivalent of
approximately 14 months of revenues to come (based on
average monthly net sales in 2000).
91
During 2000, there was noticeable backlog growth
in the Asia Pacific, which now accounts for 21% of the
Group’s total backlog.
Net sales by segment.
Our Offshore segment accounted for
€
130.0 million,
or 4.4% of total revenues in 2000, more than doubled from
€
56.0 million
or 2.0% in 1999. This increase is due to the increased
development of oil fields in the Asia Pacific, Africa and the
Middle East, reflected by several large contracts, including one
of our biggest turnkey projects of the year: an offshore
development in Malaysia. In addition, our acquisition of an
initial 29.7% interest in Coflexip, and the joint pursuit of
contracts through our strategic alliance and initial contract in
Thailand, enabled us to expand into the deep offshore market.
The recent historically high price of oil has generally led to
an increase in exploration activities and the subsequent
development of new oil production facilities, because higher oil
prices make exploration of difficult-to-access oil fields more
economically feasible.
Our Onshore/ Downstream segment, which is
comprised of activities related to production, refining and
petrochemicals, accounted for
€
2,290.9 million,
or 77.1% of total revenues in 2000, compared to
€
2,121.7 million
or 76.3% of total revenues in 1999, an increase in absolute
terms of 8.0%. This increase is attributable to activities
related to production and petrochemicals. Production activities
have benefitted from the above mentioned increase in the
development of oil fields, in particular with one of our two
biggest turnkey projects of the year: the associated utilities
and the development of a gas field in Hawiyah, Saudi Arabia.
Also, as mentioned before, the recent historically high price of
oil has generally led to an increase in exploration activities
and the subsequent development of new oil production facilities.
The increase in petrochemicals is attributable in part to the
increase in importance of the ethylene sector, reflecting our
increased penetration of the market as a result of our
acquisition of KTI less than two years earlier, and to our
contract for a polyethylene plant in Malaysia. The increase in
both these activities was partially offset by the decline of the
refining activities. With the exception of the hydrogen
sub-sector, which we have strongly developed since our
acquisition of the engineering activities of KTI, we believe
that refining is at a low point in the investment cycle in
Europe after the completion of major projects relating to
achieving conformity with the new European environmental
standards that went into effect on January 1, 2000. Our
remaining European projects in this sector were of a smaller
size. Additionally, a larger portion of the work on a
significant ongoing contract in Egypt, the Midor refinery, was
completed in 1999, leading to considerably more revenue in 1999
compared to 2000.
Our Industry segment contributed sales of
€
551.1 million,
or 18.5% of total revenues, in 2000 as compared to
€
604.5 million
or 21.7% of total revenues in 1999, a decrease of 8.8%. This
reflects the integration process related to our acquisition of
KTI and MDEU, in which we discontinued non-profitable areas of
business in this segment, particularly in the environmental area.
Net sales by geographic area.
During 2000, our operations in Europe
and Russia/ Central Asia generated
€
717.0 million
in sales, or 24.1% of total revenues, compared to
€
922.9 million,
or 33.1% of total revenues in 1999, a decrease of 22.3%,
reflecting the decline of refining activities in Europe and the
discontinuation of selected activities in the industry sector as
discussed above. The completion of a major refining contract in
Turkmenistan in 1999 also contributed to the higher level of
sales in 1999.
During 2000, our operations in Africa/ Middle
East generated
€
1,448.3 million
in sales, or 48.7% of total revenues, compared to
€
1,296.8 million
in 1999, or 46.6% of total revenues, an increase of 11.7%. This
increase is due to the rebounding of Middle Eastern oil and gas
projects, reflected in two significant contracts in Saudi
Arabia, while backlog remained constant. Backlog does not
include the order intake of two very large contracts for
ethylene complexes in Iran for which financing has not yet been
confirmed by the client. These positive effects were partially
offset by the timing of progress made on large contracts in
Africa, in particular the Midor refinery in Egypt and on the
Bonny LNG complex in Nigeria.
Our operations in the Asia Pacific generated
sales of
€
352.2 million
in 2000, or 11.9% of total revenues, up from
€
224.9 million,
or 8.1% of total revenues in 1999, an increase of 56.6%, in part
due to the activities of Technip Singapore, TPGM as well as
Technip KT India, the former acquired from Mannesmann in 1999.
Sales generated from our activities in the Americas have
increased during 2000 and amounted to
€
454.5 million,
or 15.3% of total revenues, an increase of 34.6% from reported
revenues in 1999 of
€
337.6 million.
This is due principally to the significant milestones reached
with respect to our Venezuelan contracts.
92
Our cost of sales was
€
2,638.4 million
in 2000, compared to
€
2,469.0 million
in 1999. The major component was external costs consisting of
equipment purchases and subcontracted construction and
engineering work. The increase in these costs was principally
linked to an increased volume of activity. Increased payroll
costs in Europe were partially offset by an increase in
headcount in lower-cost regions, in particular India and
Malaysia, thereby limiting the aggregate increase in payroll
costs. Moderate inflation in the areas where we have a
substantial number of employees, such as the United States and
Europe, helped contain payroll costs.
We achieved a gross margin in 2000 amounting to
€
333.6 million,
compared to
€
313.2 million
during 1999. As a percentage of net sales, gross margin was
11.2% in 2000, compared to 11.3% in 1999. The principal factor
accounting for this evolution was the improved results on
projects assumed with our acquisition of KTI and MDEU in 1999,
partially offset by provisions taken against contracts in
Venezuela as a result of the effect of social unrest on
construction activity.
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Selling, General and Administrative
Expenses
|
Our selling, general and administrative expenses
during 2000 were
€
134.7 million
compared to
€
129.9 million
incurred in 1999. The 3.7% increase between the two periods is
principally explained by our increased efforts in bidding
activities in 2000 to develop new business. These expenses as a
percentage of net sales remained virtually unchanged at 4.5% in
2000 compared to 4.7% the prior year. We include most of our
operating expenses incurred, including general and
administrative expenses, in “Cost of Sales” (See
“— Principal Differences Between U.S. GAAP
and French GAAP”).
Our selling, general and administrative expenses
include expenditures on research and development which during
2000 amounted to
€
7.2 million.
During 1999, our expenditures on research and development
amounted to
€
10.3 million.
These amounts, which primarily relate to process studies, do not
include research and development undertaken in the course of
executing a client project which we account for as a cost of
sale. Most of our technology is licensed and applied to a
particular product; therefore it is not accounted for as a
research and development expense. The principal factor
accounting for the decrease in internally financed research and
development expenditures is our rationalization of research and
development teams, particularly in the environmental areas,
subsequent to the KTI and MDEU acquisitions.
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EBITDA and Operating Income
|
Our earnings before interest, tax, depreciation
and amortization (commonly referred to by the acronym EBITDA)
amounted to
€
198.9 million
in 2000 compared to
€
183.3 million
in 1999. The difference between our operating income and EBITDA
was a depreciation charge of
€
16.3 million
in 2000 and of
€
22.3 million
in 1999.
Operating income amounted to
€
182.6 million
in 2000, compared to
€
161.0 million
the previous year, an increase of 13.4%. The operating margin
(operating income taken as a percent of net sales) increased to
6.1% in 2000 from 5.8% in 1999, primarily as a result of the
improved performance of KTI and MDEU, which we acquired from
Mannesmann in 1999, the aggregate operating margin of which
reached 4.8% in 2000, compared to 1.1% in 1999.
EBITDA by segment.
Below we present EBITDA and EBITDA
margins by business segment for 2000 and 1999. We have defined
segment EBITDA margins as segment EBITDA divided by segment net
sales. We generated an immaterial amount of operating income and
EBITDA from outside these segments in both 2000 and 1999.
Our Offshore segment generated EBITDA of
€
0.1 million,
with a segment EBITDA margin of 0.1% in 2000, compared to
segment EBITDA loss of
€
(0.9)
million, with a segment EBITDA margin of (1.5)% in 1999.
Our Onshore/ Downstream segment generated EBITDA
of
€
157.1 million,
with a segment EBITDA margin of 6.9% in 2000, compared to
segment EBITDA income of
€
158.5 million,
with a segment EBITDA margin of
93
7.5% in 1999, a slight decrease in segment EBITDA
of 0.1%. This decrease in EBITDA margin was attributable to
production and refining activities, only partially offset by
petrochemical activities. In production, the principal sources
of EBITDA in 2000 were major contracts in Saudi Arabia, Nigeria
and Abu Dhabi, on which we achieved substantial progress. The
decrease in EBITDA from onshore production activities is
explained by our increased order intake in this area, because
the timing of our revenue and operating expense recognition
results in proportionally more operating income being recognized
at the later stages of a given contract than at its initial
stages. The decreased EBITDA from refining activities in 2000
compared to 1999 reflect both the high contribution of large
refinery projects in Egypt and Turkmenistan and a coke
calcinating plant in Bahrain in 1999, as well as provisions
taken in 2000 against contracts in Venezuela as a result of the
effect of the social unrest on construction activity. The
decrease in EBITDA margin in other parts of our Onshore/
Downstream segment was partly offset by a significant increase
in both EBITDA and EBITDA margin in petrochemical activities.
The increase is principally due to the continued development of
our ethylene activities through our recently acquired subsidiary
KTI and the substantial progress on a large Malaysian contract.
Our Industry segment contributed EBITDA of
€
41.7 million
with a segment EBITDA margin of 7.6% in 2000, nearly double
segment EBITDA of
€
25.7 million
with a segment EBITDA margin of 4.3% in 1999. A major
contributing factor to the increase in segment EBITDA and EBITDA
margin is our full consolidation of Krebs-Speichim in 2000
subsequent to our acquisition of the 50% of this company which
we did not already own. In 1999, we accounted for this
subsidiary using the proportionate consolidation method. Another
contributing factor to our increased EBITDA and EBITDA margins
in this segment is the improvement in the contract margins of
our recently acquired subsidiary MDEU.
EBITDA by geographic zone.
Below we present EBITDA and EBITDA
margins by geographic zone for 2000 and 1999. We have defined
EBITDA margins as EBITDA divided by segment net sales for a
given zone.
In Europe and Russia/ Central Asia, we generated
EBITDA of
€
64.2 million
in 2000 (9.0% EBITDA margin) compared to
€
60.5 million
(6.6%) in the preceding year. These increases are principally
attributable to substantial progress made on contracts nearing
completion in Western Europe and Turkmenistan.
In Africa/ Middle East, we generated EBITDA of
€
102.9 million
in 2000 (7.1% EBITDA margin) compared to
€
103.8 million
(8.0%) in the preceding year.
In Asia Pacific, we generated EBITDA of
€
29.3 million
in 2000 (8.3% EBITDA margin) compared to
€
13.1 million
(5.8%) in the preceding year. This increase reflects the high
level of activity on several turnkey contracts entered into in
recent years, notably for petrochemical plants (PVC).
In the Americas, we generated EBITDA of
€
2.5 million
in 2000 (0.6% EBITDA margin) compared to
€
5.9 million
(1.7%) in the preceding year. The results for this region were
negatively affected by factors including the taking of
provisions to reflect the potential effect of social unrest on
the execution of our contracts in Venezuela.
Amortization of goodwill during 2000 amounted to
€
26.7 million,
compared to
€
9.5 million
in 1999. The increase is principally due to our commencement of
amortization of goodwill generated by our partial acquisition of
Coflexip in April 2000 generating an annual amortization charge
of
€
22.4 million.
We recorded
€
16.8 million
in 2000, reflecting our amortization of this asset starting
April 19, 2000. The remainder of the goodwill amortization
in 2000, and substantially all of the goodwill amortization in
1999, results from amortization of goodwill arising from our
acquisition of KTI and MDEU from Mannesmann in 1999, generating
an annual amortization charge of
€
8.0 million
and a small amount from our acquisition of CBS Engineering in
1997.
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Financial Income, Excluding Financial
Income on Contracts (Net)
|
Our net financial income, excluding financial
income on contracts, which are recorded under net sales,
decreased to
€
5.8 million
in 2000, compared to
€
16.6 million
in 1999. The principal factor contributing to this decrease was
increased interest expenses from the cost of credit facilities
entered into for refinancing purposes after completion of our
acquisition of a 29.7% interest in Coflexip for
€
659.7 million
and the remaining 50% of
94
Krebs-Speichim. This line item does not include
financial revenue on positive cash balances of individual
contracts, which we account for under net sales. In 2000 and
1999 financial revenues from these sources contributed
€
25.0 million
and
€
19.0 million,
respectively, to our net sales.
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Equity in Income of Unconsolidated
Affiliates
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Our equity in income of unconsolidated affiliates
amounted to
€
22.1 million
in 2000, compared to
€
0.8 million
in 1999. The principal unconsolidated affiliates contributing
income to this item in 2000 were Coflexip with a contribution of
€
21.0 million
(not including
€
39.0 million
related to non-recurring asset disposals, which we accounted for
as non-operating income) and, to a lesser extent, Ipedex, a
subsidiary, which provides maintenance and operations for oil
and gas companies.
Non-operating income in 2000 amounted to
€
93.9 million
compared to
€
59.8 million
in 1999. In 1999, the principal source of non-operating income
was the reversal of a provision for geopolitical risk
(
€
89.9 million)
and
€
3.0 million
of “other” non-operating income. In 2000, we did not
record further non-operating income in relation to the reversal
of provisions. We generated other non-operating income of
€
93.9 million
in 2000, compared to other non-operating income of
€
3.0 million
(from sources other than the reversal of provisions) in 1999.
Our non-operating income in 2000 consisted principally of a
capital gain on our sale of our 3.2% stake in Cogema for
€
69.9 million,
our proportionate interest of
€
39.0 million
in Coflexip’s sale of its stake in the company Cal Dive,
offset by restructuring costs of
€
8.9 million
consisting principally of
€
6.8 million
incurred in connection with a restructuring plan under which we
reduced the workforce of two German subsidiaries, TP Germany
GmbH and MSE GmbH acquired from Mannesmann, and
€
1.6 million
of restructuring costs relating to the relocation of activities
in Berlin, Düsseldorf and Frankfurt.
Reversal of geopolitical risk provision.
Prior to 1999 we maintained a
provision for geopolitical risk in recognition of the potential
country risk, separate from the technical and financial risks
typical of lump-sum turnkey contracts, to which our major
contracts outside of Western Europe were theoretically exposed.
In 1999, we determined that, because our increased geographic
scope of operations subsequent to the acquisition of KTI and
MDEU had substantially diversified our country risk and because
we had never in fact drawn on this geopolitical risk provision
since its establishment, the maintaining of our geopolitical
risk provision was no longer justified. We believe that our
reversal of this provision is consistent with prudent risk
management and brings us in line with our industry’s
practices and accounting standards. We reversed the provision
for geopolitical risk at year end 1999, generating pre-tax
non-operating income of
€
89.9 million
(or
€
57 million
net of tax).
Our income tax for 2000 amounted to
€
62.3 million,
compared to
€
55.9 million
in 1999. The
€
55.9 million
income tax amount in 1999 includes the cancellation of a
€
32.9 million
tax asset following our reversal of our geopolitical risk
provision. This provision was not deductible for tax purposes
and had resulted in the recording of a tax asset.
Our effective income tax rate was 37.2% in 2000,
significantly higher than our effective rate of 33.8% in 1999
due to the increase of revenues realized in Italy, where the tax
rate is higher than our average tax rate. Both the 2000 and 1999
amounts include the effect of the 10% additional charge
applicable in those years. 1999 also includes a temporary tax of
10% that was no longer in effect in 2000.
Minority interests in our earnings amounted to
€
1.2 million
in 2000, compared to
€
0.2 million
in 1999. This difference is not significant based on the overall
amounts included during these years.
95
Our consolidated net income for 2000 was
€
214.2 million,
an increase of 24.1% compared to net income of
€
172.6 million
in 1999. Our net earnings per share on a fully diluted basis
were
€
12.85
in 2000 compared to fully diluted earnings per share of
€
10.75 in
1999, representing an increase of 19.5%. Diluted earnings per
share has been calculated on the basis of net income divided by
the number of common shares outstanding as of each year end,
including outstanding options to subscribe to new shares granted
to employees.
Coflexip Operating Review
Below, we discuss on a stand-alone basis the
operating results of our recently acquired subsidiary Coflexip
for the financial years ended December 31, 2001, 2000 and
1999. We consolidate Coflexip’s results into our financial
statements starting October 1, 2001, therefore our
consolidated balance sheet at December 31, 2001, fully
reflects the balance sheet of Coflexip, which is not discussed
below. The following discussion should be read in conjunction
with the consolidated financial statements of Coflexip and the
notes thereto included at “Item 18” of this
report. Coflexip financial information for 2001 in unaudited.
Demand for Coflexip’s products and services
is generally dependent upon capital expenditures for offshore
development in the oil and gas industry. These offshore
development expenditures are in turn influenced by the prices of
oil and gas, the rate of discovery and development of new oil
and gas reserves in offshore areas, local and international
political and economic conditions and the ability of oil and gas
companies to generate funds for capital expenditures.
Coflexip’s offshore activities in the North
Sea are seasonal, with the main offshore operations generally
performed during the period from April through October. As a
result, a disproportionate amount of revenues and income
ordinarily are earned during the second and third quarters of
the fiscal year, and losses may be incurred in the first and
fourth quarters. This seasonal effect has been partially offset
by Coflexip’s growth in other geographic zones and by the
securing of winter contracts for the CSO
Apache
and DSV
fleet in locations such as Brazil, Asia Pacific, West Africa and
the Gulf of Mexico.
A significant portion of Coflexip’s
operations is performed pursuant to fixed-price (lump sum)
contracts, a number of which are turnkey contracts, that require
one to three years to complete. Certain of these contracts
provide for progress payments. Coflexip recognizes revenues and
costs with respect to such contracts on a percentage of
completion basis. Adjustments in anticipated revenues and
expenses are made as determined necessary and are reflected in
income. Any such contract may represent a significant percentage
of Coflexip’s net operating revenues over several reporting
periods, but an immaterial percentage in other periods.
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Significant Acquisitions and Divestitures
by Coflexip
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Deepwater Division.
On January 4, 2001, Coflexip
closed its purchase from Aker Maritime ASA and Aker Maritime
Norge AS of the Deepwater Division for
U.S. $513 million in cash plus the assumption of
U.S. $112 million in net debt. This acquisition price
is still subject to various adjustment mechanisms on the basis
of Deepwater Division’s audited 2000 financial statements,
and Coflexip has lodged a price adjustment claim with Aker
Maritime. See “Item 8. Financial
Information — Information on Legal or Arbitral
Proceedings”. As the transaction closed in January 2001,
the acquisition has no effect on Coflexip’s financial
statements for the years ended December 31, 2000 or 1999.
For further information on the acquisition of the Deepwater
Division, see Item 4: “Information about
Technip-Coflexip — Other Major Recent
Acquisitions — The Acquisition of the Deepwater
Division from Aker Maritime.”
Cal Dive.
In
September 2000, Coflexip sold all of its 3,699,788 shares of
common stock of Cal Dive International Inc, a Houston-based
subsea contractor (“Cal Dive”), in a public
underwritten offering. Coflexip received cash proceeds of
approximately
€
214.0 million
and recognized in its 2000 earnings a capital gain of
€
167.4 million
before tax and
€
128.7 million
after tax.
96
Peerless.
On
October 25, 1999, Coflexip paid
U.S. $11.3 million for additional shares of Peerless
Shipping and Oilfield Services Ltd to increase its holding from
8.4% to 58.2%. Peerless Shipping and Oilfield Services Ltd,
which subsequently changed its name to Seamec, is an Indian
company listed on the Indian Stock exchange, operating
multi-support vessels for subsea services.
Coflexip Results of Operations
Coflexip Results of Operations for the Year
Ended December 31, 2001 Compared to
the Year Ended December 31,
2000
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Coflexip Operating revenues
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Net operating revenues of Coflexip increased
78.0% to
€
1,898.8 million
in 2001 compared with
€
1,064.6 million
in 2000. This jump comes primarily from the newly acquired
Deepwater Division which contributed
€
661.0 million
or 35.0% of the total net operating revenues for 2001. Over the
same period, the revenues of Coflexip excluding the Deepwater
Division increased by 16%, demonstrating a steady increase in
SURF (or subsea, umbilicals, risers and flowlines) activities
throughout Coflexip’s North Sea and Rest of World regions.
This increase was partially offset by decreases in operating
revenues in Brazil and Asia Pacific. In Brazil, there was a
decrease in sales of flexible risers manufactured in such
country due to the accident in Petrobras’
platform P-36. Additionally, the postponement by clients of
new floater tenders in the Gulf of Mexico reduced revenue
opportunities during this period.
The Deepwater Division contributed
€
661,0 million
to sales in 2001 across all geographic zones, equivalent to 35%
of the Coflexip group’s sales for the year. Contributing
factors to the Deepwater Divisions 2001 sales included the
Nansen and Boomwang (Kerr McGee), Horn Mountain (BP Vastar
Resources) and Holstein (BP) contracts for the engineering and
construction of SPAR production platforms. The Deepwater
Division’s construction activities, however, were slower
than originally expected despite the contributions of its
contracts Blake (Talisman Energy) in the United Kingdom, and
Combisa (PEMEX), Vastar Process Deck (BP) and Brutus (Shell) in
the United States.
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Sales by Geographic Zone (not including
Deepwater Division sales)
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North Sea.
The
Coflexip group generated 33% of its annual sales (excluding the
contribution of the Deepwater Division), or
€
620,0 millions,
in the North Sea, compared to
€
506,8 million,
or 48% of its sales, in 2000. This 22% increase in activity
levels is chiefly linked to an increased contribution from the
British sector and a general increase in umbilical sales
throughout the zone, partially offset by a weakening of sales in
the Norwegian sector.
The British sector’s increased activity in
2001 was principally due to increased sales from integrated
contracts, where the main contracts in 2001 were Blake (British
Gas), Nuggets (ABB), Kinsale (Marathon), Elgin/Franklin (ETPM
and TotalFinaElf), Otter (TotalFinaElf), Kestrel (Shell), Davy
(BP), Maureen (Aker Maritime) and Hoton (BP).
Notwithstanding the increased contribution from
integrated contracts, sales in the Norwegian sector in 2001
experienced a slight decline compared to 2000, a year which was
marked by the substantial contribution of flexible pipe sales on
the Asgard field development project (STATOIL). The principal
integrated contracts contributing to sales in the Norwegian
sector include Ringhorne (ESSO), Tambar (BP), Snorre B (STATOIL)
and Huldra (STATOIL).
Brazil.
The Coflexip
group (excluding the Deepwater Division) generated approximately
9% of group sales, or
€
176.3 in
Brazil in 2001, an 11% decline over 2000 sales of
€
197.0 million,
or 18% of the total. The principal factor contributing to
reduced sales was the slowdown in sales of flexible pipe
following the capsizing of the P-36 platform in Brazilian
waters. In addition, the decommissioning of Coflexip’s
vessel Flexservice 1 in December 2000 contributed to a
decline in revenues from chartering to Petrobras compared to
2000 notwithstanding a consistently high utilization rate of
Sunrise 2000.
97
Subsequent to the accident on Petrobras’
platform P-36, the timetable for the Roncador contract was
pushed back, and deferring to 2002 revenues originally expected
in 2001. These revenues are principally linked to the
manufacturing and installation of flexible pipe.
Asia Pacific.
Coflexip generated sales of
€
78,2 million
from Asia Pacific in 2001, or 4% of total group sales (excluding
the Deepwater Division), a decline of 7% from sales in 2000,
which amounted to
€
84,4 million,
or 8% of the group total. This decline is due chiefly to the
decreased number of integrated contracts in the region. In 2001,
our principal contracts in Asia Pacific included Legendre
(Woodside), Bongkot (Technip) and Echo Yodel (Woodside).
Rest of the World.
Coflexip’s sales in 2001 from the
Rest of the World amounted to
€
363,4 million,
or 19% of the group total. This increase of 31% over sales of
€
276,4 million
in 2000, or 26% of the group total, was principally the result
of strong growth of integrated contracts in the Gulf of Mexico
including Banjo/ Seahawk (Williams), Nile (BP) and Typhoon
(Chevron) as well as continued progress in sales of umbilicals
in the Rest of the World. The level of activity in West Africa
also contributed to the increase, notably due to the
Kuito 1C (CABGOC) project in Angola. The group was also
active in the Netherlands with the K1A contract for ELF
Petroland, Q4/P6 for Clyde and Hanze F2A for VEBA Oil and
Gas. Partially offsetting these successes, sales in Canada were
significantly lower than the preceding year reflecting the
substantial contribution of the Terra Nova contract in 2000.
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Coflexip Operating income and Earnings
Before Interest, Tax, Depreciation and Amortization/
EBITDA
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In 2001, Coflexip had an operating loss of
€
51.6 million
compared to operating income of
€
108.9 million
in 2000, a significant decrease mainly due to a non-recurring
€
142.6 million
goodwill amortization charge from the acquisition of the
Deepwater Division, losses of
€
27.3 million
associated with a Deepwater Division project for the
refurbishing of a drilling rig and one time expenses of
approximately
€
10.2 million
incurred in relation to the tender offer launched by Technip on
Coflexip in July 2001. Excluding the non-recurring amortization
charge, Coflexip’s operating income rose 17% to
€
91.0 million
in 2001.
Coflexip’s EBITDA increased 9.2% from
€
203.7 million
in 2000 to
€
222.5 million
in 2001 as a result of the increased level of activity taken on
with the Deepwater Division acquisition. As a percentage of
revenues, however, EBITDA declined to an EBITDA margin of 11.7%
in 2001 compared to a margin of 19.1% in 2000, largely as a
result of the non-recurring events described in the preceding
paragraph and Deepwater Division’s lower average margins.
The EBITDA of Coflexip excluding the Deepwater Division remained
essentially stable at 18.2% in 2001. Excluding only general
corporate expenses, EBITDA increased 11.3% from
€
245.3 million
in 2000 to
€
273.1 million
in 2001.
The Deepwater Division contributed negative
EBITDA of
€
0.3 million
in 2001, chiefly as a result of significant cost overruns on a
contract for the repair of a drilling rig resulting in a
€
27.3 million
loss. The Deepwater Division’s EBITDA was also negatively
affected by weak demand for manufacturing at its yards in the
United States and the United Kingdom, as well as sales costs
tied to the ramping up of commercial activities in the Gulf of
Mexico. These negative factors were partially compensated by the
strong performance of the Deepwater Division’s engineering
businesses, particularly in FEED contracts and SPAR platform
projects.
EBITDA by Geographic Zone (not including
Deepwater Division EBITDA)
North Sea.
Coflexip
generated EBITDA of
€
154.1 million
in the North Sea in 2001 (an EBITDA margin of 25%),
€
22.5 million
higher than EBITDA of
€
131.6 million
in 2000 (an EBITDA margin of 26%). This increase is mainly
explained by EBITDA growth in the Norwegian sector, partially
offset by pressure on EBITDA in the British sector from
competition and bad weather conditions. Operating results in the
North Sea were positively affected by the increased sales
volumes of umbilicals, the improved profitability of the Trait
factory and a high rate of capacity utilization of our
construction vessels.
Brazil.
Coflexip
generated EBITDA of
€
62.1 million
in Brazil in 2001 (EBITDA margin of 35%), an increase over 2000
EBITDA of
€
58.0 million
(EBITDA margin of 29%). The improved EBITDA margin reflects
98
the significant increase in sales of flexible
pipe manufactured at the Trait factory compared to 2000. This
improvement was slightly offset by a decline in the volumes of
Brazilian-manufactured flexible pipe sold in 2001 following the
capsizing of Petrobras platform P-36 in March 2001.
Notwithstanding the decommissioning of Flexservice 1 in
December 2000, the high rate of capacity utilization on Sunrise
during 2001 allowed this region to generate increased EBITDA
from charter contracts to Petrobras.
Asia Pacific.
The
Asia Pacific region contributed EBITDA of
€
19.3 million
(EBITDA margin of 25%) in 2001, a decrease of 16% compared to
EBITDA of
€
22.9 million
(EBITDA margin of 27%) in 2000. The decrease in integrated
contracts in this region in 2001 was partially offset by the
favourable outcome of several contract disputes concerning
projects completed in earlier periods. EBITDA in 2000 had
benefited from a
€
7.2 million
contribution to EBITDA from a project executed prior to 2000.
Rest of World.
Coflexip generated EBITDA of
€
40.7 millions
in 2001 from its Rest of the World zone (EBITDA margin of 11%)
up from
€
32,8 million
in 2000 (EBITDA margin of 12%). This increase is principally due
to the increased activity on integrated contracts and umbilical
sales in the Gulf of Mexico. The high rate of capacity
utilization of our construction fleet in this zone also
contributed to the improved results in 2001. These positive
factors were partially offset by technical difficulties and
weather-linked delays on two projects in Africa and the
Netherlands.
General corporate expenses increased in 2001 to
€
50.6 million
compared to
€
41.5 million
in 2000 due to the non-recurring expense of
€
10.2 million
related to our exchange offer for Coflexip shares.
Depreciation and amortization expense more than
doubled from
€
94.9 million
in 2000 to
€
274.1 million
in 2001. This increase resulted principally from the goodwill
amortization charge of
€
165.8 million
from the purchase of the Deepwater Division (of which
€
142.6 million
constitutes a non-recurring goodwill amortization charge taken
after a re-evaluation of this investment based on estimated
future cash flows).
Excluding amortization of acquisition goodwill,
amortization and depreciation amounted to
€
103.7 million
in 2001, compared to
€
90.7 million
in 2000. This 14% increase results principally from amortization
and depreciation charges related to the Deepwater
Division’s operations and the first amortization charges
related to
CSO Deep Blue
of which Coflexip took delivery
in 2001. The 2000 depreciation and amortization included a
charge to reflect the adjusted value of certain assets,
including a charge of
€
5.2 million
related to the vessel Flexservice 1 and additional charges of
€
6.0 million
related to other industrial assets.
Selling, general and administrative expenses
increased 56.5%, or
€
58.9 million,
to
€
163.2 million
in 2001, compared with
€
104.3 million
in 2000. This increase results principally from the contribution
of the Deepwater Division and
€
10.2 million
in non-recurring expenses related to our exchange offer for
Coflexip shares.
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Coflexip Financial result, non-recurring
items and equity income of investees
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The financial result (net interest income plus
foreign exchange gain/loss) amounted to a net loss of
€
10.0 million
in 2001 compared with a net income of
€
19.6 million
in 2000.
Interest expense increased by
€
21.9 million
from
€
11.7 million
in 2000 to
€
33.6 million
in 2001, mainly because of the debt Coflexip incurred and
assumed in connection with its acquisition of the Deepwater
Division. Coflexip’s interest expense benefitted from a
lower interest rate environment.
Interest income amounted to
€
22.3 million
in 2001, representing a 27.4% decrease over the
€
30.7 million
earned in 2000, resulting principally from decreased cash
balances due to financing activities tied to the purchase of the
Deepwater Division and significant capital investments.
Financial income in 2001 included non-recurring income of
€
0.3 million,
compared with
€
2.0 million
in 2000 resulting from a debt repurchase below par in Brazil.
Capital gains in 2001 were not significant. In
2000, Coflexip made a capital gain of
€
10.4 million
from the sale of the
CSO Installer
and of
€
167.4 million
from the sale of 3,699,788 shares of Cal Dive.
The contribution of equity investments to
Coflexip amounted to
€
(0.8) million
in 2001 compared with
€
2.7 million
in 2000, which reflects the contribution by Cal Dive during
the first three quarters of 2001.
99
The tax charge for the full year 2001 amounted to
€
42.8 million,
on a loss before taxes of
€
62.6 million.
The tax rate for 2001 was significantly affected
by charges to goodwill amortization due to acquisitions which
were not tax deductible. Excluding the impact of these charges,
the adjusted effective tax rate amounted to 39.6% in 2001
compared to 27.8% in 2000. The effective tax rate in 2000 also
reflects the depreciation of certain differed United States
taxes.
The effective tax rate for 2000 was favorably
influenced by the imposition of a lower tax rate applicable to
the capital gains obtained from the sale of
CSO Installer
and the Caldive shares. Excluding the
influence of these factors, the effective tax rate for 2000 was
33.4%
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Coflexip Net Income (Loss)
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Coflexip had a net loss for 2001 of
€
105.3 million
compared with net income of
€
222.7 million
in 2000, a decrease of
€
328.0 million.
Excluding the non-recurring charges related to losses associated
with a drilling rig contract
(
€
19.4 million),
expenses related to our exchange offer for Coflexip shares
(
€
6.5 million)
and the goodwill amortization related to the purchase of the
Deepwater Division
(
€
142.6 million),
net income for 2001 would have been
€
63.2 million.
Excluding such non-recurring items and goodwill amortization,
net income for 2001 would have been
€
91.1 million
compared to net income for 2000 excluding non-recurring items
(capital gains associated with the sale of the
CSO Installer
and the Caldive shares) and goodwill
amortization, of
€
92.8 million.
Coflexip Results of Operations for the Year
Ended December 31, 2000 Compared to
the Year Ended December 31,
1999
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Coflexip Operating revenues
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Net operating revenues of Coflexip increased 4.7%
to
€
1,064.6 million
in 2000 compared with
€
1,017.0 million
in 1999. This increase reflects increased levels of activity in
Brazil due to the strong recovery of sales to Petrobras of
flexible pipe manufactured in Brazil and in France and to the
favorable impact of the depreciation of the Euro, partly offset
by a decrease of activity in Asia Pacific (mainly due to lower
integrated contracting activity in 2000 compared to 1999, which
had benefited from the contribution of major integrated
contracting projects such as Blackback (Esso), Laminaria/
Corallina (Woodside) and Kingfish (Esso)), the North Sea and the
Rest of the World (activity in West Africa decreased in 2000
compared to the high level achieved in 1999, which had benefited
from the contribution of major integrated contracting projects
such as Kuito 1A/IB (Cabgoc) in Angola and Zafiro Gaslift
(Mobil) in Equatorial Guinea).
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Coflexip Operating income and Earnings
Before Interest, Tax, Depreciation and
Amortization/EBITDA
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In 2000, operating income decreased 21% from
€
136.9 million
in 1999 to
€
108.9 million,
mainly due to generally harsher market conditions in all
regions, except in Brazil where market conditions have
significantly improved compared with 1999. The harsher market
conditions in the North Sea resulted partly from growing
competitive pressure on prices in the U.K. sector throughout
2000, as well as from the lower contribution of the Le Trait
plant due to decreased flexible pipe supply sales in the North
Sea (partially compensated in 2000 by a higher utilization level
of Coflexip’s fleet in the sector combined with the
successful conclusion of various commercial disputes related to
projects executed in previous years). In Asia Pacific, there was
a decline of integrated contracting activity in 2000. Decline in
margins in the Rest of the World are attributed primarily to the
decline of activity in West Africa compared to the high level
achieved in 1999 combined with the lower contribution of the
Le Trait plant due to decreased flexible pipe sales in the
Rest of the World area.
Coflexip’s EBITDA decreased 8.9% from
€
221.8 million
in 1999 to
€
203.7 million
in 2000 as a result of the decrease in margins in oil
activities, except in Brazil where activity has significantly
increased compared to 1999. Excluding general corporate
expenses, EBITDA decreased 7% from
€
263.5 million
in 1999 to
€
245.3 million
in 2000.
100
General corporate expenses remained stable in
2000 at
€
41.5 million
in 2000 compared to
€
41.7 million
in 1999.
Depreciation and amortization expense increased
12%, or
€
10.0 million,
from
€
84.9 million
in 1999 to
€
94.9 million
in 2000. This increase resulted principally from the
non-recurring depreciation charge of
€
5.2 million
recorded in 2000 on
FlexService 1
equipment by
adjusting their net book value to fair market value. In
addition, an impairment loss of
€
6.0 million
was recorded on some industrial assets to reflect estimated fair
value.
Selling, general and administrative expenses
decreased 1%, or
€
0.9 million,
to
€
104.3 million
in 2000, compared with
€
105.2 million
in 1999. This decrease results principally from Coflexip’s
efforts to decrease such costs, partly offset by the impact of
newly acquired subsidiaries and the depreciation of the Euro
against currencies in which a substantial part of
Coflexip’s expenses are incurred.
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Coflexip Financial result, non-recurring
items and equity income of investees
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The financial result (net interest income plus
foreign exchange gain/loss) amounted to a net income of
€
19.6 million
in 2000 compared with a net income of
€
0.6 million
in 1999.
Interest expense decreased by 35.4% from
€
18.1 million
in 1999 to
€
11.7 million
in 2000, mainly because Coflexip’s convertible notes ceased
to bear interest in July 1999, following Stena International
B.V.’s decision to convert them into shares combined with
an improved cash position in Brazil throughout 2000 compared to
1999. These favorable elements were partly offset by the
depreciation of the Euro against currencies in which a
substantial part of interest expenses are recorded, combined
with the increased contribution of Seamec, which was
consolidated only from October 1999.
Interest income amounted to
€
30.7 million
in 2000, representing a 46.2% increase over the
€
21.0 million
earned in 1999, resulting principally from a significant
improvement of Coflexip’s overall cash position and higher
interest rates in Euro. Financial income in 2000 included
non-recurring income of
€
2.0 million,
compared with
€
2.8 million
in 1999, resulting from the repayment, at a steep discount, of
certain Brazilian debt. Net foreign exchange gain amounted to
€
0.7 million
in 2000 compared with a
€
2.4 million
loss recorded in 1999, which was mainly due to the negative
impact of the devaluation of the Brazilian currency in January
1999.
In January 2000, a capital gain of
€
10.4 million
was recorded on the sale to a third party of CSO
Installer
, a flexible pipe laying vessel. In September
2000, a capital gain of
€
167.4 million
was recognized on the sale of all 3,699,788 shares of common
stock of Cal Dive owned by Coflexip at a price of
U.S. $52.625 per share.
The contribution of equity investments to
Coflexip amounted to
€
2.7 million
in 2000 compared with
€
2.6 million
in 1999 representing the contribution of Cal Dive after
goodwill amortization for the first three quarters of 2000.
The tax charge for the full year 2000 amounted to
€
85.8 million,
representing an effective tax rate of 27.8%. The reduction in
the 2000 tax rate from 36.2% in 1999 results principally from
the favorable impact of capital gains recognized on the sale of
CSO Installer
and the Cal Dive shares. In both years,
however, the effective tax rate was adversely affected by the
non-deductible additional depreciation charge resulting from the
revaluation of the Stena Offshore vessels and the non-deductible
amortization of the residual goodwill recorded on the purchase
of Stena Offshore. In addition, the contribution of equity
investments is presented after tax. Excluding the impact of
these items, the adjusted effective tax rate amounted to 33.8%
in 2000.
Net income for 2000 amounted to
€
222.7 million
compared with
€
89.6 million
in 1999, an increase of
€
133.1 million.
Excluding the impact of capital gains recorded on the sale of
the
CSO Installer
and the Cal Dive shares
(
€
128.7 million),
net income for 2000 would have been
€
83.6 million,
a decline of 7% compared to 1999 net income.
101
Technip-Coflexip Cash Flows
Cash flow from operating activities.
We recorded positive cash flow from
operating activities in 2001 of
€
112.0 million,
compared to negative cash flow from operating activities of
€
(186.6)
million in 2000.
Operating cash flow before changes in working
capital requirements was
€
213.2 million
in 2001, compared to
€
116.1 million
in 2000. In 2001, amortization and depreciation of tangible and
intangible assets (including goodwill) totaled
€
110.9 million,
compared to
€
43.0 million
in 2000. The increase in amortization and depreciation is mainly
due to the increased amortization of tangible assets (pipelaying
vessels, plants and facilities) in the fourth quarter due to the
full consolidation of Coflexip after the business combination,
and to a lesser extent due to increased amortization of goodwill
resulting from acquisitions.
Cash flow from operating activities deducts
income of equity affiliates (net of dividends) from net income,
a deduction of
€
7.5 million
in 2001 compared to a deduction of
€
61.1 million
in 2000. The decrease in 2001 is almost entirely due to the
reduced net earnings of Coflexip during the first three quarters
of 2001 (the period for which we accounted for Coflexip using
the equity method) compared to the prior year, where earnings
benefited from a one-time gain upon sale of Coflexip’s
interest in CalDive. Cash flow from operating activities also
deducts gain on disposal of fixed and financial assets, which
was
€
2.8 million
in 2001, compared to
€
82.4 million
in 2000. The principal source of gain upon disposal in 2000 was
our sale of our interest in Cogema.
Changes in working capital requirements had a
negative impact of
€
(101.2)
million in 2001 compared to a negative impact of
€
(302.7) million
in 2000.
Cash flow from investing activities.
Net cash used in investing activities
was
€
660.3 million
in 2001, compared to
€
419.8 million
in 2000. Total capital expenditures on intangible assets,
property, plant and equipment, and cash paid for acquired
businesses were
€
1,106.9 million
in 2001, compared to
€
702.2 million
in 2000. The significant item in 2001 was the acquisition of
5,000,000 shares of Coflexip for cash in October 2001 (total
consideration of
€
1,040 million
and related expenses of
€
40 million)
in the context of the business combination.
Proceeds from the disposal of fixed assets and
investments amounted to
€
213.8 million
in 2001 compared to
€
176.3 million
in 2000. The principle contribution in 2001 was the sale of
substantially all of ISIS’s assets (other than shares of
Coflexip, Compagnie Générale de Géophysique and
us) to IFP for total consideration of
€
205 million
subsequent to our acquisition of ISIS in October 2001
through an exchange offer conducted in the context of the
business combination.
Cash increase from changes in scope of
consolidation represents the cash balances of companies acquired
or disposed of, measured as of the date of acquisition or
disposal and was
€
232.8 million
in 2001 and
€
42.8 million
in 2000. These amounts represented cash acquired through the
business combination in the amount of
€
241.5 million,
partially offset by
€
12.3 million
deconsolidated upon our disposal of our subsidiary Chemoprojekt.
Cash flow from financing activities.
Net cash provided by financing
activities totaled
€
763.4 million
in 2001 compared to
€
126.0 million
used in financing activities in 2000. This change mainly
resulted from our financing of the purchase of 5,000,000
Coflexip shares in the business combination through a credit
facility initially drawn in the amount of
€
1,030 million.
At December 31, 2001, the amount drawn under this facility
was
€
944 million.
Other cash used in financing activities resulted
from our payment of a dividend in the aggregate amount of
€
50.9 million
based on 2000 operating results.
Cash flow from operating activities.
We recorded negative cash flow from
operating activities in 2000 of
€
186.6 million,
compared to positive cash flow from operating activities of
€
207.7 million
in 1999.
102
Operating cash flow before changes in working
capital requirements was
€
116.1 million
in 2000, compared to
€
148.6 million
in 1999. In 2000, amortization and depreciation totaled
€
43.0 million,
compared to
€
31.8 million
in 1999. The increase is mainly due to the additional goodwill
amortization recorded from our acquisition of Coflexip in April
2000.
Income of equity affiliates of
€
61.1 million
was deducted from net income in 2000 compared to a deduction of
€
0.8 million
in 1999. The increase in 2000 is almost entirely due to our
interest acquired in Coflexip which accounted for
€
60.0 million
(including
€
39.0 million
of non-operating revenues) in 2000. The gain on disposal of
fixed assets was
€
82.4 million
in 2000, compared to
€
5.0 million
in 1999. The increase in this item in 2000 was mainly related to
our sale of Cogema shares.
Changes in working capital requirements had a
negative impact of
€
302.7 million
in 2000 compared to a positive impact of
€
59.1 million
in 1999. This change corresponded to the reversal of current
provisions for
€
124.5 million
in 2000, due to restructurings in our subsidiaries KTI and MDEU
and the end of different contracts acquired in the beginning of
1999 from Mannesmann in the same subsidiaries compared to
€
3.8 million
in 1999. The working capital requirement change was also
impacted by the increase in contracts in progress (net of
progress payments on contracts) of
€
224.8 million,
principally as a result of extra costs on contracts in Venezuela
due to social unrest, difficult contracts in our subsidiaries
KTI and MDEU, and to larger cash positions on several contracts
due to favorable terms of payment in 1999, compared to the
relatively stable position (positive cash flow of
€
24.8 million)
in 1999.
Cash flow from investing activities.
Net cash used in investing activities
was
€
419.8 million
in 2000, compared to
€
23.2 million
in 1999. Total capital expenditures on intangible assets,
property, plant and equipment, and cash paid for acquired
businesses were
€
702.2 million
in 2000, compared to
€
109.8 million
in 1999. The significant items in 2000 were the purchase of a
29.7% interest in Coflexip for
€
659.7 million
and
€
21.7 million
for a 50% interest in Krebs-Speichim. In addition, in 2000 we
received a reimbursement of
€
63.3 million
from Mannesmann on the purchase price from the acquisition of
KTI/MDEU as a result of an arbitration decision.
Proceeds from disposal of fixed assets and
investments amounted to
€
176.3 million
in 2000 compared to
€
9.9 million
in 1999. The principle contribution in 2000 was the sale of our
3.2% interest in Cogema for
€
151.6 million.
Cash increase from changes in scope of
consolidation represents the cash balances of companies acquired
or disposed of, measured as of the date of acquisition or
disposal and was
€
42.8 million
in 2000 and
€
140.0 million
in 1999. These amounts represented the cash balances acquired on
the acquisition of Krebs Speichim in 2000 and KTI/MDEU in 1999.
Cash flow from financing activities.
Net cash provided by financing
activities totaled
€
126.0 million
in 2000 compared to
€
64.9 million
used in financing activities in 1999. This change mainly
resulted from an increase in short-term debt of
€
190.0 million
in 2000, compared to
€
16.6 million
in 1999 in order to finance part of the negative cash flow from
operating activities.
Other cash used in financing activities resulted
from the repurchase of our own shares for
€
21.5 million
in 2000, compared to
€
20.2 million
in 1999 and from dividends paid of
€
45.9 million
in 2000 compared to
€
37.8 million
in 1999. Additionally, in 1999, a capital decrease of
€
19.7 million
occurred. No capital decrease occurred in 2000 while we received
cash flows from capital increases of
€
22.3 million
in 2000, compared to
€
12.5 million
in 1999.
At December 31, 2001, our net intangible
assets amounted to
€
2,713.4 million.
They consisted principally of
€
2,584.9 million
in goodwill resulting from acquisitions, of which
€
2,435.8 million
result from our acquisition of Coflexip. Our other net
intangible assets amounted to
€
128.5 million
as of the same date, and chiefly comprise our patents and
trademarks, as well as our e-procurement platform. At
December 31, 2000, our net intangible assets amounted to
€
591.9 million,
compared to
€
154.8 million
at the preceding year end, the difference being primarily
attributable to goodwill resulting from our initial minority
investment in Coflexip.
103
TECHNIP-COFLEXIP LIQUIDITY AND CAPITAL
RESOURCES
We estimate capital expenditures for our fiscal
year 2002 will approximate
€
140 million.
Our budgeted investments will be principally
(
€
120 million)
in the Offshore Segment.
We define our working capital requirement as the
sum of the following: “deferred bid costs (net)”,
“inventories”, “contracts-in-progress”,
“advances to suppliers”, “accounts and notes
receivables (net)”, “retirement indemnities”, and
“other current assets (net)”; less the sum of
“accrued liabilities (except the non-current
portion)”, “progress payments on contracts”,
“accounts and notes payable” and “other
creditors”. Our definition of working capital requirement
may not be comparable to the definition of working capital
requirement employed by other companies.
Our working capital requirement at
December 31, 2001 was
€
(695.7) million,
compared with
€
(648.0) at
December 31, 2000, and
€
(830.9) million
at December 31, 1999. The increase in working capital from
1999 to 2001 was primarily due to increased overall activity
levels and resulting operating cash flows. Our capital
expenditures and cash paid for acquired businesses for 2001 were
€
1,106.9 million,
compared to
€
702.2 million
in 2000, and
€
109.8 million
in 1999. The increase in 2001 was primarily due to the cash
payment to Coflexip shareholders in the tender offer. Net cash
flow from operating activities in 2001 was
€
132.0 million
compared to
€
(186.6)
million used by operating activities in 2000 and
€
207.7 million
provided in 1999. See “— Cash Flows” above.
In recent years, our cash flow before changes in working capital
requirements has been substantially positive and has generally
provided us the ability to fund growth internally. Our cash and
cash equivalents increased to
€
763.4 million
at the end of 2001 from
€
563.0 million
at the end of 2000. See “— Technip-Coflexip Cash
Flow”, above. Our cash on hand and access to other sources
of funds is sufficient to meet our anticipated operating and
capital expenditure requirements.
Contracts-in-progress, which represents the
aggregate value of all our work-to-date recorded under current
contracts (including turnkey and cost plus service contracts)
and includes all invoiced equipment, supply and labor costs as
well as a share of the estimated final contract margin,
increased to
€
6,313.6 million
at December 31, 2001 from
€
4,718.0 million
at December 31, 2000.
Contracts-in-progress are valued at cost and
include mainly turnkey or similar contracts. These contracts are
funded by partial payments invoiced to the customers. At
December 31, 2001, progress payments received on ongoing
projects amounted to
€
6,472.5 million
compared to
€
4,896.1 million
at December 31, 2000.
Our inventories and deferred bid costs at
December 31, 2001 amounted to
€
111.9 million
compared to
€
7.1 million
at December 31, 2000 and
€
4.6 million
at December 31, 1999. The increase in 2001 reflects the
inventory contribution of Coflexip
(
€
102.9 million)
notably with respect to its flexible piping and other
manufacturing activities.
Our total provisions amounted to
€
337.6 million
at December 31, 2001,
€
233.1 million
at December 31, 2000 and
€
269.8 million
at December 31, 1999, and provide coverage for contract
risks, risks associated with litigation, pension costs and
general business risks. We have unused multicurrency credit
lines of approximately
€
350 million
(
€
180 million
at December 31, 2001) at the reference rate for the drawn
currency plus 0.25%. We believe that these, together with cash
on hand and marketable securities, provide us with adequate
operating liquidity.
Shareholders’ equity at December 31,
2001, before incorporation of the profit for the year was
€
2,214.2 million,
compared to
€
766.4 million
at December 31, 2000. In total, shareholder’s equity
finances our fixed assets and provides a sound financial basis
for the group.
At December 31, 2001, non-current assets
amounted to
€
3,806.9 million.
Our fixed assets amounted to
€
982.3 million
at this date and consisted principally of our construction fleet
(
€
499.7 million)
and property used for office space and production. See
“Item 4. Information about
Technip-Coflexip — Property, Plant and Equipment”.
At December 31, 2001, our financial debt
amounted to
€
1,638.9 million,
of which
€
456.7 million
was short-term borrowings to optimize our treasury management.
€
184.5 million
of these short-term borrowings were in the form of a revolving
program of commercial paper having a maturity of less than three
months, and bore an
104
average rate of interest of approximately 4.3% in
2001. An additional
€
222.5 million
consisted of the current portion of long term debt incurred in
various of our past acquisitions. Refundable advances
represented substantially all of our remaining financial debt at
that date. Most of our financial debt at this date was
denominated in euro or in euro-zone currencies, although
approximately 26.4% of our financial debt was denominated in
dollars reflecting Coflexip’s financing of the acquisition
of the Deepwater Division from Aker Maritime. The non-current
portion of our long-term debt totaled
€
1,182.2 million
as of December 31, 2001.
At December 31, 2000 our total financial
debt amounted to
€
196.0 million,
of which the non-current portion of our long-term debt totaled
€
4.8 million.
At December 31, 1999 our total financial debt amounted to
€
21.8 million,
of which the non-current portion of our long-term debt totaled
€
6.8 million.
At both dates, substantially all of our financial debt was
denominated in euro or euro-zone currencies.
Our financial debt at December 31, 2001
reflects significant new financial debt that we incurred in
connection with the Coflexip exchange offer and the ISIS
exchange offer and an additional credit facility of
€
235 million.
Subsequent to the end of 2001, we reimbursed
€
793.5 million
of the principal amount of the acquisition financing using the
net proceeds of bonds convertible into new shares and/or
exchangeable for existing shares. The exchangeable/ convertible
bonds are in a principal amount of
€
793.5 million
with a 1% coupon and a 3.25% yield to maturity on
January 1, 2007 assuming no conversion or exchange. For
additional information regarding these bonds please see
Note 22(a) to our consolidated financial statements
included at “Item 18” of this report and the
documentation relating to the bonds filed as Exhibit 10.1
to this report. Our financial debt at December 31, 2001,
also reflects the consolidation of approximately
€
460.3 million
in financial debt carried on the balance sheets of Coflexip and
the Deepwater Division.
A review of our debt and equity should also
consider contractual obligations and commitments other than
those reflected directly on our balance sheet. These amounts
together with our balance sheet debt are summarized as of
December 31, 2001, in the table below.
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Payments due in
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Balance as of
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Contractual obligations
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year end 2001
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2002
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2003-2005
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After 2005
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(in
€
millions)
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Short Term Debt
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456.7
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456.7
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N/A
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N/A
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Long Term Debt
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1,182.2
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—
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596.4
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585.8
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Operating Leases
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224.0
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44.4
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99.3
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80.3
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Capital Leases
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6.6
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1.8
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4.8
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—
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Balance as of
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Other Commitments
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year end 2001
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Interest Swap
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122.0
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Foreign Exchange Contracts
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926.8
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Guarantees related to contracts
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1,558.1
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Parent guarantees to clients
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5,507.0
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At the same date, performance guarantees that we
received from our suppliers and subcontractors in relation to
contracts in progress amounted to
€
474.0 million.
Guarantees related to contracts
Guarantees related to contracts are mainly made
up of performance bonds, which usually not for the full amount
of the maximum theoretical contractual liability but are subject
to individual negotiation. Performance bonds would usually be
released partially upon delivery of the contract (provisional
acceptance by the customer), the reminder being released at the
final acceptance by the customer.
When circumstances arise that result in the
threat of calling a bond, then we seek to negotiate acceptable
alternative arrangements. Bonds are typically called when there
is no other remedy acceptable to our customer. Our experience to
date has been that bonds are very rarely called. In general, we
establish provisions to cover any anticipated loss that could
arise from our contractual obligations.
105
Parent guarantees to clients
Parent guarantees are given in the normal course
of the Group’s businesses by Technip-Coflexip Holding or
Coflexip SA to customers to cover the good performance of a
contract awarded to one of our subsidiaries. They would be
usually released at the end of the contract.
Other Material Financial Elements
Policies of the Organization of Petroleum
Exporting Countries could affect our operations or the
investments by our shareholders. Petroleum industry operations
and profitability are influenced by many factors some of which
our clients cannot control. Prices for crude oil and natural
gas, petroleum products and petrochemicals are determined by
supply and demand for these commodities. OPEC member countries
are typically the world’s swing producers of crude oil, and
their production levels are a major factor in determining
worldwide supply. For example, OPEC’s implementation of
production cutbacks to eliminate excess supply of crude oil for
world markets results in price increases of crude oil.
For information on how ILSA may affect our
operations or the investments by our shareholders, please see
“Item 4. Information about
Technip-Coflexip — Geographical and Segment Breakdown
of Not Sales and Backlog — Special Geographic
Considerations.”
106
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