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US: Bechtel's 2003 Revenue Breaks Company Record

by David R. BakerSan Francisco Chronicle
April 20th, 2004

Bechtel Corp., the San Francisco engineering giant rebuilding Iraq, today will report record revenue of $16.3 billion in 2003, reversing a three- year slide.

Buoyed by a string of lucrative deals around the globe, Bechtel almost set a record for the value of new work booked during the year, nearly hitting $21 billion.

Family-owned Bechtel doesn't trade on Wall Street and doesn't have to report its profit. In the firm's annual report, however, Bechtel executives called the company "solidly profitable" in 2003.

"With our global customer base and multiple business lines, we are well positioned to prosper as the world economy strengthens," the report reads in a statement credited to Chief Executive Officer Riley Bechtel and Chief Operating Officer Adrian Zaccaria.

Bechtel's work in Iraq has been the focus of international attention since last April, when the company landed a $680 million contract, later upped to $1.03 billion, to rebuild the country. That figure represents the full amount the government will spend on the contract, not the amount Bechtel will keep.

Other contracts signed during 2003 were even larger, including a $2.5 billion deal for a new airport in oil-rich Qatar.

"Iraq reflects a pretty small percentage of revenue," said spokesman Jonathan Marshall. He declined to state how much.

Bechtel's 2003 results put a halt to several years of declining revenue. After hitting $15.1 billion in 1999 -- the company's previous record -- revenue fell to $11.6 billion in 2002. The value of new work booked -- essentially, a reflection of new contracts -- peaked at $23.3 billion in 1999 before tumbling to $9.3 billion in 2001.

Bechtel's revenue figures represent money the company received for work performed. New work booked represents the long-term value of contracts signed in a given year, even if revenue from those contracts trickles in later.

New work booked started to rebound in 2002, climbing back to $12.7 billion.

The company's changing fortunes reflect the larger economy. When the U.S. economy stalled four years ago, foreign economies linked to America's drifted as well.

"Remember, it wasn't just the U.S. It was a global downturn," Marshall said. "Most of the world was slumping, and that affects our work."

Marshall also attributed some of the slide to the company's decision to pursue more projects with higher profit margins rather than trying to land every low-margin contract available.

The company's revenue in 2003 grew both inside and outside North America, although its overseas revenue grew at a faster rate. Revenue for North America grew 7.4 percent, from $9.07 billion to $9.74 billion, accounting for more than half of the company's revenue. But revenue for all other regions combined grew 158 percent, from $2.56 billion to $6.60 billion.

Bechtel isn't the only construction and engineering company to see similar swings in its revenue in recent years. Such firms make a living from large, long-running contracts that often change scope or direction during the course of the work. Income can vary wildly as a result, a reason Bechtel and some of its competitors choose to stay away from Wall Street.

Bechtel's competitors that are publicly traded, however, have endured several rocky years. Orange County's Fluor Corp., which also is working in Iraq, saw revenue drop last year to $8.8 billion, down 11.6 percent from the previous year's total of just under $10 billion. Washington Group International of Idaho also saw a drop in 2003, from $3.7 billion the previous year to $2.5 billion, or about 32 percent.

Many were hit by a slowdown in domestic construction of new power plants, said Stewart Scharf, an equity analyst with Standard & Poor's who covers Fluor.

"Throughout the (electrical plant) industry, it's been the worst downturn ever," said Scharf in an interview last month. Scharf does not own Fluor shares.

Marshall said Bechtel had been shielded from the worst effects of the electrical plant slump by building more overseas.

The company expects more plants to be built in the United States, he said. Future revenue growth also could come in the mineral industry, with Bechtel building aluminum smelters in Iceland and Bahrain. The company also will pursue more business in China, one of the few parts of the world to enjoy steady growth in recent years.




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